Are the Rich Necessary? · Lesson four
Line up everybody in the country by what they earn, then look
The first three questions were about whether the rich are needed, whether they can be outvoted, and what profit is for. This one skips all of that. It takes the gap as given and asks a plainer question: is a gap this size something to put up with?
An illustration of the shape rather than a measurement of any one country, and the last bar is cut off at the top of the panel in almost every country you could draw it for. Both cases in this lesson are looking at this picture. Neither of them disputes it.
One side looks at the shape and sees something that should not be allowed to stand, whatever produced it. The other side asks what the picture would have to be replaced with, and whether the replacing could be done at all. Notice that the second is not an answer to the first.
Should we accept inequality?
His chapter ten says no. His chapter eleven says yes. Both are short, both rest on a single claim, and the argument between them runs much longer than either. Open both.
The case for no
One claim, and it is not about economics at all
Putting aside purely economic considerations, living with others on a share-and-share-alike basis is simply a better way to live
The proposal here is not one of state control of the economy. That was attempted in Russia and elsewhere during the twentieth century and was not a success.
The proposal is rather one of decentralization; of small scale rather than large scale; of many warm, sharing human communities rather than a single collectivity.
There are examples from the past as well as the present to draw upon for a smaller, more human-scaled equalitarianism. An economic textbook describes the Zuni people of the American Southwest during the 1920s as one model to follow:
“The family . . . comprising as many as twenty-five persons . . . was the main organizational unit of . . . economic life. . . . In sharp contrast to the American economy, there was a general absence of acquisitiveness and competition. . . . To some extent, these transfers equalized the levels of living among the families of the tribe, preventing the extremes of poverty and great wealth.”
R. Martin and R. Miller, Economics53
The Israeli kibbutz represents an even more intentional model of shared living, since kibbutz members join voluntarily and share everything as completely as possible on principle. In the early days before the formation of the State of Israel, this shared life was very hard. Malaria and dysentery had to be overcome, along with the harshest privations: cloth sacks stitched together for clothing, primitive communal privies, endless manual labor, three glasses to be shared by an entire community, as described by Prime Minister Golda Meir in her memoirs. Today the harshness is gone, but the ideal of a shared life remains.
The struck-through cell is the one this side is not asking for, and it says so first, before making any other claim. That is what the word decentralization is doing in the second sentence.
An important manual of small-scale equalitarianism in Britain, America, India, and elsewhere is economist E. F. Schumacher’s inspiring little book Small is Beautiful. Schumacher was a sensible, practical man who felt that people should simplify and downscale their life wherever possible without indulging in grandiose or utopian fantasies. He recognized that the greatest obstacle to human peace and happiness was not institutional arrangements per se, but the “greed, envy, hate, and lust”54 within all of us. But he did think that large disparities of wealth inflamed both greed and envy, and he warned about the violence that rampant consumerism does to our soul:
“I suggest that the foundations of peace cannot be laid by universal prosperity, in the modern sense, because such prosperity, if attainable at all, is attainable only by cultivating . . . drives . . . which destroy intelligence, happiness, serenity, and thereby the peacefulness of man.”
E. F. Schumacher55
This is unusual for an argument about money, and worth pausing on. The man whose book is the manual for this side says the real trouble is not institutional at all. He wants the gap closed anyway, because of what he thinks a large gap does to the people either side of it.
A director of the E. F. Schumacher Society, Satish Kumar, a former monk, added: “. . . we are realizing, after 200 years of industrial revolution, that we have gone too far in one direction. We need to bring some kind of balance between the spiritual and the material.”56
Spirituality, peacefulness, even pacifism are ever-present threads in the fabric of contemporary small-scale equalitarianism. President Luiz Inacio (“Lula”) da Silva of Brazil spoke for most equalitarians when he told a meeting of the Socialist International in 2003 that “The only war we should be waging is against hunger and inequality. That’s a war worth fighting.”57
And 2004 US Democratic Party presidential primary candidate Dennis Kucinich made a similar point by proposing the creation of a federal “Department of Peace, which would seek to make non-violence an organizing principle in our society and to work with the nations of the world to make war itself archaic.”58
In addition to spirituality, nonmaterialism, and peacefulness, ecology and environmental protection have also emerged as important themes of most small-scale equalitarian thinking. Thus the website of Twin Oaks, an intentional community near Charlottesville, Virginia, states that: “Since the community’s beginning in 1967, our way of life has reflected our values of cooperation, sharing, nonviolence, equality, and ecology.”
All of this is in the most marked contrast to the old, Marxist, large-scale equalitarian ideology of the past, which specifically attacked spirituality and nonmaterialism, rationalized violence and aggression, and left the most horrendous environmental depredations.
The old, Marxist version
- Ran a whole state
- Attacked spirituality
- Rationalized violence
- Left the worst environmental damage anywhere
The small-scale version
- Runs a community you can walk across
- Spiritual, and often pacifist
- Nonviolence as the organizing idea
- Ecology near the center of it
Read the columns from top to bottom and they are opposites on every line except the first. If you already had an opinion about equalitarianism, it is worth checking which column you were arguing with.
Words to know
- Equalitarianism
- His word for the belief that economic outcomes should be equal, or much closer to equal than they are.
- Equality of outcome
- Everybody ends up with roughly the same. What this side is asking for.
- Equality of opportunity
- Everybody starts with roughly the same chance, and may end up anywhere. The other side says you cannot have both.
- Intentional community
- A group who choose to live together under rules they agree on, like a kibbutz or Twin Oaks. Joining is voluntary and so is leaving.
Read this side in its own words
These are written by people who make this argument, not by their opponents.
Called the manual for this side in the chapter itself, and quoted twice. Short chapters, no jargon, and closer to a book about how to live than a book about economics.
Quoted in the resolution at the foot of this page. The book that put American poverty back in front of people who had stopped seeing it.
Her memoirs, and the source of the three glasses shared by a whole community. What the shared life was actually like before it was comfortable.
The case for yes
One claim, and it begins by conceding half of the other one
Small-scale equalitarianism is a vast improvement over the large-scale, state-run alternative. But there are reasons to doubt its practicality
Indeed, large-scale equalitarianism is really a contradiction in terms. If sharing is statewide, it must be enforced. To be enforced, some individuals must be entrusted with police powers. If some people have police powers and others do not, how is that equal? It is simply an inequality of power rather than of money, and will soon mutate into an inequality of money as well, as it did in Communist Russia.
Four steps and you are back where you started, holding a different kind of gap. This is the argument he calls a contradiction in terms, and the No case had already given it up in its opening sentence.
This is why the French Revolutionary slogan “liberty, equality, fraternity” is nonsensical. Liberty and equality are logical opposites. If people have liberty, they will become unequal. Even if government denies liberty to safeguard equality, equality will not last.
A country decides what it cares about most
The claim is not that equality is undesirable. It is that the two words in the slogan are pulling against each other, so a country cannot simply have both by saying both.
Small-scale equalitarianism is not illogical in the way that large-scale, state-run equalitarianism is. But there are reasons to doubt its practicality. The ancient Greek philosopher Aristotle pointed out that a share-and-share-alike approach to cooperation generally leads to conflict, because members of the group will not all work as hard, or will have sincere differences about the balance of work and leisure, either of which may lead to quarrels. From this point of view, an approach to cooperation that emphasizes independence, self-reliance, and reciprocal exchange will ultimately produce more friendship and mutual assistance.
In addition, if people are going to be quarrelsome about work or possessions, it is surely better to channel this aggression into prescribed forms of mutual exchange-based competition. As Samuel Johnson said, “There are few ways in which a man can be more innocently employed than in getting money.”59
John Maynard Keynes made the same point:
“Dangerous human proclivities can be canalized into comparatively harmless channels by the opportunities for money-making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandizement. It is better that a man should tyrannize over his bank balance than over his fellow-citizens.”
John Maynard Keynes60
People are competitive, and that is not going away
Note who is speaking. Keynes is quoted on the other side of this same question a few paragraphs later, calling the system arbitrary and inequitable. Both quotations are his, and he meant both.
Opponents of equalitarianism generally take a “harder” rather than a “softer” line on a given social subject, and thus regard the small-scale equalitarian faith in Gandhian non-violence as a hopelessly utopian path to world peace. For example, here’s what Joseph Alsop, leading political columnist after World War Two and an individual thoroughly grounded in ideals of independence and self-reliance, thought about the idea of unilateral disarmament or even military weakness:
“What do we need in America to endure? It isn’t enough to say that we are very numerous, or that we are vastly rich in proportion to everyone else in the world. Being that rich simply makes us a target, if you think about it. Everybody else would like to divide up our goods. They’d like to chew us up like a dead whale on a beach, if we’d let them do it. And I have the warmest sympathy for that desire. It is perfectly understandable, and we mustn’t complain about it.”
Joseph Alsop61
Words to know
- Liberty
- Being left to decide things for yourself. The claim on this side is that it and equality of outcome cannot both be had in full.
- Police powers
- The authority to make somebody comply. The step this side says any country-wide sharing scheme cannot avoid.
- Reciprocal exchange
- I do something for you, you do something for me, and we both keep count. Offered here as the alternative to sharing, and as the friendlier one.
- Utopian
- Describing a plan that would work beautifully if people were different from how they are. The sharpest thing either side says about the other.
Read this side in its own words
The authors this chapter quotes, at length.
The source of both the Johnson and the Keynes quotations in this chapter. Bauer spent his career arguing that poor countries are made poorer by the schemes meant to save them.
Quoted at the end of this chapter. The memoirs of a columnist who spent forty years arguing that the world is more dangerous than nice people think.
Where the objection to share-and-share-alike is first made, and made without a word of economics: some people will not work as hard, and then there will be quarrels.
And the book this comes from
These three chapters, and seven more questions, at full length.
Behind this lesson is a question the economics cannot settle: how anybody decides what they think is right in the first place. That is what this book is about.
Now you choose
You have read both. Pick the side you find more convincing. Then we will hand you the best argument against it, which is the only way to find out whether you actually believe it.
Chapter twelve
The argument neither chapter had room for
His chapter twelve is not a verdict. It is four exchanges, and it moves: each answer is answered back. The two short chapters you have read set the positions. This is what happens when they are put in a room together.
The claim
Income inequality is unjust and uncharitable. No one should accept it with a clear conscience
American Socialist Michael Harrington believed that “[the profit system] . . . is outrageously unjust; it requires a continuing maldistribution of wealth in order to exist.”62 David Gergen, advisor to American presidents from Nixon to Clinton, agreed that “a society where winners take all and losers take the hindmost is one that . . . [is] morally blind.”63
The evidence for injustice lies on both sides of the vast income gap. On the one hand, billions of people desperately lack money for the barest necessities. On the other hand, a lucky individual will be fêted and showered with money just because he can dribble or throw a ball a bit better than others, or because he or she was born to rich parents. Between the extremes, we have dedicated and talented teachers and social workers who are woefully, even scandalously underpaid.
This system, as John Maynard Keynes said, is both “arbitrary and inequitable.” Even if some degree of inequality is desirable for motivational purposes, as Keynes further observed: “Much lower stakes will serve the purpose equally well.”64
The winners under this system should ask themselves: do I really deserve to have all this when others have so little? And, have I really “earned” it? Even if I have worked hard and made prudent choices, how far would I have gotten without the support of others? How remunerative would a sports talent be if there were not sports entertainment networks, or a talent for business without corporate legal protections and other assistance from government? Does anyone earn anything on his or her own?
None of us feels entirely comfortable when we confront a beggar or a homeless person on the street or see children living in abject poverty. We should heed our consciences, listen to what they are telling us. As Michael Harrington said about poverty statistics:
“These statistics represent an enormous, an unconscionable amount of human suffering in this land. They should be read with a sense of outrage. For until these facts shame us, until they stir us to action, the other America will continue to exist, a monstrous example of needless suffering in the most advanced society in the world.”
Michael Harrington65
Answered
Inequality of outcome is not unjust
Our personal incomes are in no sense arbitrary. They are determined by supply and demand. Supply and demand tell us, in unequivocal terms, how useful we are in the eyes of others. Norman Van Cott explained: “Our incomes—be they large, small or somewhere in between—reflect (1) our usefulness to our fellow citizens and (2) the ease with which fellow citizens can find substitutes for us.”66
We may not want to hear the market’s message. But the market does not discriminate. Only people discriminate. Employers who do so become less efficient, lose good employees or customers, suffer higher costs, and thus pay a penalty of lower profits.
It may be objected that our financial success depends, not simply on effort or merit, but to a large extent on luck. If so, we are not lucky or unlucky in money alone. We are all lucky to become fetuses, since the odds are infinitesimal that any particular two gene pools will ever merge, we are lucky to be born, and lucky to reach maturity. From there we are lucky or unlucky in the genes we get, the brains, looks, personality, talents, parents, education, health, neighborhood, country, or times in which we live.
If inequality is synonymous with injustice, we live in a hopelessly unjust world. The reply is not that luck does not matter. It is that money is one item on a list, and the list is long.
Are we going to try to level all these playing fields? And if so, how, and who will decide what is level? As economist Robert Sowell observed: “The difference between a factory worker and an executive is nothing compared to the difference between being born brain-damaged and being born normal, or the difference between being born to loving parents rather than abusive parents.”67
Equalitarians might respond that, yes, the Jacobin idea of people being born equal is a fantasy, inequality is deeply imbedded in all life as we know it. But that is not a reason to abandon economic equality, it is all the more reason to pursue it. If life is inherently unequal, then let us make equal what we can, especially the economy, since that is the work of our own hands. But this too is easier said than done. If you give two individuals exactly the same income, one may save, invest, and grow rich, while the other may sink into torpor or debt. What is to be done then?
There are additional complexities. To promote equality, one must be consistent, because inconsistent outcomes cannot be equal. But equalitarians are often inconsistent. They may prescribe heavy taxation on all incomes over X, which might be an average or a “middle-class” income of people in their own country. But, in doing so, they ignore the fact that a fifth of humanity is living on less than $1 a day,68 that X may be a king’s ransom in other, poorer countries. If redistributive policies are to be followed, why not apply them worldwide?
They also fail to distinguish between unequal outcomes that change over time and unequal outcomes that are simply frozen. In traditional societies, inequality exists because of the lack of social mobility, that is, because positions are largely frozen. Free-market competition also creates economic inequality, but in the context of social mobility. Winners and losers change. Economist Milton Friedman observed that: “The development of [free markets] has greatly lessened the extent of inequality.”69 “Nowhere is the gap between rich and poor wider, nowhere are the rich richer and the poor poorer, than in those countries that do not permit the free market to operate.”70
It should be readily apparent that economic equality, the equality of result, is incompatible with equality of opportunity. Most honest people will see advantages to both. But we must choose. We cannot have both, and if we have more of one, we must accept less of the other.
Answered back
How can inequality reduce inequality?
Milton Friedman’s assertion that the development of free markets has reduced inequality, and thus helped the poor, is equivalent to saying that inequality reduces inequality. This is nonsensical. Even if inequality promotes economic growth in some circumstances, which is unlikely, very little of that economic growth reaches the poor.
As Jeffrey Gates, head of the Shared Capitalism Institute, said, “Capitalism does not raise all boats; it raises all yachts.”71
Answered
It is the poor who benefit most from inequality and suffer most from attempts to create equality of result
Economist Steve H. Hanke responded to Jeffrey Gates by citing a World Bank study by David Dollar and Aart Kraay. This study looked at eighty countries over four decades and concluded that free markets help “the poor” as much as the “non-poor.” In addition, Dollar and Kraay found that the poor are especially benefited by controlling inflation and also by controlling the growth of government spending. Why government spending? As Hanke put it, “The rich are much better placed to feed at the public trough. The poor get crumbs.”72
We might also recall that, precisely because money means more to the poor than the rich, a rise in incomes through economic growth helps the poor disproportionately. The rich, earning more, buy luxuries they could already have bought if they had really wanted them. Or more likely they increase their saving, which helps everyone. The poor, earning more, can afford more necessities, or even some luxuries of their own. As Henry Hazlitt reminded us,
“The overwhelming majority of Americans . . . now enjoy the advantages of running water, central heating, telephones, automobiles, refrigerators, washing machines, [music in the home,] radios, television sets—amenities that millionaires and kings did not enjoy a few generations ago.”
Henry Hazlitt73
Every one of these was unavailable at any price a few generations ago, to anybody, however rich. Hazlitt’s point is that the gap you can measure and the gap you would actually feel are not the same gap.
Answered back
Should we not at the very least reduce inequality?
Even if all this were true, that equalitarian policies slow economic growth and ultimately retard the progress of the poor, would that invalidate the idea of sharing at least some of the wealth more equally now? Economist Arthur Okun, a former chairman of the President’s Council of Economic Advisors, said that “I would prefer . . . complete [economic] equality.”74
But he has also suggested that trading off some “growth” for some “equity” is a reasonable compromise, an idea seconded by another former CEA chair, economist Alan Blinder, who similarly spoke of reconciling “Principles of efficiency [with] principles of equity”75 through tax and other policy adjustments.
Answered
Thinking that economic policies can dial inequality up or down is an illusion
Equalitarians like to think of the economy as a machine with bells, whistles, and levers, all of which can be manipulated to produce more of this or less of that. But this is an illusion. As thinker and writer Irving Kristol observed, “If you want economic growth, only that species of activity called ‘business’ can get it for you. The ‘economy,’ as conventionally understood, cannot.”76
What this means is that, to have more economic growth, you must support business leaders, and demotivating them or reducing the savings available to them through income redistribution schemes will not help. Moreover, once you start down this path, intending to go only a short distance, it is often very hard to stop, for reasons explained by economist Sanford Ikeda: “Redistributional policies . . . typically aggravate the . . . problems . . . thereby providing even greater justification for more intervention.”77
Answered back
It is not acceptable to do nothing
Income and wealth inequality has increased in the United States, notably since the late 1970s,78 and even more notably since the late 1990s. Is society, acting through government, to stand back and do nothing about this?
Answered
“Facts” about inequality are unreliable
The emergence of a truly global economy for some years reduced global inequality by increasing incomes in developing countries. Unfortunately, as part of this, some lower-paid workers in developed countries began to struggle. But it is difficult to draw firm conclusions from any data, especially very poor government data.
- Who reports whatMany businesses now report on personal rather than corporate tax forms, largely because of the growing use of Limited Liability Companies. Income that used to appear as corporate income shows up as one person’s, and high-end incomes look as though they are growing faster than they really are.
- Households, not peopleA household may hold zero, one, two or more wage earners, and household size changes a great deal over time. Poor households have fewer members today than in the past, which may partly explain why they are poorer relative to other households.
- AgeThe same individual may be counted as poor when a student, rich in middle age, and poor again in old age. Changes in the average age of the population skew results.
- ImmigrationImmigrants, especially in the US, tend to start out very poor, which distorts what is happening in the bottom tenth. It is rarely considered.
- What counts as incomeThe earned income tax credit, welfare payments and social security are often not counted. A capital gain often is, although selling a stock exchanges one asset for another rather than creating income. And nobody records the hours worked: if A works forty and B works eighty, most people would not call it unequal for B to be paid twice as much.
This is the last word in his chapter, and it is a caution rather than an answer. It does not say the gap is not there. It says be careful about any particular number you are handed for it, including one that supports you.
What each side is actually protecting
Two of his four social systems argued the last question. A third one speaks here, and it is the one the No case in this lesson keeps reaching for.
Behind the no
Equalitarianism, and something else
The economic claim is equalitarian: outcomes should be closer to equal. But read the chapter again and notice how little of it is about money. Warm sharing communities, a life you can see the edges of, three glasses shared between everybody. Those are fraternalist values, his oldest set, reaching back to our tribal origins: community, safety, order, belonging. This side wants equality partly because it wants that.
Behind the yes
Connectivism
The same values that argued the profit question, doing different work here. Liberty before equality, reciprocal exchange rather than sharing, and a deep suspicion of anybody given the power to enforce a distribution. Its answer to the beggar on the street is not that the beggar does not matter, but that the machinery proposed will not reach him and will cost him what growth would have brought.
Both sides in this lesson agree the gap is real and neither of them likes it. What they disagree about is whether a gap is a wrong in itself or only a symptom, and whether the cure can be applied by anybody without becoming the disease. His fourth system, Philanthropism, the values of charity and service, has still not spoken. Keep it in mind: it is the obvious answer to this question, and he does not give it here.