Friday, January 18, 2008

The Virtue of Income Inequality

Mike Harvey writes one of my favorite newsletters from Winfield, KS. He is a Kansas native who started out in the oil patch, moved into construction and is now a financial planner.

Here are some excerpts from his lead article from last month’s newsletter:

People complain: The poor and middle class are held back by stagnation in wages, lousy schools, and growing health care costs! The reason is that the rich are getting richer! And the solution is more government regulation, higher taxes, and more spending. We are told.

These statements are all based on a false premise, namely that income inequality is a bad thing. While some of the problems critics point to are legitimate concerns, economic science tells us that income inequality is a virtue. It is a natural, desirable, and necessary condition of a free and prosperous society. We each set the price point of our own labor, physical and especially intellectual, by the value of the skills we bring to the markets we choose to serve.

When, at the age of forty, I wanted to earn more money, I spent four years studying finance, accounting, economics and related subjects in my spare time to prepare myself for the career and the income I now enjoy. Without income inequality, what incentive would I have had to improve and add to my life skills? None! And, I’m grateful to Paul Abram, the businessman who kept me productivity employed all those years, despite knowing that I had other plans for my future.

In America, equality should mean only one thing: Equal and Unbounded Freedom.

While I was on safari I read most of Allen Greenspan’s new book “The Age of Turbulence.” In it he spoke of a conversation with President Clinton about the connection between income inequality and economic progress, “Whenever you shift to a new economic paradigm, there’s more inequality. There was more when we moved from farm to factory. Vast fortunes were made by those who financed the Industrial Revolution and those who built the railroads. Now we’re shifting into the digital age, so we have dot-com millionaires.”

We’ve always had inequality, but one of the great advantages of the USA is that there are no restrictions like in so many other countries based upon class, lineage or caste that prevents people from moving up in life. The same applies to small towns.

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