Inequality


Underlying concerns with income inequality generally come from concerns of fairness.

To start with an easy scenario working up to less easy ones:

– It is fair to reward effort. So, the more hours one works, the more one should be rewarded in total.
– It is fair to reward skill and ability. So the better one is at doing one’s job (or the more specialised one is at a particular job), the more one should be rewarded.
– It is fair to reward risk taking. So the more one has at risk, the more one should be rewarded if one succeeds.

Regardless of which system one operates under, if we accept these scenarios as fair, then we will have inequality even if everyone started of on the same level. This is purely because of natural differences in people. Some will work harder, some will work better and some will risk what they have in order to see their ideas come to fruition.

How one judges skill and risk taking is a more difficult problem. In our current system for most people, reward is in terms of income and income is determined by the process of negotiation, information gathering and shopping around that we call the market. One could argue there are better ways of determining who should or should not be rewarded especially in the last two categories but I havent been able to come up with a better alternative than a properly functioning liberal democracy, a reasonable welfare safety net and an open market with targetted regulation.

So on the whole, for those reasons of fairness, I have no problems with income inequality so long as the lowest income earners are not poor and that there is equality of opportunity.

There are problems of course in our system that can be easily summed up as follows:
– It is fair to reward inherited wealth. The more one starts out with, the more one should be rewarded.
– It is fair to reward personal networks. The more connections one has, the more one should be rewarded.

But our system does try to address those problems – at least by having some notions of redistribution and inheritance taxes. And I would argue that personal networks is always going to be there anyway and should be regarded as part of skill, ability and risk taking.

An argument I do tend to hear and have struggled with in the past is the fairness of CEO salaries especially in the US where a CEO earns in excess of a hundred times an ordinary waged employee. In the US, I think this is unfair because your ordinary waged employee very likely falls into the category of the working poor (and this should be addressed by the State). But if that was not the case, I’d say that if the board of the company can fool the shareholders into risking their investments for an overpaid figurehead, then all power to them. Sure, regulation should and does exist for cases of outright fraud but in the end it is purely a private matter of fools and their money.

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