Income inequality is not a bad thing

I believe income inequality itself is not a bad thing; on the contrary, it's an essential feature of a free society. My arguments are the following: 1. ) Income inequality does not imply injustice or wrongdoing We all know the fable of the Grasshopper and the Ant. The grasshopper spends all his summer partying while the ant toils to store up for winter. The result is income inequality and one starving insect. But there is no injustice. Nothing the ant did caused the grasshopper's demise. The grasshopper's rights were never trampled on. He was free to use his time as he pleased and so he did. As did the ant. That they fared differently during winter is a direct result of the free and voluntary decisions they made during the summer. So it is in a free society. People are different in many ways —in their values, their work ethic, their talent, their choices, etc. Why is it that we expect them to get the same results? Let's think about how income inequality happens. A guy like Steve Jobs becomes fabulously wealthy by inventing and marketing devices many people want to buy. If people buy iphones and ipads, it's not because Apple goons put a gun to their faces but because they chose to buy them. In their eyes the value of the devices was greater than the value of the dollars they paid for them. Otherwise, the transactions would not take place. Meanwhile, poor immigrants were entering the United States from Mexico in search of employment. The immigrants were also making choices about improving their lives through free and voluntary exchange in the U. S. , but in the process they increased income inequality, just like Jobs did. Both the entrepeneur and the hard-working immigrants are engaging in perfectly reasonable, legal, ethical behavior that increases the economic output of society (there is no fixed pie! ) yet "worsens" that statistical abstraction that is the distribution of the national income. It is precisely this term —"distribution of national income"— that causes confusion. What I've written is pretty obvious and intuitive yet many people miss it due to the macro fallacy implicit in this term. It conjures up images of mommy divvying up a cake ("national income") into slices and dishing them out to her equally deserving children. But there is no "national income", and there is no one distributing it. What we call the national income is the statistical sum of millions of individual incomes, determined by no single authority but by millions of free and voluntary transactions. It's an impersonal, spontaneous process. Since it's not designed, it can be neither just nor unjust. 2. ) Income inequality is a poor indicator of personal happiness or social welfareThe most used measure of income inequality is the Gini coefficient, a number between 0 and 1, where 0 corresponds with perfect equality and 1 corresponds with perfect inequality (one person having all the income. ) Afghanistan and Ethiopia are pretty egalitarian countries with a Gini close to 30, while the U. S. is relatively unequal with a Gini of 45. Chile has a Gini of 52. Now you can take my word for it or look it up, but there is no comparison between the quality of life in the U. S. and Chile versus Ethiopia and Afghanistan. Chile has a life expectancy of 78.9 years; Ethiopia, 58.7. Cuba has an enviable Gini of 38 but it's Cubans trying to get into the United States, not the other way around. There's another reason why income is a poor indicator of welfare, and that is how much happiness money really buys. Studies show, not much. [1] Above a certain amount of income, the law of decreasing marginal returns kicks in. A mega-rich person can buy a Bentley, which is about as useful as a Hyundai Elantra, the type of car 70% of the people living under the poverty line in the U. S. own. There used to be a time when only the rich could afford refrigerators, air conditioning and TVs —things that can really improve a person's standard of living—, but that time is long gone. Capitalism and mass production have made all of these things affordable to the lower classes. Therefore, while a rich person can gain a certain additional utility by getting the latest 60-inch 3D LED screen, it's not as much utility as a working class person gets from buying a 32-inch LCD. The leap from no TV to 32-inch flat screen is greater in terms of utility than from 32-inch to 60-inch wonder. And it is consumption, not income, which determines material well-being. Savings are merely deferred consumption. Rich people tend to save more of their income, therefore they convert to utility a smaller portion of it. Thus the income gap is larger than the material well-being, utility or "satisfaction" gap. Another aspect which the income inequality statistics don't catch is how income changes for individuals through their lifespan. The big assumption is that the 1% is the same people, always on top. That's simply not the case. [2] Many people start out as teenagers working minimum wage jobs (bottom 10%) but then as they grow older, more educated and more experienced they climb to higher levels of income, a few times perhaps even reaching the famed 1%. And these fat cats don't always stay on top. Sometimes they come tumbling down, like they did disproportionately after the 2008 financial crisis. The point is that people smooth out their consumption based on past, present and expected future income. [3] Therefore, differences in income in any one given year don't translate to great differences in consumption throughout a lifetime. 3. ) The alternative to market-based distribution of income is coercion, which is incompatible with a free society " And the trees are all kept equal, by hatchet, axe and saw. "[4] That's the final verse of the Rush song "The Trees. " It's true. You can reduce income inequality by forcing society back to the Stone Age, when everyone had the same (nothing. ) You can confiscate from the productive and give to the unproductive but doing so necessarily implies coercion for a cause having nothing to do with justice or individual rights. As F. A. Hayek put it: "There is all the difference in the world between treating people equally and trying to make them equal. " The forest King could've forced the ant to give some of his supplies to the grasshopper, but doing so would not have been just or charitable (charity is voluntary. ) Systematically forcing ants to provide for idle grasshoppers would actually make both ants and grasshoppers less likely to work, given that the system severed the link between effort and reward. Economic output is reduced by redistribution, not only by changing incentives, but also because the redistributing government apparatus requires funding. Dead weight. So it is that income inequality is often reduced not by making the poor richer, but by making the rich poorer and the poor poorer, only relatively less so. How is this desirable? [1] . http://www.princeton.edu...[2] . http://www.americanexperiment.org... [3] . http://en.wikipedia.org...[4] . http://www.sing365.com...