Wednesday, 4 May 2016


Income inequality gets raised as an injustice that we must solve. Disparities in incomes are always viewed as a zero sum game in which if someone gets rich it must be the expense of someone else. I would like to take the time to discuss some of the fallacies when people look at absolute wealth and inequality in general.

It is often thought that if someone has accumulated vast wealth then this must have been at the expense of someone else. It's commonly referred to a zero sum game in where the wealth of a society is a fixed amount and therefore we need to try to take from such people and give to the less well off. However it is wrong to look at wealth in this way. The total wealth of society is not fixed, rather under a free market it is always increasing. People find new ways to make goods cheaper and more plentiful. People who get wealthy generally do this by creating new markets and products that never existed before. It is true for example that Jeff Bezos is a billionaire on paper but he got that by creating value to society that never existed before. He revolutionized shopping where once people could only buy goods at brick and mortar shops within their locality now we can now shop 24/7, have access to a global marketplace of sellers and can do it from the comfort of our armchair. The alternative is we have equality but that shopping luxury we all now enjoy now would have never existed.

Not only do free markets create value for us all that never existed they in fact solve inequality. Many will read that statement and believe it to be a misprint but when you examine the reality it really does. If we think of planes, cars, mobile phones even clothes or food all have been created or refined to a point of relative abundance for the majority of us. Cars for example when they were first invented were only for the rich. Then along came people like Henry Ford and made it affordable for us all, despite many in the industry at the time thinking he was mad for trying. Henry Ford became hugely wealthy but he made us all wealthy in the process we probably just don't appreciate it as we've all grown accustomed to affordable cars. Theres two important points I wish to raise at this point. The first is many will object that the rich can afford a premium sports car costing hundreds of thousands of pounds while the poor can only afford a second hand Vauxhall Corsa (I pick a Corsa as we have an old model that I keep going through various members of my family). This may be true but is it not true that both cars can get from London to Leeds in the same time when following speed limits? Both have similar passenger capacities, take the same time to refuel, start in the same time and offer the same convenience. When it comes to the crunch, rich or poor, both have exactly the same utility therefore we don't have inequality but equality despite their respective price tags. If we didn't respect inequality the rich would have had the fancy sports car but the corsa would have been created, thus depriving the poor of such a mode of transportation.

The second point I'd like to raise is what travel existed before the car and for arguments sake the train or any kind of automated transport existed. Kings would have relied on horse and carriage taking days for the equivalent trip with none of the convenience (they would have required to call on the driver, get the horses ready, terrible roads etc). However this would have been a mile of difference compared with the common man who would in all reality had to walk if he could not afford a horse or donkey. In our present day this gap in inequality has in fact closed due to Capitalism, not increased. In fact the poor now enjoy transportation that once a King could have only dreamed of. The same applies to planes for example, people got very rich who made them for the masses but in turn the average person now has access to a form of affordable travel that would have seemed science fiction 150 years ago. Free markets don't cause inequality they solve and alleviate it.

Rather then compare our net wealth to billionaires of present we should compare our wealth to billionaires of the past. If I had a choice of living as a billionaire in 1900 to someone on an ordinary wage now I would pick our present average wage earner everytime. I have computers, in house entertainment, flights to global destinations, exotic food and many other goods and services that would have never existed. We are all 1900 billionaires thanks to inequality that provided such abundance.

This brings me onto another vital point the assets and wealth that successful people accumulate if they meet consumer demands in a voluntary manner. No individual decided how rich Jeff Bezos or Henry Ford would be rather we as individual consumers spent our money on the goods and services their companies were offering in the open marketplace. Because for example Amazon did this well over time they were rewarded by obtaining more investment, more capital and more economic resources to continue to serve consumer demands. Now if we were to "solve" inequality by allowing a special Central Entity such as a Government to arbitrary take those assets away from Amazon to use that money despite the fact the Government had not met any consumer demands to obtain those economic resources then in what way does that help us? The Government does not care about consumer demands. Amazon in contrast lives and dies by it. If people don't use their services their resources get taken over by another business that does meet consumer demands. The market rewards people who can make products with better quality and lower costs. Inequality allows people who can do this well in their selective fields to aquire such resources to continue driving down costs and alleviating inequality. If they don't, they loose those assets to those who can.

 The Government has no such mechanism in place it instead just takes regardless of consumer satisfaction. And we all know what peoples thoughts are towards Government services. Apathy; a failure to deliver; broken promises. The only chance we get a say is in an election held every 5 years, that lumps together dozens of decisions in which we have two monolithic parties to vote for and many of us live in a seat that is either strong Labour or Strong Conservative. Its rational that people spend more time researching what phone to buy rather than what party to vote for. With the phone they can act directly knowing they can use their wallet to approve of a consumer good. With Politics they have a greater chance of winning the lottery then affecting change in the education service or transport network.

In my opinion all this alone is enough of a case to defend absolute inequality as we have seen (and I'm sure you can think of many further examples) benefits us all and is in no ones interest to destroy this process. However there are further points I wish to cover. There are many dubious statements out there, for example there are phrases similar to "The top 100 earners have more wealth then the bottom 2 Billion people". These are soundbites usually espoused with no logic, facts or critical thinking with the purpose of making it sound like there is a colossal issue with capitalism that we need good old Socialism to solve it. If we look at two people, the first a rural farmer living in a third world country with no education and little opportunity that individual may have been able to accumulate assets of a modest sort but by global standards is still very poor with little in terms of material possessions or purchasing power. Contrast that with our second person a Teenager living in a Western European country who has attended University for a number of years gaining an engineering degree, that individuals net wealth is negative, in fact their debt amounts to tens of thousands of pounds. Their income is also zero compared with the farmer who earns money. If we measure net wealth then the farmer in absolute terms is richer than the Western Student. There is a huge amount of inequality. The phrase above includes both such individuals, it includes indebted people in developed countries to make the phrase sound that much more dramatic. So western people with net negative wealth and who have huge potential going forward to earn lots of money are included in the numbers in order negate any income the poor do generate.

If many of us were asked whose shoes would we prefer to be in I suspect many would say the Students. Why? Because absolute wealth and income never has and never will detail the full picture. The student has greater potential to earn in the future, has access to more consumer goods despite having less net worth and lives in a country where there is more opportunity. Remember Bill Gates was once a poor student, in fact he even dropped out to try and create something from nothing taking a huge personal risk.

One vital aspect and is often neglected is the point in time for an individual. For example I was once paid near minimum wage. Now the progressives would state that people on low incomes are trapped and that they are on a static income or we need to "help" such individuals but my case invalidates such an argument. For the past ten years my income has risen far above the rate of inflation as my skills to an employer has become more valuable. Someone who would once be classed as poor on under £6 an hour (now below a 'living' wage, despite the fact that people have more purchasing power now then I would have back then) is now someone that needs to pay their 'fair share' by the use of coercion. I've covered the fallacies of incomes in a previous post that dispels many such misconceptions and illustrates that many of us move around income percentiles all the time.

When it comes to inequality people often say some good or service is a right and in order to provide that right we need to take from those others who create value. For example healthcare is right, a job is a right, food is a right and so on. I believe that none of the above are a right. History shows that all of these things were very hard to obtain, people scrambled to feed themselves, struggled for employment and healthcare wasn't even in the picture. Then along came capitalism and free markets the liberation of the individual. We prospered like never before. The fact that I don't think food is a right does not mean I want to see people hungry and starve its the observation that wherever food has been treated as a right people go hungry and where it has not been a right, like here in the West, we have an abundance of food in fact we now have the obesity "crisis". You want to solve that "crisis" just implement Socialism it has a 100% track record of not providing food for its citizens. In market based countries people now have jobs where for 8 hours a day they move their hands typing on a keyboard and by historical terms get paid a fortune in terms of consumer purchasing power. Our historical ancestors would look at our jobs now and wonder how it is defined as work compared to the toil they had to endure. Healthcare is only scare because we socialise it. During the 21st Century the free market will make it abundant and solve all the funding crisis we will face. It will be a revelation for many once they see real markets turn healthcare into a similar story as food, where it transforms from scarcity to relative abundance.

I can't list the number of people who have become millionaires through creating software companies its seems to be a field where riches are made on demand. Yet we all see the positive creation that happens with such a process. All things digital are either free or next to zero cost. I carry around a "phone" in my pocket that would have once been a supercomputer taking up a large sports hall and costed millions of dollars. Even back then the range of applications and utility would have been pathetic by comparison to now. We got here by allowing people to create value out of nothing. These people didn't take billions of dollars from others; those billions never previously existed. If you were to go back in time and explain our computers to someone back in 1980 and describe the capabilities and that everyone would have one; they would have believed it to be science fiction. Computers were once scarce, preserved for either huge institutions or the mega rich. Now we all have several of them and they are affordable to the poorest in society. Its inequality that made this happen, the process of allowing very talented individuals the freedom to create something from nothing and more importantly the assets to do this. If we had interfered by leveling such inequality then we would not all enjoy the abundance in computers we now have. 

I've not even gone into many other aspects of why people get paid different amounts of money. For example I have mentioned that there are thousands of millionaire software developers. I am also a software developer so why don't I just get rich? Some would have you believe that its the system that keeps us down, or that people who got rich didn't really earn it, however I will explain its in fact a personal choice. For myself I'm not a millionaire as I decided to go for employment with an employee which has a number of benefits. I get paid on a monthly basis regardless of how the company does. If it fails I have no assets tied up in it. I work fairly regular hours and can see my family and have a nice work balance. When I work unsociable hours then its generally my choice on my terms and either because I enjoy it or because I feel its the professional and right thing to do. If I get sick of my current employer I can switch jobs relatively easily. I don't have to worry about much apart from turning up and doing the best job I can. Most of us are like this. Now contrast this with a software entrepreneur. They may have to sleep in their car or flat share when they get started as they have no regular income as they have no product to sell. They may have to work every hour, night and day to get their product up and running. They may even have to risk their own capital, their house - its even known that they risk their marriage and family to sacrifice it all. In some cases they can earn little or no money as they may have to live of little Venture Capital that they have to spend on a shoe string budget. There is no guarantee of income and it always depends on the next big deal - many in fact fail and become broke. The Socialist always neglect these cases but there are plenty of them. In short - its not for the faint hearted. Jeff Bezos for example risked a well paid job for no such certainties working out of his garage initially. For a few who do it right and meet consumer demands it can work out very well. But that path is full of obstacles, uncertainty and hardship. Thats why most us don't choose such an occupation but thank god some of us do as this helps move humanity forward by taking such risks and disrupting existing markets.

Inequality or differences in absolute wealth is merely a distracting tactic a method to agitate people against one another. Its all politics is centered on, targeting minority groups in order to get the support of the majority as this is all politicians care about. They will spin the wool over your eyes and state they are there to support the wishes of the people but they always have and always will be after a majority vote. If that means making targets of minority groups, be that immigrants, benefit claimants, bankers or the wealthy then thats what they will do in order to gain more votes. Inequality has never been less then it is now. Capitalism is a wonderful thing and we should celebrate what it has done for humanity, not condemn it. It has brought about the greatest equality we have ever seen and is in sharp contrast to Socialism which created some of the most shocking inequalities. During this century capitalism will work more wonders; in education; healthcare and law enforcement to name a few. Inequality of today creates the equality for tomorrow.

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