You may have heard the story of a teacher who taught a lesson about income equality.
A college class had insisted that socialism worked and that no one should be poor and no one should be rich. Income equality should be the goal for a just society. The professor put their argument to the test in a real way. “All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.”
By the time the third test rolled around, every student had received an F because even the best students refused to study since they were going to get the same grade as the less industrious students.
The professor told them that socialism would ultimately fail because the incentive to work hard is based on a compensatory reward, whether it’s money or good grades.
When there is an incentive to make a profit, industrious people build things to make money. At first, the new products are expensive and only those with extra capital can purchase them. If everyone had the same income, there would be no incentive to be innovative and no capital for research and development to invent and no one financially able to purchase a new product.
The first personal computer our company owned cost $7,500, and that was in the 1980s. The discs held 360 kilobytes of data. A first-class laptop computer can be purchased for $300 and is a thousand times more powerful than anything from the 1980s.
Without income inequality, no one would invent the components needed to build a computer and no one could afford to buy one.
Even some of the poorest people have a cell phone. Do you realize that a smart phone includes nearly $1 million worth of applications that only the richest people could have afforded 30 years ago? It was their capital that made it affordable for everyone.
Consider the following from Isaac M. Morehouse’s article “Why I Don‘t Worry About Income Inequality”:
“In the 1980’s if I told you for only a few hundred dollars anyone could have a $1 million asset in their pocket you’d call me crazy. But here we are.
“The chart above (actually a picture of a chart taken with my iPhone and uploaded to this blog with an app to further emphasize the point) is from the book Bold: How to Go Big, Create Wealth and Impact the World by Peter Diamandis and Steven Kotler. It illustrates why I think worry about and policy efforts aimed at changing differences in income between rich and poor are dumb, destructive, and miss the point by being stuck in a dead paradigm.
“The above chart only scratches the surface. It’s hard to comprehend just how much wealth (not income) we have today compared to 20, 30, or 50 years ago, let alone a century or two ago. Anyone who complains that income gaps are growing misses the miracle under their nose of wealth exploding, and more accessible to individuals at any income level than ever before in human history.”
Morehouse’s entire article is worth reading to help put things into perspective. A worldview like that of Bernie Sanders never could have invented the personal computer, the iPod, or the smart phone since they would have been seen by him as catering to the rich.
But it was the rich that made these items accessible to almost everyone. What once consts companies hundreds of thousands of dollars now come free with almost any phone.