Wealth inequality is a fact of markets and is beneficial,
especially to those in lower economic standings, for only through individuals investing this vast amount of wealth can the poor rise above poverty.
3 fallacies that typically arise when discussing the issue of wealth inequality:
First: individuals often think that there is a finite amount of wealth.
This mistake disregards the very nature of wealth creation.
Individuals create wealth through a multitude of different avenues however, in a free trade system, different means of wealth creation all benefit others.
In a free market system, trade is a positive sum endeavor.
Individuals use principles of praxeology to decide what they value more and trade when it is advantageous or beneficial for them to do so.
In this way, those with wealth have accrued it through offering value to others and, in the case of the very wealthy, offering value to many people.
Second, there is a false perception that those at the top stay at the top.
The top percentiles of income are constantly in motion as market factors change.
According to a study from Cornell University, “over 50 percent of American’s find themselves among the top 10 percent of income earners for at least one year during their working lives.”i
However, of those who do reach the top 1% status, 94% will fail to enjoy their title for over a year.
Wealth is constantly fluctuating and those who are at the top are almost always not there permanently.
Third, is that equality is achievable.
Individuals seeking for a redistribution of wealth believe one of two things:
- Government intervention can create perfect wealth equality
- There will always be some level of wealth discrepancy
Here’s the simple truth: there can never be a truly equal system.
Governments have tried and failed to perfectly adjust the market to facilitate equality and we have seen that it is unachievable.
So, if there must be some variance in individual wealth, how much difference is to be allowed?
Ludwig von Mises, renowned Austrian economist, argued that when attempting to “solve” wealth inequality, there can be no end until “it has completely leveled all individuals’ wealth and incomes.”ii
Perfect equality is unachievable and it is arbitrary to try and limit wealth simply because everyone is not equal.
A better solution is to make the rules and system fair, such as those found in a truly free market, so that everyone has an equal chance to grow their wealth.
Wealth inequality is an easy tool to create political excitement.
Candidates have realized that they can easily gain supporters by promising to give them money taken from the rich.
This kind of talk from political parties and candidates just goes to strengthen the spread of economic misinformation.
Instead of trusting politicians promising handouts, Americans need to work on understanding the economic principles behind those policies.
By David Kirk
ii Ludwig von Mises, Ideas of Liberty, May 1955