(Drivebycuriosity) - It seems that the media is obsessed with income inequality. There is a deluge of articles about the "rising inequality" in the US & Europe. Often I read the rant "the rich get richer and the poor get poorer". And Thomas Piketty’s inequality bible "Capital in the Twenty-First Century" is on the top of the bestseller lists.
I believe that the obsession with other people`s wealth is merely a media hype. Rapper Jay-Z has a net-worth of $2.5 billion, his annual income exceeds $150 million (knowledge ). Rihanna is worth a staggering $1.4 billion. Taylor Swift has a net worth of $740 million, and Beyonce is at $540 million ( google). Hollywood stars, top football, soccer & baseball players also collect huge amounts of money. So what?
Outrageous Rich
I don´t see any complaints about the outrageous rich rappers, movie stars & sports celebrities in the media. The public seems to see just the
wealth of company CEOs and the bonuses and fees collected by
top-bankers and hedge fund managers, even though not many are in the league of rapper Jay-Z. And people pay a lot of money to experience a Beyonce show.
Hollywood pays Dwayne Johnson, Ryan Reynolds, Mark Wahlberg & Co. tons of money because the studios believe that these superstars can
attract so many movie goers that they will gain more money than they
spend for them. The names of some megastars can create
blockbusters (but not guarantee them of course).
Investors grant the CEOs of their
companies extremely high bonuses because they hope that the company
leaders raise the value of their stocks more than they cost. Often managers get paid with stock options and success & failure of their companies define their wealth. Apple reached a market capitalization of $3 billion, partly because of the work and the talents of Steve Jobs & his successor Tim Cook.
Many liberals claim that inequality is not simply unfair but harmful. I don`t agree. Do you and I get poorer when Jay-Z, Rihanna, Beyonce & Co. inflate their banking accounts? I don`t think so.
I don´t believe
that the wealth of the majority will shrink even when some people get
absurdly rich and the number of billionaires rises. Quite contrary, a
high & rising inequality might even be necessary for economic growth
and therefore create more wealth for everyone.
Capitalist
countries with a high income inequality like the US, Switzerland,
Singapore, Hong Kong and others have been growing much faster than their
more equally balanced neighbors and their average populations are
wealthier than the
citizens of the rest of the world. The US for instance has a higher
income inequality then France, but the US economy does better than the
French. The US might have more billionaires then France (relative to the
whole population) but the US unemployment rate dropped below 4% while
the French unemployment rates floats at 7%.
Countries with the highest equality - Cuba, Venezuela, North Korea -
also belong to the poorest nations in the world.
Big Experiment
In
the last century a gigantic economic experiment happened: A whole
country got divided in 2 different parts. One part was communist organized, with a low income inequality, the other
became more or less capitalist, with a high inequality. After around 40 years the
experiment got aborted. Guess in
which part the masses (average population) got much richer and in which
the average citizen stayed poor?
The experiment was
the division of Germany into the (more or less) capitalist Western
Germany (Bundesrepublik Deutschland) and the communist part (Deutsche
Demokratische Republik = DDR) in the late 1940s. In the year 1990
Germany re-united. Then the Western part (and its whole population) was
much wealthier than the Eastern part. Even the population of Western
Berlin, which had
been a capitalist island in a socialist ocean, was much wealthier
than the residents in the former socialist
Eastern Berlin.
I agree with James Pethokoukis from the American Enterprise Institute who writes that
"dynamic, prosperous economies that push the technological frontier are
likely to have a relatively high level in income inequality" (aei).
Maybe "dynamic, prosperous economies" need a high income inequality as
an incentive. I think the chance to become outrageous rich could be a
motivation to invest and to take high risks. Someone who sacrifices time
and energy and takes high risks wants a reward.
Scott Winhsip from Manhattan Institute writes:" The prospect of vast economic returns might, for instance, incentivize
more innovation and investment, producing stronger economic growth and
higher incomes even among those who do not amass fortunes. By rewarding
work and human capital investment, inequality between the upper middle
class and the poor could also promote stronger earnings growth for
everyone over time." (manhattan).
Rewards For Taking Risks
The possibility to amass huge fortunes - which exists in the US but did not in the late Soviet Union - creates a climate for entrepreneurs like Bill Gates, Mark Zuckerberg, Elon Musk, Jeff Bezos and more. These people aren`t robber barons, often they provide useful services for the society.
I doubt that companies like Microsoft, Google, Amazon, Meta could have evolved in countries where high risks are not
appropriately rewarded. By taking risks Musk & Co. are driving
innovation and economic growth, creating wealth for everybody. The
innovators generate new products, services and jobs. America`s
rise was driven by inventors & entrepreneurs who often became
billionaires (in today´s money).
Social Returns
Prof. Nordhaus, winner of Economics Nobel Prizes 2018, wrote in his 2004 paper “Schumpeterian Profits in the American Economy: Theory and Measurement,” : “Only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.” (aier.org).
According to Nordhaus "producers, on average, capture a mere 2.2% of the total benefits of their successful introduction into markets of technological advances. A whopping 97.8 % of those benefits are enjoyed by people each of whom as a consumer did nothing other than exercise his right to spend his money on those options that he judges best for himself".
Today millions of Americans benefit from Sam Walton, who founded Walmart in 1962, by being able to purchase a lot of things for very low prices, especially people with a tight budget are better off thanks to him. Millions of Germans - and some Americans & British - buy cheap things @ the supermarket chains Aldi Nord & Aldi Süd, founded & owned by brothers Karl and Theo Albrecht. Millions enjoy the comfort to have a huge variety of goods delivered fast & cheap to their homes - thanks to Jeff Bezos & Amazon. Bezos` obsession with customer service, low costs & prices forces the whole retail industry to get more efficient and customer friendly.
Outrageous Consumption
The
media is also obsessed with the outrageous consumption of the one percent, their
yachts, their mansions, their art collections and so on. But does
anybody get hurt when Wall Street moguls own mansions stuffed with
Picassos and Warhols (billionaires)? Do we get poorer when a hedge fund manager buys a Rothko for $50,000 million? (wsj).
The consumption expenditures of the one percent usually don´t compete with the consumption of the average people, they might eat more beluga caviar, but
they don`t eat more bread, rice and noodles.
Often the
rich donate their fortune to museums, universities and other public
institutions. Collections like the Guggenheim, New York`s MoMa and
other museums in the US are usually financed by donations and often
show art work which is loaned by some rich people. The
majority of US cultural institutions depends on charities financed by
billionaires. At the end of 19th century people who had build great
fortunes - like Henry Clay Frick, John d. Rockefeller &J.P. Morgan -
began to found or endow museums, concert halls, orchestras, colleges,
hospitals, and libraries in astonishing numbers in every major city (driveby
). The
billionaire Carnegie - one of these donators - wrote, that "a man who
dies rich, dies disgraced" and gave away nearly his entire fortune.
Cultural landmarks like Manhattan`s Carnegie Hall are financed by
philanthropists.
It think the cult around Piketty and the bluster about income income equality are based on envy. The
aversion against the extreme wealth of Musk, Zuckerberg, Gates, Buffett and likes obstructs the fact that the average person in the West is much richer than people in emerging countries or our ancestors (chicagomag). There might be rising inequality worldwide but it is clear that life for everyone got better in the recent decades.
PS: For illustration I chose Daniela Rossel`s portrait: "Inge and her
mother Ema in the living room" (from "Rica and famosas" series, 2000,
Chromogenic print) The artist is known for her portraits of the rich and
famous in Mexico
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