I'm giving you a red pill and a blue pill. If you take the red pill, your income will roughly double in the next ten years, but your neighbor's income will triple. If you take the blue pill you and your neighbor will stay the same, equal to each other now and ten years from now. Which pill are you going to take?
I really like that question, because it's such a timesaver. When levelers (people obsessed with income inequality) used to call my radio program, I would typically debate statistics with them. But that took too long. It's better just to get to the point and expose the different moral universes in which we live.
In my universe, also known as reality, social progress inevitably leads to inequality. It's a statistical necessity. As the world gets bigger the bell curve gets wider. Distributions work that way. In a world of 7 billion people the top IQ will be higher above the mean than in a world with one billion people. The fastest miler will almost certainly be faster than the fastest miler in a smaller world.
This is the way the world works. At one time in the past the richest man in the world had a couple of cows and a couple of wives. The poorest guy had nothing. The Old York Times was, no doubt, pleased by the small gap in wealth. At one time in the future, some guy will own a whole planet (like Rod McBain in the Cordwainer Smith novel, Nostrillia) and some other poor schlub will be working in a Romulan salt mine. The gap will be huge, and the New New York Times will scream bloody murder about the impact of Federation policy on the trillions of people at the bottom of the curve.
It's not just sheer raw numbers, though: it's also participation in the system. Get more people into a game and make the rules fairer and the bell curve widens even more. It's showing up now in the current Texas Hold 'em poker craze: When more people play poker, we have a better chance of finding a truly great player. As the rules get fairer and more transparent, the next truly great player has a better and better chance of getting to the top. The better he gets, the more inequality there will be.
This works with wealth creation, too. If Bill Gates had lived in Czarist Russia, he would've been a schoolteacher. Warren Buffett, a traveling merchant. No great fortunes. No great inequality. No DOS, no Windows.
That's part of what was so annoying about the recent orgy of envy, also known as Labor Day. The editorial pages, the bloggers, the letter writers, the 'analysis' pieces, and the reports were all gasping out the same tale of woe: wage stagnation; never mind the fact that when you count all forms of compensation, the stagnation disappears... poverty, never mind the fact that from 2004 to 2005 the first full year after the President's tax cut, poverty actually dropped slightly.
The Census-Bureau-Report-Labor-Day-Week, has now become the high holy day of the new secular religion of income equality.
The New York Times started the this year's festival by claiming that ours was the first generation in which wages would not keep up with productivity, as if prediction were fact. A columnist for the Washington Post followed suit, declaring that the American Dream was now a 'joke'. My usually sober hometown paper pronounced the new statistics 'horrifying' and proof that now humanity has become 'prey'.
I found myself wondering what these people want us to do. Price controls on executive salaries? Outlaw stock options? Illegalize dividends? Put up a force field to stop electrons and people from leaving the country? As long as some people are more talented at wealth creation than others, other people are going to be willing to pay them to create wealth. If they can't do it in France, they'll do it here. If we start to tell them they can't do it here, they'll do it somewhere else. Then everything will be calmer; no capitalist bulls, running through the china shops. No Microsofts, Dells, Starbucks, Netflixes and Plavixs. No new job creation, no bull markets, no creative destruction. Everything nice and equal.
Jerry Bowyer is an economic advisor for Independent Portfolio Partners.