Wage Inequality and Justice

by Angelo Mike 

Exclusive to STR

December 20, 2006

With Democrats and their constituents getting more media coverage after their victory in the recent elections, we are hearing more and more about the problem of corporate bosses plundering the already shrinking middle class in order to give themselves bigger salaries and bonuses.  

Economists have already debunked the problems allegedly inherent in any inequality of wages, explaining today we may not necessarily have more disparate wages between the rich and poor than back in the good old days, whenever that may have been. And what disparities exist are overestimated with misleading statistics and explanations for the forces at work which cause such a state of affairs.  

While these are all valid ways of discrediting these claims of inequality, I will address the fundamental matter of wage inequality itself and see if there is any merit to the claims of the Paul Krugmans and Lou Dobbs of the world. I will assume that all their statistical claims are true about how disparate wages are between the poor and rich, and how concentrated wealth is. We can then set aside the matter of comparing like or unlike data, and in doing so, I hope to eliminate some of the confusions of what issue really is at stake.  

We are all unequal and utilize scarce resources to maximize satisfaction of our wants, which accounts for specialization and the division of labor. No two people are equally suited for the work place, and our wages on a free market are dependent upon the productivity of our labor.  

In the first place, the claim of a great concentration of wealth in a minority of the population and poverty being the lot of the great majority is often asserted as somehow an objection to this very fact itself. That is, the adherents of class warfare make this claim believing that you must simply assume that this is bad, without showing why inequality necessarily is bad.  

As a side note, the very people who announce this obviously imply some benefits of inequality, since they believe they have obtained this information and objections to it while most of us have not, and once we do we will benefit from their discovery. If we were all equally ignorant about this, they certainly would not claim that equality is worth upholding, if only so far as everyone is equally ignorant.  

More to the point, citing data about great discrepancies in wages--even if perfectly accurate--tell us nothing about the individual circumstances and forces at work for laborers who are either becoming better or worse off because of this, or if inequality in wages is merely a byproduct of a lesser state of affairs for laborers, or a better one.  

What it does tell us is only relevant if our criterion for determining the well being of a society is determined by a feeling of jealousy or envy, and even then, that’s assuming that the poor and have nots are necessarily envious of the rich, and this is a force working to diminish the welfare of the poor.  

What this really implies is an arbitrary and unsubstantiated economic theory, as well as an unsubstantiated value judgment about wealth. Income inequality is announced by the socialists and Keynesians with the unarticulated assumption that the rich become richer at the expense of the poor, and that income inequality is per se bad.  

Since income inequality only tells us relative positions of the rich and poor, and not how upwardly mobile each strata of society is, it does not tell us if each class is always composed of the same people or whether people’s welfare would be increased absent such inequality.  

Larry Elder addresses this issue in Then 10 Things You Can’t Say in America, relating a personal story. He writes, “While in junior high school, I ran the fifty-yard dash, in an anteater-slow time of 7.2 seconds. My friend Keith, one of the faster runners, came in at 6.5 seconds. As the semester progressed, I got faster, finally running the fifty in under 7 seconds, at 6.9. But Keith got even faster, beating me with a time of 6.1. So, the gap between Keith and me widened, even as I ran faster. But was I worse off, having run a 6.9 versus a 7.2, since Keith’s time improved even more?”  

In other words, Larry, in the position analogous to that of the poor and middle class in this country, was better off. He became a better runner, but only as evidenced by his own previous performance. It is perfectly true that Keith, in the position of the rich, started off better off than Larry and became a better runner at a disproportionately faster rate. But this has no bearing on Larry’s performance, and it would be nonsensical of anyone to say that Larry was a worse runner later in the semester.  

Larry Elder’s story stops there, but we can use it to examine the principles of class warfare even further. Let us say that everyone on the track team who ran in less than 6.9 seconds became part of a special, more advanced team of runners that endured more rigorous training, and this team consisted of Larry and Keith. In Elder’s junior high school, an incoming class of sixth graders brings in five new members on the track team, all of whom run the 50-yard dash in more than 6.9 seconds.  

Did Larry and Keith necessarily have anything to do with this (i.e., can we know, just from this data, that Larry and Keith somehow impaired the sixth graders’ ability to run, and could do so because they were better runners)? Or are we merely observing less skilled and experienced runners who first need to start running and have mild training such as learning proper breathing techniques, posture, diet, flexibility, etc., before they start running longer distances and lift weights? We cannot know if either is the case with our statistics about the seven runners and their running ability in relation to each other.  

With this understanding, we can see that all the claims of income gaps ring hollow and are haphazard attempts at coherent analysis of the problem at best. At worst, they are disingenuous ploys to arouse people’s sense of envy.  

So far as disparities in incomes are caused by whatever bad guys and programs we attribute them to, whether greedy capitalists or control freak politicians, the consequences that these people may cause are only bad in so far as they reduce wealth, welfare, and violate property rights. To the extent that they cause relative differences in wealth, this consequence alone may be at most a symptom of bad policies.  

Whether wealth concentrates itself at the top and poverty diffuses among the masses or not, the relevant issue in understanding economics and government policy as far as this issue goes is whether individuals are being unjustly prevented from getting better jobs and wages. If this is the case, then if the obstacles to wealth were removed, we may or may not see a corresponding equalization of wages, depending on the concrete data each person encounters.  

But whatever someone’s conception of the illegitimate obstacles to wealth are, whether as conceived by a socialist or a capitalist, the desired result would be an increased ability of the poor to acquire wealth.  

This is the substance of the objection to wage gaps, which should go to show how superficial and irrelevant the matter of wage inequality really is and that it is used to merely advance hostility towards the rich and freedom itself rather than substantive and coherent objections to current economic practices and policies.