President
Barack Obama campaigned, in part, on a promise of raising taxes on the rich and
giving breaks to the poor and middle class. During that campaign, according to Investor’s Business Daily,1 Obama said that there had been a “huge shift in terms of resources to the
wealthiest, and the vast majority of Americans were taking home less and less.
Their incomes, their wages have flat-lined at a time when the costs of
everything have gone up, and we’ve actually become a more productive society.”
Statements
like this, along with a flood of rhetoric, have gone a long way toward
convincing people that there is a huge problem of income inequality in this
country that needs fixing. The rich are too rich, this line of argument
claims, while the poor are too poor, and the middle class simply isn’t reaping
the benefits of all its efforts. According to this line of thinking, while the
nation as a whole has enjoyed an unprecedented increase in productivity and
wealth creation, the middle class has largely been left out. People are
working harder and getting less for their efforts, while CEOs are raking in
seven-digit bonuses. The consensus seems to be: It’s just not fair.
To
get a clearer picture of what’s going on, let’s start with some basics.
We
live in a capitalist free-market economy. That economic system has made us the
richest society in human history. It means that anyone can get rich and anyone
can lose all they’ve invested. It also means that people who make better
decisions, have more talent, and work harder will get ahead. It means that
there are winners and losers.
When
one person wins big — say someone who develops a piece of software like
Microsoft’s operating system — a lot of people win, because the company employs
people and thereby spreads the wealth around. People who are smart enough to
join up early with a winning organization typically become stockholders, and
they, too, frequently become rich. Employees who join up later reap some of
the benefits, but their share will naturally be smaller. In essence, the
greater the risk, the greater the reward
For
all except the die-hard socialists, the complaint isn’t so much about unequal
rewards, but about the fact that the...
