A few idle thoughts on income disparities

Many, ranging from the Harvard professors, Claudia Goldin and Lawrence Katz (in their book, The Race Between Education and Technology) to the Times op ed writer, Bob Herbert, (in his column today, Putting Our Brains on Hold) have noted a growing income disparity between our peoples, beginning in the 1970s and continuing, and becoming even more pronounced, right up until today.

Most commonly the failure of our schools and colleges to “educate” a larger number of young people is blamed for the disparity. And in fact high school graduation rates are now stuck at about 70% and growing income disparities between college graduates and those who have only a high school education (or less) are well documented.

But it seems to me that the blame lies not with the schools, in stagnant high school and college graduation rates (every 20 seconds in the country someone drops out of high school!).

For, unless we lower the bar significantly not everyone will ever graduate from high school and go on to four years of college. If and when we make the school work challenging there is, and will always be a certain percentage (perhaps that 30% who don’t graduate from high school) who will not be up to the challenge.

And there’s nothing wrong with this, allowing kids to fail in school. The mistake we make is to act as if everyone were capable of higher ed, and to attribute income disparities to the failure of some to realize that imputed, I think wrongly, capability.

The blame would better be placed on any number of other culprits, all of which all together contribute to the growing income disparities that we see.

First of all we should note that this phenomenon is not peculiar to the United States. It is truly world wide, and with the greatest disparities in those countries with the largest number of poor people, such as China and India. A common mistake we make is to think of our country as being independent, an “exception,” and not an integral piece of the whole world. We are.

In China and India education is called for (too many still don’t know how to read) but it’s hardly a necessary or sufficient condition for eliminating income disparities. Does anyone believe that once the peoples of China and India even reach, say, our 70% high school graduation rate that income disparities in those countries will be less?

People’s lives will be improved, as they always are by further education, but they will still be far from the top in regard to earning power.

We should note that income disparity is not peculiar to us, but it is a given in today’s world, where there are, even more so than in the past, the few successful (and rich) entrepreneurs who support the rest of us by their extraordinary energy, inventiveness, and creativity, all attributes which more than all the efforts of all the governments of all the nations combined uniquely serve to grow the world’s wealth.

And of course their own wealth as well, and hence the stupendous wealth of the few. And this process while doing nothing to reduce the income gap but rather obviously increasing it, has also, as we’ve seen in China and other newly developing countries, raised hundreds of millions out of poverty.

In a sense the income gap or rather the great wealth at one end, while mostly created by a relatively few highly successful individuals and representing a lot of wealth in only a few hands, has enabled us to go to the moon, win the Cold War, and provided the funding for our schools, not to mention assuring the salaries of our hundreds of thousands of bureaucrats in Washington and elsewhere.

So while speaking out against the, for some, unconscionable gap between the income of the 1% at the top and the 25 to 50% at the bottom don’t forget that equality of income while it may lead to a successful termite mound won’t lead to greatness and all those things that make our lives better than the lives of termites. Because even at the bottom our lives are better, better in many respects than the lives of kings in the Middle Ages.

There are many causes of the income gap, only a few of which I will mention here. The failure of our schools to classically (math, language, history, science et al.) educate 100% of our young people (that which in any case is not possible) is the least of them.

For me one culprit is the fact that (again, for many reasons) many people, many young people in school, would rather play than work at something. Not unusual this. I’m still doing it myself.

Now there are those who play who do very well (and this is why most go on playing) but most don’t do very well. Most who play basketball don’t make it into the NBA.

And the result? Well, we may have the greatest income gap of all time, in that between LeBron James and the kids with whom he used to play street basketball years ago.

Another culprit we might cite is that there is no equality out there anywhere in the world anyway. And given widespread inequalities why would we expect to have income equality? For everywhere there are only  disparities. At best there might be equality of opportunity, and to achieve that is a worthwhile goal.

So, just as there are gaps of all kinds between individuals, unequal in respect to talents and achievements, so we encounter as a rule the corresponding gaps in the amount of money people earn. How could it be any different, except within the termite mound?

If as some say there was a time in our own country’s past when the income disparities between us were less it was perhaps because the natural wealth of the country, as well as the opportunities to take advantage of that wealth, were much more widespread, much more available for the taking  than they are now.

Now things are different. The frontier is no more, the frontier itself being, at that earlier time, a kind of equalizer.

So what to do, just accept that 1% of our citizens at the top of the income scale earn (or at least receive) as much as the 50% at the bottom? There are those who don’t accept this and who would tax away the excessive wealth of the few and distribute it to the many. But haven’t they overlooked if not forgotten that it’s the few, prominent among those whom they would tax, who created the wealth in the first place?

2 thoughts on “A few idle thoughts on income disparities”

  1. Check out economist Phil Cook’s book from some years ago – Winner Take All Society. Predicted/explained exactly what we’re seeing.

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  2. Philip:

    Wealth redistribution flies in the face of human nature as it takes away incentive to improve anything and left unchecked one ends up with a Soviet or feudal type society.

    It also presumes that bureaucrats are some how qualified to dictate how such wealth is best redistributed.

    This being said one needs to examine the different ways in which wealth is earned.

    Entrepreneurs and inventors have added a lot to our society and have created a great many jobs such as Gates, Edison, etc.

    Furthermore, such people have made many others wealthy.

    Put simply they have added to our society via “creating.”

    Another area of wealth growth since the 80s and in the 20s was earned via market manipulation where nothing was created. In some cases, such as LBOs, this was achieved via destruction and frankly theft.

    This group of wealth earners has only “taken” or “destroyed” and in doing so given nothing to society.

    Then there’s the issue of CEOs of existing companies (they didn’t build it) earning $10-100 million in per annum bonuses.

    Granted the CEO deserves more, but that much more? I think the other 30k employees in such a company had something to do with it.

    The there’s the CEO that exports jobs at will to get a short-term bump in EPS so his bonus is higher or shares worth more during his short tenure and is done so at the expense of the country and many hard working people.

    So I think a lot of the income disparity in the past 30 years has been driven and created by excessive greed, which generally has involved fraud and a lack of ethics.

    We need to address the board system where a CEO can insert all his cronies onto the board, financial gimmickry and illegal behavior.

    So exorbitant wealth via creation – yes, but exorbitant wealth via Ponzi scheme/market manipulation – no.

    Brendan

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