March 26 2013
Misleading Video on Wealth Inequality
A friend sent me a video gone viral on wealth inequality in the United States. You can watch it on Mashable here.
To sum it up, this video demeans high net-worth Americans and especially the top 1 percent for holding a disproportionate amount of the nation's wealth. It praises redistribution and frequently invokes "the ideal" wealth distribution (based on polling data for what people think *should* be the case).
In some ways, this video is nothing new. It's the same arguments against free enterprise that we've always heard, this time with nice graphics, animation, and even sad music… I'm sure it affects people – especially people with no background in economics.
If my college-bound sister saw this video and asked for my critique, this is what I'd offer her:
First, the video's depiction of socialism is completely deceptive. The difference between socialism and capitalism is who owns the means of production (capital). Even in socialism, people can have differing levels of wealth (and they do, often dictators in socialist nations are "the 1 percent.") So socialism isn't as equitable as they say. Furthermore, if we tried to implement completely equal wealth redistribution, we'd all have much less than today's GDP divided by the American population. This policy would take away the incentive for wealth creation, leaving us all more equal, but all more poor.
Also, net worth is not the best measure of wealth or poverty. Although many Americans don't own their homes or cars, poverty in America is nothing compared to poverty in other countries. When we break people up into quantiles ("the bottom 20 percent") we have to remember that this is relative. Nearly everyone in America has access to clean water, food, shelter – the basic necessities of life. That's because we are a wealthy nation – and we are a wealthy nation because of free enterprise (the same system that has allowed the 1 percent to become super rich).
It doesn't bother me that the 1 percent have 380 times more than I have. I'm not the jealous type. After all, since 1976 (the date used in the video), many people in the 1 percent are responsible for creating Microsoft, Apple, and medicines that save lives. I can buy those goods! My quality of life is higher because they innovated. They can keep the rewards of their innovation.
That's another fallacy in the video – that hours worked is the only way to measure work or value created. Taking risks and innovating new products may not take as many hours, but people still deserve the rewards of those value-creating activities. And you know what they do with those rewards? They do a lot of spending and investing, and this supports businesses where the 99 percent of us less wealthy people work.
And finally – and I would say this to the people on the Left – doesn't this video make it seem that having money is equal to having happiness? Many people – including me – choose to maximize happiness instead of maximizing earnings. I could definitely have a bigger net worth and a bigger salary if my only goal in life was to get rich. But most Americans don't have that goal. As an extreme example: What about nuns who take a vow of poverty? Their net worth is essentially zero, but they can make that choice and be happy.
If you haven't read Arthur Brooks' book "The Road to Freedom," you should. He examines how "earned success" is much more associated with happiness than wealth transfers. In other words, we could redistribute our wealth, but it's not likely to make poor people happier, and it's also not likely to pull people out of poverty if they don't have the money management skills to stay out of poverty (You should also read "Rich Dad Poor Dad" by Robert Kiyosaki). Instead, we need to allow incentive structures and positive community relationships to work to inspire people to attain the level of wealth they want.
This video is absolutely obsessed with "the ideal." That is so a liberal thing. Conservatives are much more concerned with reality than idealism. Ideally, money would grow on trees and no one would ever get a sickness or disease. Who cares what I think is ideal? The reality is that free-market capitalism has created more wealth and pulled more people out of poverty than any other system, be it communism, socialism or even the European-style social democracies we see now collapsing under debt crises.
Wealth inequality is not necessarily a good or bad thing. It's a good thing if it is a reflection of people's different choices. It's a bad thing if the government steps in to protect the rich from bad decisions (through crony deals).
What we should really strive for is wealth mobility, meaning, is it possible for someone to move from one quantile to another? Can I work hard, invest wisely, save money, and become more wealthy than I was last year? That's what free enterprise is all about, and redistribution works against the very incentives that are in place to help us make decisions about what tradeoffs or risks we'll take for what rewards. No, it's not fair that some people are born into wealthy families and some into poor families. But most government attempts correct that result in more unfairness and more dire poverty - harming the most vulnerable people the most.