Suddenly, with the Democrats in power the debate has turned to income inequality. The problem is that the Democrats don’t seem to frame the issue very well. And, because the Democrats can’t frame the issue we suddenly find a debate about income distribution and socialism. I would like to say, before anyone from the right jumps on this train wreck about to happen that we already know that socialism doesn’t work. There is no need to debate this, because we have a real life example of the failure of socialism with the economic failure of the Soviet Union.

In fact, the real problem isn’t really a problem with income inequality. There are many problems with our current economic system, but income inequality is not the biggest problem.

We have a real problem with economic hypocrisy in the United States. We have a real problem with dishonest representation of the economic facts and figures in the United States. We have a real problem with the fair distribution of costs of infrastructure to those who use the infrastructure in the United States. And, we have a real problem with not giving all children an equal start in life in the United States. But, income inequality is a symptom of these other problems and not a problem in itself.

After all, we believe in a meritocracy in the United States. We believe that people should be paid for their usefulness in the United States. Unfortunately we only partially practice what we preach in the United States. The argument is that those who are innovative are rewarded for their efforts with large salaries and other compensation. But, I would argue that the guy in manufacturing that figures out how to speed up a step in the process is not rewarded as highly as the quarterback that wins nine out sixteen games in a season. In fact, many of the linemen on that football team are paid more than the innovative guy in manufacturing. In fact, the manager of the guy in manufacturing most likely gets a bigger bonus than the guy who actually figured out the improvement. The fact of the matter is that we reward innovation when we are forced to, but if we can get away with ignoring it we will tell the guy “thanks for doing your job, that’s what we pay you for.” That guy in manufacturing had no idea what the real effect of his innovation was on the company’s bottom line. And, because he was kept in the dark he had no idea what a reasonable request for a salary increase or bonus might be. And also, since he had already given his innovation up to the company it is likely that if he were to demand reasonable compensation he would probably be let go before that ever happened. The company knows that these guys are always going to look for new ways to make their lives easier and the guy’s replacement is just as likely to find the next new innovation.

Income inequality is actually a very good motivator, if the difference in income is actually due to job performance, innovation or other desirable contributions. That being said, income is not always unequal due to these factors. In fact, other things often contribute to income inequality that do not benefit the overall economy or the company’s bottom line for that matter. This is mainly due to basic misconceptions. For example, an employer is likely to pay more money to friends and relatives than people that are an unknown. This is often justified by risk considerations. An employer is likely to suggest that risk is lower for known people and higher for unknown people. But, the reality is not always this simple. Many friends and relatives are likely to loaf on the job, because they believe that there are no consequences for this behavior. Most likely, however, job performance is not likely to be related to the relationship to the employer.

The situation is so complex, and the subtle reasons for salary differences so intangible that people don’t normally discuss their salaries. Government pay scales are specified precisely because of these issues. But, private industry is not governed by these rules, so an executive could hire his wife for ten times the amount that a normal employee receives for doing the same job. As a family they both benefit from this nepotism.

Well, nepotism has existed since the dawn of time and it is frowned upon. But this idea exists in a spectrum of reality. Just as we all have people we know very well, less well, not at all and everything in between. Similarly employers favor those they are familiar with and exploit those they know less about. And, this extends to all possible cultural generalizations. For example, men relate to men in the work place better than women in the workplace. So, it shouldn’t surprise us that women are paid less than men in general. And, this goes for the upper class, middle class blacks, lower class Hispanics and other groups. Employers tend to rely on stereotypes and other generalizations. It has even been documented that handsome men are paid more than ugly men are. It shouldn’t surprise us that friendly talkative employees are paid more than quiet shy employees, even when their work is equal.

The real problem is not income inequality, it is the inherited wealth of the privileged classes. When the wealthy class controls a large portion of the wealth of the United States these people do not have to face up to the meritocracy that the rest of us face. The wealthy put their children into elite schools where they use the name of that institution to acquire placement into other elite schools. This class has solidified their hold on the top jobs in the top companies, if they choose to go in that direction. But with their personal wealth invested in the top companies they don’t even need to work. In fact, at this level wealth becomes power and these people don’t need to follow the rules that the rest of us do.

Of course the problem of the wealthy class isn’t as bad as it is in other older countries, but it certainly persists and degrades our society. If we truly had a meritocracy, it would weed out some of these people with no talent and no drive. Perhaps if we truly had a meritocracy we would never have heard of people like Paris Hilton.






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Don't forget what Stephen Colbert said, "Reality has a well-known liberal bias."


Cross Posted @ Bring It On, tblog, Blogger and BlogSpirit



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