On Income Inequality and Work

Ladies and Gentlemen, a news flash for everyone--this is going to be shocking news for everyone who has spent the past few weeks occupying Wall Street, Washington, DC and all those other places--on the issue of income inequality

I will admit it it--income inequality exists. I can't deny it, I won't deny it and I am certainly not going to apologize for it. Income inequality exists because we live in a, nominally, capitalistic society. Oh, and income inequality has always existed. Income inequality will always exist in one form or another. Get used to it. Get over your whiny little envy. If you want some money--I have a solution for you. Get to work!

But the fact is that probably won't happen. The Occupy Wall Street crowd isn't so much about income inequality as much as it is about income envy and a sense of entitlement. NOTE: Yes I know that the OWS crowd has other concerns, which I think are more legitimate, i.e. the too close relationship between big government and big business, although I think they have the causation direction wrong.

As the class warfare heats up (and make no mistake the OWS crowd has bought into the class warfare hook, line and sinker without actually asking why), the income inequality argument is going to be brought up. When we talk about income inequality, we need to be clear about the causes of that income inequality and the number one reason for the inequality is a function of talent and drive--that is those intangible attributes, along with luck and a lot of work, that determine how "successful" we are in life.

First let us dispense with the notion that the poor in this country are anything like being truly poor, that is so poor that they live in a 1 room shack, or have not shelter at all, wonder where their next meal is coming from etc. As James Pethokoukis notes in 7 reasons why Obama is wrong on income inequality, even the poorest among us is far better off today than they were 30 years ago. But while the rich have gotten richer (again, not going to deny it or apologize for it), the poor have gotten richer also, just not at the same pace that the rich have:

Liberals frequently claim the average American family has been losing ground for the past three decades—or at least since Ronald Reagan took the presidential oath in January 1981. (As if the 1970s with its sky-high Misery Index was a great economic time.) The CBO refutes this. Its data show real median after-tax household income (half of all households have income below the median, and half have income above it) grew by 35 percent over the past three decades.

Those are hard numbers issued by the CBO in the same report that talks about the income growth among the top 1% and it means that even the poorest  Americans are generally far better off than they were 30 years ago. As my father has noted to me several times in his volunteer work for Cathlic Charities, there are a great many people coming to Catholic Charities for help with electric, water, mortgage bills where both adults and their three kids all have cell phones, have cable TV, and a roof over their heads. The poorest in other countries don't have the latter luxury, let along TV and a five cell phone plan.

Nor are people stuck in their position as "poor," which, as Rick Moran notes "a Treasury study on income mobility found that starting in 1996, half of taxpayers who started in the bottom 20 percent had moved to a higher income group by 2005." So we have income mobility and just because you are poor now, doesn't mean you have to remain poor, if you are willing to work. 

Recently, the President touted some numbers in a recent Congressional Budget Office analysis of income inequality. The CBO report states that average after tax income for the top 1% grew by 275 percent between 1979 and 2007. Looked at in isolation, that certainly looks bad. But Pethokoukis posits that there is some reasons for some of the disparirty between the 1% and the 99%The first addresses that 1%:

One potential explanation from CBO: ”The compensation of ‘superstars’ (such as actors, athletes, and musicians) may be especially sensitive to technological changes. Unique characteristics of that labor market mean that technical innovations, such as cheap mass media, have made it possible for entertainers to reach much wider audiences. That increased exposure, in turn, has led to a manyfold increase in income for such people.” The CBO also mentioned ”changes in the governance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial-sector activities” as possibilities.

In a nation of 340 Million people, 1% is still 3.4 million people. The CBO and the White House have placed a lot of emphasis on technological change as the driver of wealth and income. While it may be a factor, it is not the end all be all. It is true that those on the cutting edge of technology stand to make a lot of money, but I don't hear anyone from OWS or the White House complaining about the money Steve Jobs or Bill Gates made by being on the forefront of technology. Yes, technology can make lots of money--but it can lose a lot of money too--the reward is proportional to the risk.

But let's look at one segment of that 1%, the entertainers/athletes of one sort of another. But those few professional athletes and top entertainers do very well financially. We hear of athletes making $20 million plus a year plus endorsements, or movie stars making millions per movie, plus royalties and a share of the merchandising, and musicians raking in millions in album sales, iTunes sales, concert tickets, merchandising etc. Thus, even among the top 1% of the top 1%, there are massive income disparaties that no one talks about. The President has spoken of taxing people making more than $250,000 per year, something that many liberals champion. But consider, I hear no one in the Occupy Wall Street crowd complaining about the injustice to some average worker in relation to the minimum salary of an NFL player, which. in 2011 is $340,000 for the year. An NBA player minimum salary for a rookie is $457,588 and a 10 year NBA veteran's minimum salary is $1,306,455. Even the lowest paid athletes in the two biggest revenue sports in America are well into the top 1% of the top 1% of America. If the OWS crowd acknowledges that, no one seems to be clamoring for those people to give up their money or that they don't deserve that kind of pay.

But while a football player or basketball player, even a rookie who has not proven himself in his profession, make have unique skills that are compensated on a different scale that us average athletes, are not people with special skills likewise rewarded in our culture. But on a lesser physical scale, the others in that top 1% have no doubt done something that a vast majority of the OWS crowd has not done, cloaked as they are in a sense of entitlement, worked their butts off to succeed. Success is not given simply because someone has a college degree (as I have seen some demonstrators talk how they went to college and still don't have a job). Success is a function of talent, training, effort and perhaps some luck. Of these four, only training is something the government can "give." But just because training is available, it still takes effort, energy and desire to make it useful. The other three factors, effort, luck and talent, cannot be given out. Thus, there are inherent inequalities of talent and ambition among us (the things we are told to celebrate because it creates a diverse community) that ultimately lead to income inequality. Those who have a special talent or are willing to work harder than the next guy are almost certain to succeed financially.

But like the NFL or NBA player, those people possessing in demand or unique skills are compensated better because precisely because they are in demand. Which by the way, iis a function of a capitalist society--paying those with in demand skills more. And those in demand and unique skills do not necessarily come from a college degree. One of my criticisms of Pethokoukis' piece and many other commentators is that we think of technology as the only way to a better life. As technological change accelerates and becomes more pervasive, the market will reward workers with more education and skills. As Pethokoukis notes:

Numerous researchers have concluded that, on balance, the technological changes of the past several decades—and perhaps the entire past century—increased employers’ demand for workers with higher skills and more education. That increase, along with a smaller increase in the supply of workers with higher skills and more education, generated substantial gains in the relative wages of more-educated worker. In the past decades, inequality has been going up everywhere.” It is a global phenomenon.

But in a society that has, as the Obama Administration is fond of pointing, crumbling infrastructure, there is a need for people who are not necessarily better educated in terms of the degrees they hold or colleges they attended, but skilled workers none-the-less. I would wager that in 25 years, a skilled plumber, electrician or welder might be making more--without a college degree--than half a dozen bachelor degree holding college graduates put togther. Why? Because they have skills that are in demand and people are willing to pay for those skills.

As our colleges and universities churn out young men and women specialized degrees in ever increasingly esoteric subjects, they have not learned any of the basics of caring for their own homes, let alone their community. But as we have begun to fetishize education, putting so much stock in a college degree, we have neglected the basic needs of our society and have made second class citizens of blue collar workers, portraying them, for the most part, as uneducated buffoons who are incapable of being successful or rich and of course demeaned because they don't have a college degree. But when my plumber charges almost as much per hour as a lawyer or doctor--you tell me who is smart and who is not.

We know that not everyone can be an NBA point guard or center, nor can everyone be a NFL linebacker.   At the same time, not everyone has the skills or knowledge to be the CEO of a car company or bank. Those are unique skills that require alent, training, effort and a little luck. But that position also comes with a price, in terms of time spent at work, cost in human terms like time away from family and friends, or damage to one's health.

Similarly, not everyone has the talent or drive to go to college, yet they can become comfortable, if not well-off, by being that person who can fix my air conditioning or plumbing because I have neither the skill nor the time to do so. And given that we have made blue collar, skilled labor a "second" choice instead of a viable alternative, there is a labor shortage for those skilled workers.  And as capitalism tells us, if something is in short supply, people will pay more for it.  But even among skilled workers some people are going to make more money because they are willing to work harder.

But the key fact is work or effort. If a person is willing to work, at what ever their chosen occupation, they will be rewarded and compensated. If a person wants to make money, they have to work harder. That is something that the average clue collar worker understands almost intuitively, but something that a degree toting dilettante fails to grasp.

Two facts remain:

1. So long as people are born with different talents, there will be income inequality because some talents and skills will be able to command better pay because fewer people have that skill.
2. So long as some people are willing to work harder, work longer and sacrifice somethings that the rest of us are unwilling to do, they will make more money than the rest of us.

Congress and the President cannot legislate talent and motivation. So if you envy that 1% and you don't have the unique talent to do something, my best advice is start working----hard.