Net Worth/Income Inequality

A video was sent to me which decried net worth inequality.  (http://www.youtube.com/watch?v=QPKKQnijnsM)    I found the video disturbing, facile and misleading on several levels.  First the video slipped back and forth between discussing net worth and annual income, conflating the two very different concepts as if they were the same measure.   In a capitalist still mostly free market a person who has a remarkable idea that dramatically changes the society at large will be richly rewarded.  Bill Gates, for example, is worth about $50B because he and his company revolutionized personal computing.  He does not consume 5000 times more goods or live 5000 times better than we do.  It is a falsity to look at divergent net worth and to opine that somehow it’s “unfair”.  I haven’t looked at the market cap of Microsoft lately, but say it’s about $400B.  That means Microsoft alone has added $400B to the national wealth.  And that is without counting all the companies that were formed as spin-offs or developed as a result of its existence.  Microsoft has made millions of people rich, more prosperous, or at least having found their lives more convenient.  The chief fallacy of those who worry a lot about economic unfairness it that they believe in the static pie.  They believe that if somebody has more, somebody else necessarily has less.  Nothing could be further from the truth.  Ten years ago a college kid created a social network platform that more than a billion people use today.  Today Zuckerberg is worth 10’s of billions.  Did any of his wealth come out of someone else’s pocket?  Of course not.  It came by growing the pie.  In fact the only way to insure that people in the lower quintiles have increased income and/or net worth is to be rapidly growing the pie.  Do I worry that half the country has little or no net worth?  Sure.  But Social Security and Medicare among other redistribution programs allow people with no net worth to live in modest ease.  How much better it would have been that instead of Social Security a forced savings plan had been instituted so that everyone would have been developing a net worth throughout their lives.  But that’s a discussion for another time.

The video slipped into talking about annual income without differentiating it from net worth.  And they intimate that the people in the quintiles are static.  Nothing is further from the truth.   Young people starting out are likely in the lowest quintile.  As they progress into careers they progress up the quintiles.  In retirement, though they may have substantial net worth, their income may have dropped from a higher quintile to a lower one.  Our income tax code is already very progressive.  It may now be too progressive and affecting the growth of the economy.  Certainly the size and the spending of the Federal Government is inhibiting economic growth today.  But here are the figures from 2010 for the percentage of each quintile’s share of income taxes.  Lowest:  -3.8%, Second:  -4.3%, Third:  3.9%, Fourth:  15.1%, and Top:  89.1%.  And the top 0.1% in that quintile pays 16.4%.  Graphing those percentages creates as steep of a geometric curve as the net worth graph in the video purported to show.

Finally, I get very queasy when someone discusses “fairness” in regards to income or net worth.  By what criteria and by whom is fairness to be decided.  Ceding that to the government is the pathway to tyranny.  Income and net worth must be left to the impartial free market.  Our foundational values are Life, Liberty, and the Pursuit of Happiness.  Equality except as each citizen being equal before the law is not one of our foundational values.  Today the fundamental political disagreement is between those who hold to our traditional values and those who wish to have Equality as a value supersede the traditional values.  If Equality becomes our paramount value, we will have lost what has made this nation great.

Here’s the link to my little essay on this. http://crosscountrysolutionsinc.com/uncategorized/the-american-trinity

Woody Smith