Monday, July 21, 2014

The balancing act: Inequality

From page A4 | March 24, 2014 |

Income inequality is all the rage and it has become the latest assault on our freedom. Although it has been mentioned before, it became more prominent when President Obama made the point to reduce income inequality in his State of the Union speech recently. The idea that everyone is created equal did not mean that everyone was created with equal outcomes, although that appears to be the goal of the president. The premise of being created equal is that there should be equal opportunity for all in a performance-driven society.

We are not created equal. We are all born different. Some people are bigger, smaller, stronger, weaker, smarter, less intelligent and so on. So, there is no such thing that people are equal with respect to those and many other qualities. An innate human nature will define how we turn out, subject to environmental influences. So, the idea of income equality is a pipe dream. It can only happen in a Karl Marx nightmare. It doesn’t even happen in a restrictive socialist political society or under Communism. In those societies it is the politically successful who succeed with the most money, the biggest homes, the fancy cars, the best food, the best clothes and who vacation in the best places.

Perhaps the best example of a performance-based society is professional sports. There is no equality in this domain.  Unless you can show some talent, you are not even invited to demonstrate your skills. You usually do that through amateur sports programs. While professional sports have their own unions setting the terms of players with less experience, once you become a free agent, you can sell your services to the highest bidder.

Contracts for services of a professional athlete can total in the hundreds of millions of dollars. And the salary is based purely on performance. A utility player who hits .200 with three home runs and 20 RBIs in a Class A league may make $6,000 a year if he can keep himself from being released outright, while a major league shortstop who hits .300 with 20 home runs and 80 RBIs might be making $10 million annually on a $100 million contract. Robinson Cano just signed a $240 million, 10-year contract with the Seattle Mariners. No income equality here, although a lawsuit has been filed by some ex-minor leaguers for more money. And when championship teams go to the White House, you don’t hear the president extolling his beliefs to abolish income inequality.

Jimmy Walker made $1.2 million in four days of golfing at Pebble Beach a few weeks ago; even the two runners-up received over $500,000 apiece. They wouldn’t even let me play. How is that fair? Are we as a country going to put a limit on maximum salaries? We will never prevent income inequality, unless we had egregiously high tax rates that would take away the incentive. If that were to happen, everyone would be poor. Who would become doctors?

Maybe we should repeal patents and intellectual property protection. People who invent new software, who make a movie or invent a new device won’t be able to make any money because it can be copied. Bill Gates wouldn’t be worth $60 billion and there would be no Mark Zuckerberg. All the cancer drugs that took billions of dollars of investment by drug companies wouldn’t exist — no profit motive to make them. But there would be a lot less rich people, more sick and dead people and certainly less income inequality. And since the top 10 percent of all taxpayers pay about 90 percent of all income tax, our government would also have much less money for welfare. Ever wonder why highly paid athletes live in Texas and Florida? Those states have no income taxes.

And therein lays the answer. What reduces income inequality is wealth creation; people taking risks and making lots of money who then create good jobs through their investment and building their business. Perhaps the best example of wealth creation is the outbreak of millionaires in the Silicon Valley; thousands, if not tens of thousands of them in a period of a decade or two. Look at how many millionaires were created at Google, eBay, Facebook, Apple, Yahoo and dozens of other software and hardware companies; hundreds if not thousands in each company.

Apple was started in garage by two guys and now employs about 80,000 people worldwide with 50,000 U.S. employees. In addition, because of Apple another 500,000 or so jobs were created by companies to support Apple, like parts makers. And then there are the hundreds of new millionaires created by Apple by people who create “apps” for the iPhone. That is wealth creation.

If the government attempts to raise taxes on the rich and redistribute the money to people with less money, it will just reduce the incentive for people to make money. Why should they if the government is going to confiscate it? Then no one will have money, neither the poor nor the formerly rich, also known as nouveau poor.

Larry Weitzman is a resident of Rescue.



Larry Weitzman



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