On my recent visit to Southern California, I read an op-ed in the LA Times by Chuck Collins and Josh Hoxie, the authors of Billionaire Bonanza: The Forbes 400 and the Rest of Us. (They also co-edit the website Inequality.org). The op-ed was entitled: “Jeff Bezos, Bill Gates and Warren Buffett have more wealth than the bottom half of the country combined.” Collins and Hoxie were observing that the wealth gap was increasing across America and were lamenting the unfairness of “wealth funneling to a tiny group at the top while everyone else scrambles for crumbs.”
The op-ed was followed by number of letters to the editor, some of them critical. The LA Times, however, chose to highlight the one that argued for capping the amount the wealthy could pass onto their heirs. The letter writer had deemed that inheritance should be limited $100 million (and the rest should be taken by the government), as anything more would be “dangerous to the American way of life.”
What a reminder of the mindset of many Californians (and Americans). While I empathize with compassion for those struggling with poverty, as I wish flourishing for everyone, I do not agree with—particularly the op-ed authors’—premise that wealth is a fixed pie and that someone having a big slice means that others are getting less.
I also don’t agree with their moral judgment. Inequality of earned wealth and income is not immoral. Quite the contrary, wealth creation is to be celebrated, and those you are successful at it, such as the wealthiest trio, Bezos, Gates, and Buffett, should be admired. Why?
Because wealth creation is not a zero-sum game. Those producing and trading goods and services for profit are not taking anything away from others—the producers and traders are creating material values that would not exist without their productivity.
Without Jeff Bezos, or someone like him, there would be no Amazon—which has made our lives tremendously better by allowing convenient purchase of almost anything online, now including even groceries. Amazon has benefited not only consumers, but also its employees (who get paid based on their productive contribution) and its shareholders (who share in Amazon’s wealth creation in return for their investment).
Without Bill Gates, there would be no Microsoft and its Windows operating system that has made millions’ of people’s work more productive, employed thousands of people, and created wealth not only for Bill Gates but for the rest of Microsoft’s shareholders. The same can be said about Berkshire Hathaway, Warren Buffett’s company and its investment in several companies, which has made their production of goods and services, and wealth creation, possible.
Wealth creators like Bezos, Gates, and Buffett grow richer themselves but only because there are others willing to trade with them, as buyers of their products, and as employees, investors and suppliers of their companies.
Inequality of people’s wealth and income is not immoral but just, as long as it is based on people’s productivity. Those who produce more should earn more—otherwise there is no incentive for them to produce, as we know from all the failed socialist experiments from the former Soviet Union and East Germany to Cuba to Venezuela today.
In free markets, those who produce the most would earn the most. When you introduce government coercion in the form of income “redistribution” schemes, such as progressive income taxation and capping of inheritance, you reduce the producers’ freedom and incentive to produce—and diminish the well-being of all those with whom they would trade.
Collins and Hoxie and their fellow income equality warriors claim that economic wealth gives the wealth creators political power because they can successfully lobby the government for tax cuts and subsidies (for which Amazon is asking from their prospective new headquarter city). However, such political favors—that entail taxing some more to give tax breaks to others—are only possible in mixed economies where government uses coercion and interferes in the markets.
In a free society with free markets, government has only one role: the protection of its citizens (including corporations) against coercion by others. Government would not tax anyone and would therefore not be able to give tax breaks or other economic favors to anyone. It would have not economic power whatsoever.
Such freedom, and not income equality, should be our goal—if we went human flourishing and prosperity.
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