Inequality

by seangljacobs

Floors and ceilings

It’s no surprise that many would like to be as good at basketball as Kobe Bryant or at golf as Tiger Woods. And it’s equally no surprise that this isn’t possible.

But there’s one way to make us ‘more equal’ and that’s to make those better off much worse. To continue with sports, for example, let’s say we limit the amount of time Bryant and Woods train each day. This would disrupt their performance and, in doing so, reduce the gap between our abilities. But the objective has been achieved – we’re now more equal (although still a great deal apart).

The same handbrake on ability, skills and opportunity can be applied to virtually any arena, from academia to business. But some political leaders and policymakers have seen the harmful effects of this thinking on society and the economy.

Ronald Reagan, for example, in his 1957 Eureka College Commencement Address said that ‘an economic floor beneath all of us so that no one shall exist below a certain level or standard of living’ in reality means ‘building a ceiling above which no one shall be permitted to climb.’ Reagan thus pursued economic policies that unleashed people’s talents and not the other way around.

At around the same time, by contrast, Indian policymakers struggled with the effects of taxes designed exclusively to take from the rich and give to the poor. As Fareed Zakaria reflects, ‘the top marginal tax rate in India in 1974 was 97.5 percent. (Really.)’ And the Indian economy, now well regarded for its growth and poverty reduction, thus lay stagnant for decades.

There are countless more examples like this but today ‘inequality’ continues to agitate calls for reform, from demanding the rich ‘pay their fair share’ to attacking ‘the top one per cent.’

Rarely do these reformers stop to ask the fundamental question of why everyone is expected to be equal in the first place? Even if all people had the exact same starting point in life, the sheer amount of inputs, experiences and choices will inevitably produce contrasting trajectories.

What rarely accompanies discussions on inequality is the issue of mobility – how you move up and down in an economy. Many commentators on inequality fail to mention that, when tracking actual people through their tax returns (and not income brackets), folks rarely have a fixed amount of wealth over time. According to one study in the United States, for example, only half of the top 1 per cent in 1996 were still there in 2005.

It’s painful to hear people being told they will stay stuck their entire lives in the same place. The lesson of mobility, which applies to any free market economy, is that not everyone stays rich but not everyone stays poor.

Attacking the wealthy, which for many has become a full time sport, essentially means attacking opportunity. This is not good for anyone – poor, rich or middle class.

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