The richest 1% of America’s population controls a disproportionate amount of its wealth–this is the idea that the phrase “we are the 99%” is meant to evoke. The obvious implication of the Occupy movement’s slogan is that this is a bad thing–but is it? Should we try to fix this disparity? And if so, to what degree? Would a completely even distribution of wealth be ideal, or is a little inequality actually a good thing to have?
Let me preface my argument by saying that there is definitely a problem. Though I sympathize with many Objectivist ideals and believe a meritocracy is what we should strive for, I have no delusions about actually living in one. Regardless of what you believe the income distribution should be, it is impossible to ignore the roles that prejudice, corruption, and plain dumb luck are currently playing in the acquisition and preservation of our country’s biggest fortunes. But is simply taking the richest people’s money away from them (by taxation or other means) the best solution to this problem?
Taking money from the rich and giving it to the poor is at best a bandage solution that treats the symptoms of poverty without trying to address its cause. Without accompanying change in the underlying problems of corruption and prejudice, the poor will continue to be dependent on the generosity or coercion of the rich indefinitely–assuming they will be helped at all. More likely, the powerful rich will simply raise the cost of living for the poor (as, in fact, they already have), effectively imposing an unofficial “poor tax” to equal the increased taxes on the rich. Rather than improving the living standards of the poor at the expense of the rich, the long-term result of this scenario is an increased cost of living for everyone, resulting in even greater inequality than before.
Even assuming we manage to circumvent the problems of corruption and prejudice, however, there is still the question of whether taking from the rich and giving to the poor in order to “level the playing field” would actually be an improvement. For instance, most proponents of social welfare in America will agree that we should not simply yank hard-earned money out of honest people’s working hands. Rather, only those who can afford it–the very richest–should be obligated to contribute for the sake of those in need. But when people say this, their definition of “honest people” conveniently tends to include themselves, but exclude those who are richer than them. Guess what, America–we are the 1%. America is one of the richest countries in the world and our standard of living is miles above the majority of the earth’s population. What we might consider a “comfortable standard of living” many people in other parts of the world would consider living like a king. And it’s the same all the way up: the millionaire believes their standard of living to be comfortable, not extravagant–it’s those billionaires who are the real problem. And those billionaires, in turn, believe they give plenty to charity and all the rest goes to maintaining a standard of living that everyone should have–ensuring not only comfortable and happy lives for themselves but success and prosperity for their children as well. “You wouldn’t take that away from someone who had gotten it by chance or generosity,” they might argue. “Why take it away from someone who has actually earned it? Now, those trillionaires/sloppy government spending/greedy corporations, on the other hand…”
Time for a little mental experiment. I’ll bet all the money in my pocket that for half of what you’re making now, you could still maintain a standard of living that most of the world would consider “comfortable” and which would be more like luxurious to those living in developing nations. So why do you keep the other half? Why not donate it to people living in squalor? If everyone distributed their income this way, the majority of the world would be lifted out of poverty to a standard of living that, while not exactly luxurious, would at least have all their basic needs met. Following this line of thinking through to its logical conclusion gives us socialism–where everyone’s wealth is distributed equally. So what’s the problem with that? The problem is those at the top of the wealth spectrum–including most of us Americans–whose standard of living would be significantly decreased as a result. At best, this is an example of “the good of the many at the expense of the few”, which is already morally debatable. But would it even work?
There seems to be good reason to suspect that it might not. In fact, there’s a very real chance that this kind of income “leveling” would lead to a net decrease in the standard of living of the entire world. Paul Graham suggested why when he wrote about income inequality in one of his essays. Here’s the gist: when you reduce the reward for high-profit ventures (by taxing the very richest of the population, for instance), you will inevitably influence the kinds of ventures people are willing to undertake. Why? Because high risk needs proportional reward–a bet with only a 10% chance needs to have a bigger return than one with a 50% chance, or no one will take it. When you tax the rich disproportionately to the poor, ventures with higher returns become less appealing–which means that only the ones with little risk will still be attempted.
If you’ve followed me so far, you may still be wondering what the problem is. In short, the problem is that the riskiest, most expensive ventures tend to have the biggest payoffs for everyone, not just for the richest 1%. Consider the example of the personal computer. The earliest computers were tremendously expensive–so much so that only the wealthiest 1% could afford to have ones of their own. If income had been distributed equally among all Americans, let alone the world, would computers have been invented at all? Not likely. Even if they had, it is difficult to imagine personal computers becoming popular. Why would they, if no one could afford them? Yet computers, and personal ones in particular, have contributed immeasurably to the wealth and living standards of the entire world.
Consider another case: the American automobile. Henry Ford didn’t become rich just because he used assembly lines to manufacture cars more efficiently. Assembly lines were simply a by-product of his ultimate goal: to make cars cheaply enough, and pay his workers well enough, so that they themselves could afford to buy his cars. Naturally, this meant that millions of other Americans would be able to afford them as well, and Ford became rich and the standard of living was raised for the entire country thanks to the achievement of his vision–but would he still have done it if he hadn’t at least had a chance of making a fortune off the idea? More to the point, would it have been fair to expect him to? It seems unreasonable to expect anyone to work and struggle, at high risk of material and personal failure, without hope of proportional reward–that would be the same sort of injustice as convicting someone of a serious crime, then letting them go without punishment.
Let’s review. First, simply taking money from the rich and giving it to the poor probably won’t fix income inequality unless we also get rid of economic and political corruption. Second, assuming we do get rid of corruption we may actually be worse off if we eliminate income inequality as well, since that will lead to people taking fewer risks, and the most valuable ventures also tend to be the riskiest. In the worst case, everyone ends up worse off when the richest (that means us, remember?) lower their living standards for the sake of everyone else. Is that risk worth the potential benefit in the best case? Maybe it would be, if there were no alternative for raising people out of poverty–but as I’ve argued before, there is. The problem is not that some people are vastly richer than others, the problem is that those who are vastly richer are currently able to use their money to unfairly influence our political and economic processes, thus ensuring they and their children are able to keep their fortune and privilege without actually having to earn them. We should be focusing our ire not on the rich, but on the corruption that keeps the rich in power even when their actions have disastrous consequences. The biggest culprits here aren’t the top 1% of individuals, they are the corporations that we require (by law!) to maximize shareholder value at the expense of all else, while simultaneously granting them the same privileges of free speech, personal property, and political influence that we grant to individuals motivated by ethical and practical concerns.
Let me be clear: I don’t believe that taxation is evil, or that governments and their attendant regulations and safety nets should not exist. Indeed, I believe that a society of individuals cannot be truly free as long as any of its members must worry for their very survival–it’s hard to produce great works or have great ideas when you are starving in the streets. However, I think it was a mistake for the Occupy movement to attack the “top 1%” in their efforts to encourage reform. If we want to eliminate poverty, we would do better to attack the political and economic corruption keeping the wealthy in power, rather than the wealthy themselves–many of whom would probably have been more supportive of the movement’s efforts if they had not been the targets of its vitriol! The sooner we recognize that the rich are not themselves the problem, the sooner we will be able to make progress in tackling the real issue–corruption.
 An annual income of only $39,000–the median for Americans in full-time jobs–puts you in the wealthiest 1% of the world’s population (in 2011). For more, see here.