All this concern lately about growing economic inequality has me a bit puzzled lately, because it seems the fretters are missing the mark. Reduced inequality isn't necessarily a good thing, nor is greater inequality always a bad thing. For example, if I'm earning a healthy $100K, and my rich employer is making an even better $1 million, in which case am I better off the following year: (a) my salary increases to $150K while the employer's increases to $2 million, or (b) my salary decreases to $75K while the employer's decreases to $500K?
In scenario (b) you see that inequality has decreased, but I'm certainly not better off (and we're not including what other effects would happen at my hypothetical employer's company if his income drops by 60%), and scenario (a) shows a greater inequality gap yet I'd obviously see a 50% rise in my income as a good thing, even while my wealthy employer's income was much greater to begin with, and in fact doubled. So "inequality" in and of itself seems to be a pointless thing to measure.
On the other hand, I'm more concerned about the following:
1) Inflation-adjusted incomes, and whether they're rising, stagnant, or dropping.
2) Opportunities for economic mobility. Does the hypothetical $100K earner (or for that matter the $20K earner, or the $50K earner) have the opportunity to get that $1 million income, short of winning a lottery or discovering a long lost dead relative who put some hilarious stipulation in the will to spend $30 million in 30 days in order to inherit $300 million?
3) What is the quality of life at the bottom rung?
That said, it doesn't bother me that some people make a hell of a lot more than I do, even more than most. Either they deserve what they've been making, or (at least it seems) they just won one of life's lotteries and were born a Hilton or Kennedy, but in either case it doesn't take away from the rest of us. Imagine for a minute that the "rich"--however you define them--found a way to actually earn nothing one year (and I don't mean shifting income for tax purposes, but actually have no increase in net worth, at all). Would this help anyone? Certainly it wouldn't help those who work for them, or would be selling something to them, or would have their businesses invested in by them. Nor would it help society that depends heavily on those sweet, sweet tax dollars from them.
None of that is to say that our mess of a tax code--which can work to result in surprisingly low effective tax rates for the very rich, as was seen in Mitt Romney's returns last week--doesn't need reforming, or that the rich shouldn't be paying a greater amount than the poor. (And stay away from the term "fair share"--otherwise we have an endless argument over what "fair" means. If the rich should pay more than the rest, it's because of one pragmatic reason--that's where the money is, and the rich are better positioned to pay a larger percentage of their income without having to send their kids to school with newspapers tied around their feet). Nor is it to say that a societal goal of increasing the opportunities for mobility and alleviating the harships of the poor--whether through liberal or conservative means--are not desirable. But let's put to rest this idea that "inequality" is always a bad thing.
After all, the chimps at the zoo seem pretty equal, but who wants to live like that?
Personal Planner or simply Financial Counsellor
14 hours ago