On Economic Inequality and the U.S. Government

Most people would probably agree that the Declaration of Independence has been the most powerful ideological and political force in U.S. history. Nearly all Americans are familiar with the following passage:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain inalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”

It is my opinion that these words form the very foundation upon which the U.S. as a nation has been built, and that the words quoted above underlie much of what is American, not only politically both in terms of domestic and foreign policy, but economically, socially and culturally as well. Americans believe in those words and what they represent, and that belief is a big part of what makes us Americans.

Let's look closely at these words. First off, the phrase, “We hold these truths to be self-evident,” indicates that what follows in the remainder of that particular sentence is not opinion but fact that is directly observable. If you take those words, “all men are created equal” literally, then they ring true in a way that is incontestable. We were all born as babies. (I am here making the same assumption as our Supreme Court did in 1973, i.e., created = born. In the U.S., unborn human beings do not have the right to life.) We were all created helpless, dependent, and for all practical purposes equal both mentally and physically – I do not think that at birth one could argue that one baby’s brain is superior to another’s, or if you believe in “souls” that one baby’s soul is more pure and innocent than another’s. Some babies do have female reproductive organs while others have male reproductive organs, but otherwise there are no apparent physical differences. I suppose one could argue the point - a mother’s own baby is the most beautiful baby that ever lived in her eyes - but from my perspective it does appear self-evident that we were all born fundamentally equal.

The point is that the founding fathers in 1776 were referring in this statement to human nature, not as they would have it perfected but as it is. All of us face the same world and, given the liberty to choose between them, we would face the same opportunities. (Infants and children have very limited liberties as their parents make most decisions for them, so here I am talking about adults.) I think that the founding fathers who signed the Declaration of Independence were referring to the way things are when they said that “all men are created equal” rather than asserting a right or entitlement. They were not saying that all individuals have a right to become equal to everyone else in any way, but only that we were created equal.

Unfortunately, equality as the basis for a system of government was not spelled out very well in the Declaration of Independence, nor was it well defined in the Constitution, and as a result the words are often used to argue not for equal opportunities for all, but equal outcomes or equal conditions for all, regardless of one’s efforts, abilities, or the choices one has made in life. Many have taken this idea that, “all men are created equal” and endowed with certain rights, and used it to imply that everyone should be equal, financially at least.

I don’t blame the founding fathers of my country for this – the phrasing of the Declaration of Independence regarding equality among mankind was, most likely, necessary to get the southern colonies to sign on since their economic wellbeing relied heavily on slave ownership – but this ambiguity was bad in that it allowed the concept of equal opportunity to become one alleging a right to equal living conditions and even equally valid moral principles, even if one set of principles contradicts another. Everyone wants to believe that he or she is as good as everyone else, but the fact is that some people are better at some things than other people, and the fact is that some belief systems match reality better than others, some decision criteria have consistently better outcomes than others, and I could go on. Egalitarianism has become more and more politically correct whether the framework is equality of moral principles, culture, or social acceptance, but this essay primarily focuses on how the concept of economic equality has shaped modern society, on what the founding fathers actually intended when they created the Declaration of Independence, and draws a line of distinction between “equal opportunities” and “equal outcomes.”

One thing that both northern and southern colonists did agree on was a profound respect for property rights and hard work. This would be evident to anyone who has studied American history. The colonists of 1776 strongly believed that one should be rewarded for one’s effort and individual achievement. This is important because at that time, “pursuit of happiness” meant being able to reach for one’s dreams, to work hard and lay claim to the fruits of one’s labor. Such a claim is not possible without property rights for individuals. But now the original meaning of these words has eroded.

Why is it that when America is attacked on an ideological level it is almost always couched in terms of an attack on free-market capitalism? The Soviets called us, “capitalist pigs,” for example. Why is the businessman despised even more than the government, even when a government institution is usurping the people’s right to govern themselves? This has been true throughout history. And it’s not just that rich people are hated, but only certain rich people – the productive ones, the corporate executives and business people. Celebrities and athletes, like Britney Spears or Michael Jordan are not despised for their wealth, yet Bill Gates is. (Actually, I don’t like Bill Gates, but it has nothing to do with his being the richest man in the country.) Quite the contrary – celebrities are fawned over. It is their popularity that is the source of their wealth. But the inventor of a new vaccine, or the designer of a more efficient engine, they are often treated as if they do not have a right to be wealthier than the rest of us. Why?

I have lots more questions and I would like you, dear reader, to seriously try to answer them: Why is it always a major “problem” that there is economic inequality? And if the gap between rich and poor is wide, how is it the government’s job to fix the problem? How wide is too wide? Is it necessarily a bad thing for one to have more than another? Is it morally wrong? Is it true that if you extend democracy far enough (i.e., one person = one vote) you arrive at socialism? Is this a good thing? If we got rid of economic inequality, would we be rid of envy? Is the object of wealth redistribution to be free of want? Is it possible to be free of want? How can it be harmful to anyone if you are just being productive, being rewarded for your achievement, and accumulating wealth? Does the rich person’s income come at the expense of poor people? Is the reason that I cannot afford to buy a Lamborghini that someone else owns one? Yes, there is great inequality in the distribution of wealth in the U.S., but so what? Who creates the jobs? Who is better off, the poorest 5% of Americans or the poorest 90% of Africans? Does the fact that you answered, “The poorest 5% of Americans,” to that last question mean that Americans are just lucky and Africans unlucky? If so, what is the source of this luck or lack thereof?

(A side-note, and somebody fact-check me here: I think that the African continent has more natural resources in terms of raw materials, metals, minerals, timber, gas & oil than the rest of the world combined, yet the economy of the entire African continent is comparable in size to California's - not that California's economy is small.)

Poverty is simply defined as a lack of wealth. Poverty stricken nations in Africa have received more than half a trillion dollars in humanitarian aid from the U.S. over the past 40 years, much of it from private charities and churches, yet there is more poverty in Africa now than there was in the 1960s. Simply giving poor people money, while self-sacrificing and merciful, does not by itself eliminate the problem. Nobody has less wealth because somebody else has more.

There is great inequality in the distribution of wealth in the U.S.; the N.Y. Times reports this information about once a month and puts it in terms that imply that there is something wrong with our society because of this – that our society is falling apart (it is not, or if it is then that would not be because of disparities in income). A more meaningful and newsworthy statistic, if we are truly concerned with the welfare of the less fortunate, would be the percentage of Americans who are not able to survive given their economic resources. The (low) number of people who live below subsistence level is never reported as “news.”

When I criticize wealth redistribution and social programming, I am not criticizing the giving to people who would not otherwise be able to survive – such redistributions are out of compassion. But the fact is that only a very tiny percentage, maybe 1% of the wealth that is redistributed by our government from one group of people to another actually goes to people who would not otherwise be able to survive. (In this line of reasoning, I am treating Social Security as if it were a pension fund, though an unfunded one, rather than wealth redistribution.) Most wealth redistribution is based, not on compassion, but in my opinion it is based more on envy. And that, if true, is shameful – it is shameful that envy shapes our political culture.

Too harsh? Look at the current situation in Congress. In 2003 tax rates were cut across the board, for rich and poor alike – even those who did not pay taxes prior to 2003 got bigger “refund checks,” they effectively had a more negative tax rate. Everybody got a tax cut. The result we now know was a dramatic increase in tax revenue taken in by the U.S. Treasury, yet the Democrats in Congress have consistently fought against the tax cuts, and even the Republicans in Congress are reluctant to make the 2003 tax cuts permanent. Even knowing that raising tax rates back to pre-2003 levels would decrease the tax revenue collected by the government, these people still want to raise taxes. Why? I think it is because envy shapes our political culture. Because a majority has less and a minority has more, it is in the politicians’ interests to increase taxes on that minority which has more because it seems more fair to the majority group in the voting population, even knowing that total tax revenue would decrease as a direct result – even knowing that the majority group that has less would not be made better off economically. They just ‘feel better’ knowing that the rich and those “evil capitalist-pig” businessmen face higher tax rates. It is not about increasing tax revenue or decreasing the federal budget deficit; it is about reducing economic inequality, even when it benefits no one economically (except politicians).

Politicians are often heard saying that rich people are not paying their fair share. Well, how much is fair? If we take money from the rich by force and give it to the poor, are we increasing the general welfare? Let’s see, if there is a minority of wealthy people and a majority of relatively poor people, then doing this would increase the happiness of the majority of people (assuming that money makes people happy and that there are no other ethical considerations), and the minority of formerly rich people would be made less happy. Voilà – more happy people. Does this make it right? I would argue that this cannot result in an increase in "general welfare" but rather an increase in the welfare of one group at the expense of another. I personally would not want to benefit from the forced sacrifice of another person. I personally find the whole idea repulsive. I’d rather earn my keep. (By the way, Robin Hood did not take from the rich and give to the poor; what he did was he took from the government and gave back to the taxpayers what was rightfully theirs to begin with.)

The U.S. government doesn’t even tax wealth itself anyway. The primary tax paid to the federal government is the income tax, which is not a tax on wealth but a tax on productivity. (There is no federal sales tax, though some states have it. Sales tax would be a tax on consumption.) Income tax is a tax on physical and mental effort. The message our legislature seems to be sending is: “Don’t even bother to try!” Particularly for those whose means of support is a government check, there is a strong disincentive to work, because working and earning money will decrease your government check.

One final point: It seems to me that the primary beneficiary of wealth redistribution programs is the government itself. The freedoms of individuals and how they associate with each other (e.g., business organization) have been heavily restricted over this past century, and our increasingly centralized government has been growing in size, scope and in power to change people’s lives. The fact that this trend has continued into the twenty-first century probably explains why current poll ratings for government officials are so low, both for Congress (both parties and both houses) and the President. This trend makes many people uncomfortable, both here and abroad. Yes, Republicans have a majority in both houses of Congress and they hold the Presidency, but at this point many republican voters are even angrier with our government than those who voted for democrats. Here’s why: When Republican politicians ran for office, they made campaign promises: drill for oil in ANWR so we can be less dependent on foreign oil, fix Social Security, simplify the tax code, make the 2003 tax cuts permanent, make government smaller, etc. These promises have yet to be filled. Particularly since gaining a majority in the Senate in the 2002 elections, Republican politicians have been acting more and more like Democrats. Maybe if these people would actually do what we elected them to do then their poll numbers wouldn't be so low.

UPDATE: The U.N. weighs in on the economic inequality issue:

The "knowledge gap" is a major cause of poverty and is behind almost 60 percent of the giant income disparity between Sub-Saharan African countries and industrialized countries, a U.N. development agency said Wednesday.