On "Income Inequality" and the New Double Standard

What I am going to Say

What I intend to convince you of is that severe- perhaps even moderate- income inequality is detrimental to the development of the individual and his society.  I do not consider myself "liberal" or "conservative."  To be sure, I am the picture of the stubborn and reviled moderate.  Some readers will find that I take the liberal view here, others will find that my view is too conservative.

What is Income Equality?

There is an increasingly loud (and wasteful) discussion today on "income equality," whether it is "good" or "bad," and- if bad- how it can be fairly reduced.  Very few of these discussions include a definition of income equality or whether it is "bad."

Income inequality refers to a the gap between the rich and poor as well as income differences between different workers or economic classes.  In my view it includes the difference in income when effort is kept constant.  It may include the income difference between a company CEO and a common laborer in that same company.  A CEO who makes several hundred times the income of most of his workers is a prime example of income inequality among members of the same commercial field.

Income equality, it seems, has popularly become synonymous with "low minimum wages."  I think this is so precisely because the minimum wage in the US ($7.25 since July of 2009, by the way) exemplifies the struggle faced by the modern unskilled worker, among the presence of such staggering wealth.

"Is Income Equality Good or Bad?"

This is the most frequently posed question on the 24-hour news network concerning income inequality.  This is a well-meant question, but it is also not very meaningful and betrays the naivety of the questioners.

Here are a few better ways to formulate relevant income inequality questions:

1.) Does income inequality inhibit the ability of a society's individuals to actualize their potentials as excellent, virtuous, and productive citizens?

2.) Does income inequality inhibit the ability of a society to actualize its potentials as a productive and nurturing society?

3.) Does income inequality provide incentives for the underemployed or underprivileged to work harder in order to achieve a higher rank and higher pay?

4.) Is a certain degree of income inequality inevitable in a modern capitalist society?

5.) Is income inequality proportional or inversely proportional to crime rates, mortality, health problems, or other quality-of-life issues? [This question is tightly bound to question 2.)]

I certainly do not undertake the task of answering all these questions here, but asking the question in one of these ways helps us to narrow down the discussion so that it is meaningful.

Let's focus on questions 1.) and 2.), with an important appeal to question 5.).

Income Inequality and Individual Potential

Let me start by relating the experience of Jurgis Rudkus of Upton Sinclair's The Jungle.  It's worth a very short diversion upon that masterpiece to support an important point.

SPOILER ALERT: I reveal here a few plot details of The Jungle.  If you plan to read this excellent piece of work, you may wish to skip over the blue paragraphs.

The plot summary of The Jungle is this: Jurgis (pronounced Yoorgis) Rudkus and his family move from Lithuania to Chicago- right around 1900- to start a new and hopeful life in America, where the streets are paved with gold.  They are quickly taken advantage of by each enterprising entrepreneur they meet: 

"A very few days of practical experience in this land of high wages had been sufficient to make clear to them the cruel fact that it was also a land of high prices, and that in it the poor man was almost as poor as in any other corner of the earth; and so there vanished in a night all the wonderful dreams of wealth that had been haunting Jurgis. What had made the discovery all the more painful was that they were spending, at American prices, money which they had earned at home rates of wages – and so were really being cheated by the world! The last two days they had all but starved themselves – it made them quite sick to pay the prices that the railroad people asked them for food." Chapter 2, Paragraph 16.

Jurgis and his 13 or so relatives, including his bride Ona, move into the grime and bustle of the city and immediately begin working in the booming beef and pork processing plants which are the center of the city's commercial activity.  They speak very little English and are easily taken advantage of.  They are sold a dirty, rickety house and take out an abusive mortgage the details of which are deliberately withheld from them.  Jurgis- a great burly man- is good at his job as a cow carcass cutter and works long hours for dismal pay (17 cents an hour at first) but quickly grows weary from the exertion and hurts himself on the job, which he can then barely perform because of the nerve and joint damage he sustains.  He loses his job, frantically searches for new ones and loses them too, and is eventually black-listed by his own union for working as a scab during a strike.  His wife, working just as long of hours under cruel conditions for even less money, suffers greater tragedy when she is forced into prostitution by one of the union bosses, who threatens to fire her and all her family if she stirs up trouble about it.  All the while the little money possessed by the family is eagerly wrung out of them by crafty con men, criminals, and corrupt cops (excuse the alliteration).  Many of the family- father Antanas, the children, some of the teens- suffer equally horrible fates over the course of the story.  Some of them die from the strain of life that has been at every turn monetized and commercialized by the meat processing industry.  The prices of food, coal, and clothing- all the most basic necessities for a meager life- are astronomical.  Every turn is a yawning pit for Jurgis and his family, and one by one they fall prey to the merciless grinding hellish machine that Chicago has become.  Jurgis finally abandons what is left of his sick and weary family and lives as a vagabond, then begins a precipitous descent into the world of gangsters, because his life is utterly shattered by the endless torment of a wasteful and cruel society.

The above summary does little justice in recapitulating the story- you really need to read it immediately- but is serves as an anchor upon which to make the following point clear.

Jurgis and his family are good, virtuous, honest people when they arrive in Chicago.  However, the reader finds the whole family devolve into the lowest depravity and squalor between 1900 and 1903.  Why?  Were they lazy?  Were they unlucky?  Where they bad at their jobs?  None of the above!  They worked hard, guarded against bad luck, and tried very hard to be excellent workers.  But their spirits and bodies were crushed by a world that saw them as expendable and replaceable components of business.  When a man's goal becomes survival, there is very little of excellence, virtue, or beauty that matters to him.  I have said in an earlier post that developing the potential of the individual is one of the highest goods of education, but this is unobtainable when the basic needs of that individual are denied him.

Income inequality- if it is extreme enough- faithfully converts good people like Jurgis into criminals.  It is a common sentiment that a starving man who steals bread is only doing what he needs to survive.  So with Jurgis and every other man who finds that survival is an open question.  Men, when treated like beasts, very often become them.

Things I Hate to Hear about Minimum-Wage Earners

Let me begin by sharing with you that I worked at McDonald's for six years, from 2005 to 2011.  I am a science teacher at a public school and have a summer job at a convenience store and pizzeria.  I am no stranger to the minimum-wage service industry, so I think I have a view mingled with the spice of experience.

It is not unreasonable to consider the minimum wage of unskilled workers- and the attitudes held by a society about its own minimum wage- a sort of indicator of income inequality.  The average minimum wage in the United States, since July 24, 2009, is $7.25 before taxes.  The cost of living has risen markedly since that time, while the minimum wage has not.  An individual living by himself will pay an average of about $650 a month to rent an apartment.  At that rate, it takes him 90 hours of work just to afford that, minus the taxes, minus car and gas, minus food, minus utilities, minus other expenses such as doctors visits and various repairs and expenditures.  That leaves roughly $0 for said individual to put aside for other pursuits such as higher education or saving for a family, namely for actualizing his potential as a productive, excellent citizen.  I often hear the following "argument" (I hesitate to call it even that) against raising the minimum wage: "People don't take a minimum wage job as a career; they should use that job as a stepping-stone on to bigger and better things."  I sense two problems with this suggestion.  1.) The first clause is an insult to anyone who works as a minimum-wage earner.  It says, "your job is for uneducated imbeciles and teenagers."  2.) The second clause ignores the fact that when an underprivileged individual works his ass off just to cover the bills, there is no room for him to use his job as a "stepping-stone."  Yes, it is possible to do so; but it is also unjustly difficult.  It is unjust to tell the poverty-stricken Taco Bell employee, "Come on, Holmes, pull yourself up by your bootstraps and get a better job; improve yourself and move up."

There are myriad absurdities in the way we ham-fistedly try to deal with the unemployed and underemployed.  I do not support the practice of unemployment benefits, simply because they dis-incentivize workers to rejoin the labor force, although there is some disagreement on this issue.  Let the following numbers speak for themselves: The average unemployment benefits in Michigan are $293.92 a week (source), which comes out to $7.35/hr if divided by 40 hours.  You see what is strange about this, don't you?  In what universe do unemployment benefits actually exceed the income for 40 hours of minimum-wage labor?  The United States average is even worse, with a compensation of $399.72 per week (source), coming out to $9.99/hr, which is $2.74/hr higher than the federal minimum wage.  Let me reiterate this last point: Unemployment benefits pay better than the federal minimum wage.  Thus no one has any right to criticize the underemployed for receiving unemployment benefits when they would actually be making less by getting a job.

Yet observe that the efforts of minimum wage workers are met with derision and a kind of "oh you're so ridiculously selfish" flippancy.  A number of notable Fox News pundits, including Bill O'Reilly, members of The Five, Sean Hannity, and others have dismissed the possibility of a $15 minimum wage as absurd.  This is in spite of the fact that if adjusted for inflation and the rise in productivity since 1950, a proportionally corresponding minimum wage should be $21.72 (source).  And American workers are only asking for $15!

So the first thing that is abundantly clear is that as a society we have a sizable fraction of families living something like Jurgis and his family in turn of the century Chicago.  Hard years of drudgery with no corresponding increase in wages for their efforts.  How does such an income disparity influence society as a whole?  More statistics, if you don't mind.

Income Inequality and Social Potential

We need to talk more statistics.  First look at the graph below.  This graph shows the Consumer Price Index historical trend (an index of cost of living, black).  It has doubled since 1987 and tripled since 1976 (Source: Sorry it's in Dutch, but you can find CPI since 1976 in the graph found in the link).

Source

So cost of living has risen at a very predictable rate for many decades.

Now consider the next graph.  This one, compiled by Huffington Post economics author Caroline Fairchild, shows the index of productivity and that of "real minimum wage" since 1950.  Note that the y-axis is an index, not absolute dollar value.

Source

American productivity has risen by 500% since 1950, while the minimum wage has increased by... almost zero.

Look at the map found at this link, which indicates the Gini index of income inequality across the world (sorry I can't show it here).  Red and dark red indicate high income inequality.  Blues represent more evenly balanced incomes.  We belong to an exclusive and sexy club of nations, including China, Mexico, Peru, Venezuela, South Africa, Bosnia, Mozambique, Bolivia, and Uzbekistan.  Notice that nearly all of Europe and some of the former British Empire have more equal income than the United States.

Now the presumed social impact of income inequality is based on a wide range of economic studies that have yielded diverse and sometimes inconsistent results, but here I will try to summarize the results of what appear to be the most conclusive and non-controversial studies.

1.) Nations (and states) that have higher income inequality have proportionally higher homicide rates.1
2.) The democratic participation of citizens in high income inequality cultures is lower. 2 
3.) The well-being of children is proportionally related to income equality. 3
4.) Greater income inequality leads to slower overall economic growth, 4a  while income equality results in longer sustained periods of growth. 4b
5.) Income inequality is correlated with reduced life span and physical well-being. 5
6.) Citizens in high income inequality nations exhibit reduced trust in their societies. 6a, 6b

(Don't take my word for it.  I invite you to browse over the above studies to satisfy your own curiosity.)

The Rub

I have tried to be fair here and stick to the facts.  Whether the government involves itself or not, a more reasonable minimum wage will probably reduce income inequality and have all sorts of positive impacts on individuals and society (see the research I cite above).  I wish businesses would see that and raise the minimum wage accordingly, but they will not.  They must, unfortunately, be compelled by legal means to do so.  Businesses are, after all, out for their own benefit and perpetuation, not for those of a functional society or individuals who have actualized their potentials as excellent human beings.

Here's the rub: If you value social functionality and individual development, you should probably also support a minimum wage that is proportional to productivity and cost-of-living.  This means you would support a raise in the minimum wage, which is currently not proportional to productivity or cost-of-living.

It's not about liberal or conservative, capitalist or socialist.  All four of these positions, carried to the extreme, are socially fatal.  It is about human flourishing.

If many of our own representatives can't see that, then I pity them and the voters that elected them.




(If you want to hear a narrative on the minimum wage discussion from a different angle, see Matt Walsh's blog post here.  He takes the view opposite of mine.  I love Matt Walsh's blog and read it all the time, but in this post I find a wealth of sentiment and a poverty of reasoning.  See for yourself.)