Why Income Inequality Matters (Sometimes)

Leftists commonly decry the income inequality in the American economy. They claim it is the biggest issue of current times. If you believed them, then you would suspect that the rich capitalists will soon rule over us all via their corporate power. It is true that the wealthy lobby and bribe politicians, but the core issue does not lie where many think it does.

Individuals obtain wealth in a free market by selling a good or service to customers who believe the good or service will bring them value greater than the price of it. The wealth received by the entrepreneurs and capitalists in a capitalist system is a result of their constant satisfying of consumers’ wants and needs. They find where resources are not most efficiently allocated and put them to other uses; they decrease the misallocation of resources.

It is ideal to give those successful entrepreneurs and capitalists more money since they have proven they are the best at satisfying consumers. Their acquiring wealth this way is no issue, and it is ultimately beneficial for market participants. The issue of income inequality only comes to fruition when the government starts to intervene in the market economy.

Entrepreneurs and capitalists will be incentivized to become political entrepreneurs when a government comes into a society, and especially when the government starts to intervene in the economy beyond law and order. They begin to lobby and bribe for special favors such as subsidies and regulations, which help them increase their market share. The wealth and income acquired via political means is core problem of income inequality.

These actors did not obtain their wealth solely by pleasing consumers but rather gathered it either directly from the government or by snuffing out competition. These people are not the best suited to have the wealth because they have not proven that they can please consumers most efficiently, and they hurt those entrepreneurs and capitalists that are best suited for such a job.

Income inequality is only an issue when wealth is gained via political means, otherwise it is a blessing to the consumers. Those most competent in satisfying consumers will tend to command more resources in the free market economy, thus increasing their scope of being able to please consumers.