Addressing Fake Problems - Income Inequality

Addressing Fake Problems – Income Inequality

It’s inherently unfair that anyone should earn more than anyone else.  The average wage in America is $40 per hour.  Why doesn’t everyone just earn $40 an hour.  For those earning minimum wage this would be fantastic.  For those living in areas where the cost of living is low it would be a godsend. For those living in Old Westbury they wouldn’t know how to pay $15,000 in property taxes.  Those who had $4000 rents in Manhattan wouldn’t be able to afford their living space.  What would be the motivation for medical students to kill themselves for ten years?  People would just do the minimum they had to do.  This is obviously not the kind of economic model that most people would recognize as prosperous.  I had a co worker Alexander (Sasha) who came from Russia during the 1980’s.  He said that apartments were allotted by family size.  The apartments were free, they just didn’t have any.

Any economic model that creates a peasants dillema is inherently an unfair system.

                That’s not what people hear when they hear the nefarious term Income Inequality or the equally euphemistic terms, ‘Social Justice.’  They think the system is unacceptably unfair and something must change.  Any economic model that creates a peasants dilemma is inherently an unfair system.  During the feudal times in Europe peasants worked the farms owned by the ‘Lords.’  They paid taxes in food and had barely enough left over to eat.  They could never acquire any wealth, property or improve their situation.  During the industrial revolution the owners of the factories had all the power and the workers were paid very little and had to endure miserable working conditions.  This didn’t change until unions were formed.  A hundred years ago unions were critical to changing the economic model of concentrated economic power to one of a balance of power.  Unions in their purest form are inherently a good thing though I believe they have become corrupted in modern day society.  A union provides a balance of power between management/owners and workers via mutually assured destruction.  If the workers are not treated fairly and given the appropriate benefits they collectively strike and everyone loses. The company can’t produce and therefore can’t make profit and the workers don’t get paid. If the unions get benefits that are in excess of what the company can afford the company goes out of business and everybody loses.  We’ll save what really happens today for another article.

                Working so long as an engineer has one negative side effect. When I hear that there’s a problem I require demonstrable proof that the ‘problem’ has definable negative side effects.  I then require a plan of action to correct it and a way to quantify the success.  Therein lies the problem with fake problems.  Income inequality measures that much of the wealth is concentrated in a small group of people.  Perhaps 80% of the wealth of the country is held by 1% of the people.  On the face of it, that sound horribly unfair.  They ‘re just counting dollars, physical dollars, representation of dollars, stock market dollars, and virtual dollars. Is 80% of the food, clothes, machines, houses, land held by 1% of the people, no.  If your neighbor has more money than you, how does that really harm you?  If they have a million dollars it doesn’t affect your job, purchasing power or family.  If a very rich man or group of people have a billion dollars that doesn’t change my life.  If they have a hundred billion it doesn’t matter.  But it’s not fair!  It’s not fair that I have to work so hard and those people have so much.  That’s what it really comes down to doesn’t it?  They have and I don’t.  Then I stomp my foot and come up with fake solutions.  This is just one of the many solutions offered.

Living Wage: Let’s give everyone a salary they can live on regardless of the work they do.  In NY it used to be $10.  If we could just pay people $10 then they could live and take care of themselves.  Well guess what, the minimum wage is almost $10 and most people get at least that much. The cost of living went up and they still didn’t have enough money.  In a few short years it will be $15.  Then $20, ect.  Money has no intrinsic value.  There are some adults, seniors, and single parents that are trying to live off of minimum wage but the vast number of people are high school and college people, immigrants, and people working for extra money.  The higher the cost of labor the more companies will look to use automation or make due with less.  My high school nephew works in a movie theater. During the summer and winter break he’d like to work as much as possible but they can only allow him to work 29 hours or else they must provide him all kinds of extra benefits they can’t afford and he doesn’t need.

Make the rich pay their fair share!   They do.  The top 10% of wage earners pay 80% of the taxes.  There’s an anecdote of ten guys who go to the bar every week. Their bill always come to $100.  They decide to split it based on income.  So the guy with the highest salary pays $50.  The second pays $20, the third $15, the fourth $8, the fifth $3, the sixth and seventh each pay $2. The last three guys pay nothing.  This arrangement works quite well for a while.  One day the bartender cuts the bill in half.  Now it’s only $50.  The guy who was paying $50 says this is great now we can each pay half of what we used to pay.  Well the five poorest are quite unhappy because they are only receiving a benefit of $1 or nothing and the richest guys is getting a $25 break.  They decide to do it more fairly.  They say $50 should be divided evenly between ten people. So the highest wage earner should pay $45, the next $15, the next $10, the next $3, the rest of the guys are actually earning money off the deal.  Well the next week the top three wage earners don’t show up.  The super rich can always relocate but the semi rich can’t. 

So there are no problems then are there?  

Yes there are economic problems and here are the real problems that you’re not focusing on

• The top international companies are not paying corporate tax.  This is not only unfair it hurts American businesses.  I heard one CEO say that if his company was not paying corporate tax they are still paying salaries which pays for local and federal taxes.  If you are a medium size business you are doing probably 100% of your business and hiring in this country and are paying 35% corporate tax.  How can you compete with the monolithic companies who are not paying that tax on top of paying for taxes embedded in salaries.  We need to end corporate tax loopholes.
• Golden Parachutes:  If a certain person built a business out of his garage into a multi billion dollar business employing tens of thousands of people who am I to begrudge all his wealth.  He created something where there was nothing.  On the other hand if a CEO comes into a company and the company performs poorly requiring the layoff of many people and they walk away with their overly generous severance package that is inherently unfair and it shouldn’t be tolerated. 
• Corporate Tax Rate:  As a software engineer my top tax rate is 26%. Obviously I don’t pay that on all my earnings but each and every dollar I earn from here gets hit with 26% federal and 7% state.  If someone earns the majority  of their money from stock options then they used to only pay 15%.  I think it’s close to 20% now. 
• Stagnant growth in local areas. Sometimes these are referred to the inner cities but there are so many residential area where crime, drugs, and poverty are so rampant.  It’s a never ending cycle of poverty and violence and this is a very disastrous situation for many Americans.  Increasing taxes on the wealthy will not help.  I don’t have all the answers but it starts with decimating the gangs, providing educational opportunities to young people and working with civic leaders to have a peaceful atmosphere.  In other words, actual hard work!