Tuesday, October 29, 2013

Inequality in America: How Wealth is Spread

A recent YouTube video, “Wealth Inequality in America,” has been steadily circulating through various internet sites and social media outlets. The viral video seeks to educate the American populace on how unjust or “skewed” the American Economic system is because it creates horrible economic inequality.  However, the video is rather vague for it seems to only emphasize the topic of the distribution of wealth, without actually explaining why they believe this inequality is ghastly and unfair. The video raised the question of whether or not CEOs are worth what they earn.  According to the video, a CEO earns in one hour what the average employee earns in one month.  The video also made the hypothetical query, “Does a CEO really work 380 times harder than his average worker?”; implying that this is immoral because  Americans do not ideally think or even perceive the value placed on CEOs as being fair distribution of wealth.  So then I pose this question, “Is this supposed unjust distribution caused by an inherently evil unjust system and do the rich like CEOs and athletes get paid an unjust amount?”. I have concluded that this is view is inaccurate as it is a misconception of how wealth is actually earned and dispersed. First, we must become aware of how wealth is actually distributed in the United States, with the exception of government contracting, bailouts, grants and loans, social security, welfare (both corporate and individual). Whereas the Federal government chooses the winners and losers, wealth distribution is based off the free market. The market is simply people - millions of people that make day to day decisions. In fact, every time you choose to shop at Wal-Mart, Target or any other store you are deciding where to distribute your wealth. There is no system or outside force that causes you to purchase goods and services at any particular store in the United States or even a particular brand. Instead, we the American people decide how to spread our wealth. Economist, Walter E. Williams clearly conveys the truth of this idea,
Look at how Wal-Mart Stores generated wealth for the Walton family of Christy ($25 billion), Jim ($21 billion), Alice ($21 billion) and Robson ($21 billion). The Walton family's wealth is not a result of ill-gotten gains, but the result of Wal-Mart's revenue, $422 billion in 2010. The blame for this unjust concentration of wealth rests with those hundreds of millions of shoppers worldwide who voluntarily enter Wal-Mart premises and leave dollars, pounds and pesos.
In other words, millions of people are freely choosing to shop and distribute their wealth as they see fit.  This can also be seen when you choose to buy a generic brand over the name brand or when you decide to eat at a chain restaurant or a local restaurant; and by the fact that store owners and managers respond to your purchases by stocking the shelves with the products you desire most. These are all actions and reactions to people’s decisions. Second, there seems to be a misconception of where people get the money to distribute the wealth they have. So where does wealth come from? Economist, Thomas Sowell explains this best,
Despite a voluminous and often fervent literature on “income distribution,” the cold fact is that most income is not distributed: It is earned. People paying each other for goods and services generate income…[M]ost wealth is not distributed at all. People create it, earn it, save it and spend it.  (Sowell, The Vision of the Anointed, 1995, pg 211)
It is crucial for one to understand Sowell’s point that most wealth is earned and created by innovation and hard work. With this earned wealth, these people then can choose to spend, save, invest or even give their money away.  Ultimately, this is an admirable thing because it demonstrates free people making free decisions based on their own family and unique life situations.  It is not some central organization or mystical entity that distributes money - if so, it clearly would be unjust. Moreover, the video’s argument that there must be something inherently wrong since the desired and perceived distribution of wealth is categorically off from the actual wealth distribution numbers, is no real argument at all! This does not make for a cogent argument, especially if a person’s perception is already based on a false understanding of how wealth is created and distributed.  Economist Walter E Williams expounds on these common misconceptions some more,
I think some of the ignorance and much of the demagoguery stems from the usage of the phrase "income distribution." It might make some people think income is distributed; in other words, there's a dealer of dollars….An alternative vision might be that there's a pile of money intended for all of us. The reason why some are rich and some are poor is that the greedy rich got to the pile first and took their unfair share. Clearly, in either case, justice would require a re-dealing, or redistribution, of the dollars, where the government takes ill-gotten gains of the few and returns them to their rightful owners.
Williams is right, although many in our culture seem to think they were given the shaft by some mythical dollar dealer or somehow they did not get their fair share as if there was a predestined share they were entitled to receive at birth. Now contrast that to the reality that wealth is created by producing goods and services that are pleasing to “one’s fellow man,” as Williams states. In other words, the only way you will obtain wealth is to earn it from your “fellow man” and to do that you need to produce goods and services that will be of use to them. Thirdly, the video poses the idea that Athletes and CEOs do not produce as much as their employees. As a reference library assistant, I get paid for the services I provide to students for the university. I am paid a wage that is on par with the value the university places on me, and thus is willing to pay me. Furthermore, I work there because I am willing to be compensated at that rate. Again, millions of people do this same process all over the nation voluntarily.  This same voluntary process happens for CEOs, athletes and other rich members of our society by getting paid based on how much their employers value them. For example, Derek Jeter the short stop for the New York Yankees is to be paid this year about $24.5 Million. Now to you and me, Jeter may not be worth 24 million dollars nor does he necessarily work as hard as you or I combined. But to the New York Yankees, he is worth every penny. According to Andrew Marhand of ESPN New York,
"He [Jeter] is the brand," said St. Louis Blues interim CEO Mike McCarthy, who ran MSG Network when it owned the rights to Yankees' games. From McCarthy's unique position as a top television executive and now as part of an ownership group in St. Louis, the 36-year-old Jeter adds premium value to the Yankees and YES -- both estimated to be worth more than a billion each, maybe much more -- as he likely becomes the first Yankee with 3,000 hits.
Kurt Badenhausen of Forbs magazine gives us even more perspective:
During his Yankees career Jeter has made $213 million in salary (with another $43 million still to come) and roughly $100 million in endorsements. Yet his value to the Yankees has been even greater. The value of the Yankees and its related enterprises has increased by nearly $5 billion during Jeter’s career. Yes other stars contributed greatly to the Yankees success, but no one quite like the Captain.
In other words, Jeter adds more to the team in value than just what he produces out on the field. This is not an unjust distribution of wealth because again it is millions of people like you and I who buy the Jeter memorabilia and watch the Yankee games on TV which adds to ratings – all of these situations are examples of wealth being distributed on account of the voluntary decisions of free individuals and not some scheming system planers.  The same goes for CEOs, for it is not  society that gets to decide how much the CEO of JPMorgan Chase, University of Phoenix, or any other company gets paid for the job they do. Society does not know the value that these positions is worth to those individual stock holders. In conclusion, we are the ones who choose how to spend our dollar votes.  Therefore, the next time you go shop at a store or buy a Derek Jeter Yankee’s jersey, realize that you are distributing your wealth. There is no system that is ideal. The video clip, “Wealth Inequality in America,” is talking about an imaginative system or idea of more equality that does not exist and never will exist. Free markets are not perfect, but compared to all other economic systems there is nothing better. If you wish for more just results, then maybe giving to charity or starting a business and employing people at a wage you believe is fair would be a start. Either way, it is up to the millions of individuals to decide how they will distribute their wealth, because they are the ones who make up the market.   Therefore, let’s looks beyond idealism and ignorant perception and seek understanding.

This post was originally posted on   Café con Leche Republicans blog
By Thomas Salazar

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