Economics 101

Is There Such Thing as “Good” Income Inequality?

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When someone gets ahead of others financially because of hard work, calculated risk-taking, and innovation, it is not only good—it should be celebrated.

Really? Shouldn’t Christians be more focused on equality? What about helping the little guy? 

Let’s think about these questions from an economic perspective.

Isn’t Inequality a Sign of Injustice?

Income is a return for labor that is well-invested, because well-invested labor creates value for others. This doesn’t occur in a vacuum; we can only earn income when we give others what they want at high quality and reasonable prices. Income is an important incentive for innovation and making goods and services cheaper.

Only when the poor in the third world can earn higher wages, retain their income, and enter the global marketplace will they be on the road out of poverty.

In the United States, we argue against income inequality primarily based on the false idea that if someone earns a high income, they take away opportunities for the poor and middle classes to earn more, too. The truth is, when economies are based on market trade they are not zero-sum games. If one earns a high income because they provide a valuable service, then everyone is better-off because we benefit from a good or service in which we would not have otherwise been provided. Furthermore, value can increasingly be created as people use resources and trade in ways that satisfy their preferences and needs.

When someone earns more, it is because they have created new value for others. Neurosurgery is a highly specialized and highly valuable skill, and the market rewards it accordingly. Because a neurosurgeon has a set of highly sought-after skills that most don’t have, he or she earns an income that reflects that. Income is the price of one’s labor and, like all other prices, it reflects the supply of the skills required to do the work against the consumers’ demand for those skills.

Capitalism will ultimately pull the third world into the first world and give the approximately 620 million people worldwide who are living in extreme poverty the washing machines, antibiotics, and food they so desperately need.

Why Forced Equality Doesn’t Work

Though often well-intentioned, any attempt to correct or fix income inequality will fall flat, because egalitarianism (making everyone have the same) is antithetical to our God-given design.

Imagine that in an effort to attain income equality, we were all given an equal amount of money by the government. Let’s make this hypothetical income $50,000. For a family of four in the United States living at or below the poverty standard, this would at least double their income. If this happens on day one, what does day two look like? How about a week or a month or a year later? There is no way to ensure that people’s amount of cash (based on the amount they were initially given) would remain equal, because we would all do something different with our money based on our unique preferences, needs, choices, and situations.

  • Some would put money in a high-risk investment and triple their money.
  • Some would invest in a high-risk venture and lose it all.
  • Some would put funds in a safe and low-interest money market account and earn a return at a lower rate.
  • Some would waste it all at the blackjack table.

There is no way to ensure that income equality is retained unless we constantly redistribute excess earnings (anything greater than $50,000).

The good news is that in a healthy, market-based economy, we have the best chance we have ever had in human history for both high incomes and wealth.

For example, Bill Gates’s dramatically high income does not hurt the ability of the janitor to earn an income. The difference in their two incomes has to do with supply and demand for the skills each provides.

The difference in their incomes also has nothing to do with their worth or dignity. God does not define us by our incomes, but he does understand our hearts. If we covet money and make it an idol, it doesn’t matter whether we are poor or rich—our hearts need transformation. As such, it is neither inherently righteous to be poor any more than it is villainous to be rich.

Understanding how market economies operate in light of biblical teachings about work and income helps us to better understand these principles. As Christians, we can view this type of “good” income inequality as desirable so long as it is within the context of market trade, private property rights, a sound rule of law, and value creation.

Editor’s note: Read more about a Christian view of income inequality in Counting the Cost: Christian Perspectives on Capitalism. Get 15% OFF! Use code: CTC15

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