Market forces don’t increase income inequality; government does.
Have you heard it said that “income inequality” is a failure of capitalism? Well, maybe we could say that, if what we had in America today was capitalism. But that’s far from the case. Our income inequality is largely the product of a government that has vastly too much power in the marketplace, and ends up determining winners and losers—virtually always favoring the politically-connected.
This is well argued at Reason.com: “Income Inequality Is a Problem—When Caused by Government Meddling.”
This is the inequality fostered through the political system. Since government’s distinctive feature is its claimed authority to use force aggressively (as opposed to defensively), this second sort of inequality is produced by violence, which on its face should make it abhorrent.
Political-economic systems throughout the world, including ones typically thought to be market-oriented (or “capitalist”), such as in the United States, are in fact built on deeply rooted and long-established systems of privilege. Favors, which the rest of us must pay for one way or another, typically go to the well-connected, and prominent business executives have always been well represented in that group.
In the United States this has been true since the days of John Jacob Astor, the fur trader who had the ears of such influential politicians as James Madison, James Monroe, and John Quincy Adams. Government was little more than the executive committee of leading manufacturers, planters, and merchants (to risk opprobrium by paraphrasing Marx) As Adam Smith put it in The Wealth of Nations in 1776, “Whenever the legislature attempts to regulate the differences between masters and their workmen, its counselors are always the masters.”
Sheldon Richman does a fine job looking at the side of this discussion that certain politicians never want brought into the open, because it diminishes their chance to gain power (and wealth) from keeping government a dominant force in the economy.
The reality is that top-down, government-controlled economies are always marked by vast “income inequality” and grinding poverty. Yet somehow those in government—men and women who rarely have great skills to do anything truly productive, but sure know how to give flowery speeches, and Gruberize and schmooze with the best—end up on the wealthy side of the ledger.
Is it better that people be equally poor or unequally affluent? This is the important question that political philosopher John Tomasi, author of Free Market Fairness, puts to his classes at Brown University. Would they prefer a society in which everyone has the same low income, or one in which incomes vary, perhaps widely, but the lowest incomes are higher than the equal income of the first society?