Summary
“Income inequality” is a central part of the debate surrounding poverty and economic growth. However, a better alternative to the term “income inequality” is “opportunity inequality.” Poverty is not about what or how much you consume but about limited opportunity and freedom.
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“Income inequality” is a central part of the debate surrounding poverty and economic growth. The basic income inequality argument goes like this: The rich get richer; the poor get poorer. This argument is often based on the idea of “fairness,” somehow believing that justice is served merely by increasing others’ income.
The income argument in many ways disfigures the debate on how best to help the poor. First, income as a measure of “equality” leads us to consider only how much one person can consume at a certain moment in time. Some people consume more than others, and certainly we all consume different goods and services. Income does not reflect ownership of assets, nor does it tell us what is being consumed. It especially fails to tell us if the individual will be self-sufficient in the future.
Second, the income debate assumes that wealth is finite. Fortunately for all of us, wealth and assets can be leveraged. Warren Buffet’s wealth does not cause anyone else to see a reduction in income or assets. The income argument assumes that the market can distinguish between individuals in the economy, and that the market chooses winners and losers. Luckily, the free market does no such thing, but it does reward people who are innovative and competitive. Wealth reflects opportunity, hard work and well-planned risk. We have a complex economy (and surely not one without its troubles); but the central point is that wealth is not finite. Given the opportunity, everyone can increase their wealth.
Following this point, how do we define “income inequality?” Where is the line, and who gets to draw it? Interestingly, at a conference I attended with advocates and policymakers on asset building for low- and middle-income individuals, there was a palpable and referenced animosity toward those we generally define as “rich.” I could not help but wonder how many of these critics owned their own homes, had a car, were planning a vacation and were college-educated. Somehow, they were not part of that “rich” group. But how do we define the “rich?”
We would be hard pressed to sound the alarm against the American Dream. Job promotions, interest-earning savings accounts and property appreciation are all things we would love to see for ourselves, and especially for those living in poverty, because we know they will propel individuals toward more stability and independence. But what happens when income rises to $60,000 or more? Or a small business venture begins to turn a profit, becoming the next success with a big payoff? Are they now part of the “income inequality” problem? When did they cross the line?
A better alternative to “income inequality” is “opportunity inequality.” Opportunity inequality refers to the barriers that the poor face in economic and educational systems. Access to credit, quality education and asset building result in the poor being better off, immediately and intergenerationally. Instead of limiting educational choice and access to credit and increasing barriers to employment, we would find better results in poverty reduction efforts if we addressed the areas where opportunity inequality is rampant.
Poverty is not about what or how much you consume, or about not keeping up with the Jones, the Trumps and the Gates. Poverty is about limited opportunity and freedom. Addressing inequality around these principles can sweep away the arbitrary line in the sand and let everyone in on the Dream.
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