Why Do Young People Care So Much about Income Inequality?

By Brad Polumbo

Thursday, July 19, 2018

When Bernie Sanders came to the University of Massachusetts Amherst during his campaign for president, thousands of my fellow students turned out to hear him speak. With his many campus visits, the socialist senator certainly left an impression — roughly 2 million young people voted for him in 2016.

Thanks to people like Sanders, the idea that income inequality is the “defining issue of our time” has been burned into the collective consciousness of my generation, so much so that a GenForward survey found that economic inequality was one of the highest political priorities of most young Americans. But in our outrage over “income inequality,” my generation is manufacturing a crisis — in a capitalist economy, inequality can be a good thing.

It’s easy to see why my classmates might think our current distribution is fundamentally unfair. The top 1 percent of American households control almost 40 percent of our country’s wealth, and the U.S.’s Gini coefficient, a common measure of economic inequality, is .41, making us one of the most lopsided large countries. But is that really something to be ashamed of?

America is one of the more unequal countries in the world, but it’s also the richest, and we have one of the highest standards of living among large countries. Inequality statistics should truly trouble only those who make the mistake of viewing economic progress as a zero-sum game.

Actual living standards escape measurement by inequality metrics. Struggling countries such as Ethiopia and India are more equal than the U.S — but only because it’s easy to be equal when everyone’s pockets are empty. And if 99 percent of the population got a 1 percent wage hike, but the top 1 percent got a 2 percent raise, inequality would increase, even though living standards have improved for all.

What’s more important: that we live in an equal society, or that we all live well? By focusing on inequality, my generation misses the point. Most of the people outraged over income inequality are really just (rightfully) upset about poverty, because economic inequality doesn’t tell the whole story — in fact, it can even be a good thing.

In order to enrich himself in a capitalist economy, an entrepreneur usually can’t just coast his way to the top. Many members of the ever-reviled “1 percent” got there by providing an invaluable service, creating a successful company, or having an exceptional skill — and it’s good that our economy rewards their productivity. Take Steve Jobs, for example.

When the Apple CEO died, he had a net worth of over $10 billion. Sounds extreme, doesn’t it? It’s easy to see why some think such stark distributions of wealth are unfair, because there are so many other people struggling to get by. But actually, only by allowing some people to accumulate vast wealth can we create the incentive structure we need to raise living standards for everyone. According to the economist Deirdre McCloskey, innovators see only about 2 percent of the wealth their innovation creates — and the story of millionaires (many of whom are self-made) and billionaires such as Steve Jobs couldn’t provide a clearer example.

Apple employs 50,000 people and it’s estimated that they’ve also directly created eight to ten times that many jobs in other industries such as manufacturing and mail delivery. In total, Apple has created 2 million jobs across the United States, nearly 450,000 through suppliers and roughly 1.5 million more indirectly through their retail-store ecosystem.

How many of these jobs will be filled by members of my generation? At the very least, we all enjoy the fruits of unstifled innovation. Eighty-six percent of Millennials now own a smartphone, and nearly half of all Americans own a tablet of some kind. While economic inequality might outrage my generation, we’ve all benefited from the wealth creation it enables.

It’s important to realize that economic progress relies in part on inequality, because inequality can be an incentive. Profit gives individuals a reason to be productive, and the prospect of earning more is what keeps people going. If redistributive policies mean that people receive the same payoff regardless of effort, or even just a substantially more equal payoff, there will be less incentive to keep working, inventing, or producing — the things that make us all better off.

Still, it makes sense that many Millennials are upset about income inequality. It’s hard to stomach the fact that in our society some people have so much while others struggle to survive. Additionally, some research suggests that more-equal societies, all else equal, can grow faster. But while inequality might not be ideal, it’s certainly better than the policies progressives are advocating to address it.

High tax rates meant to combat inequality destroy the incentives for entrepreneurs to keep expanding their businesses and innovating even once they’ve made a fortune. According to the International Monetary Fund, job creation in France, Italy, and some Nordic countries has lagged behind the U.S in part because of redistributive policies. These countries might be more equal, and that’s probably why progressive young people often point to them as examples — but that equality hasn’t helped their economies.

Fundamentally, my generation needs to ask itself why economic equality is even the main goal. Even many liberals would agree that individuals aren’t equal in ability and don’t all deserve the same. We all have different work ethics, aptitudes, and abilities, and we should have different economic outcomes. The Left would be quick to point out that we don’t all start at the same point, and they’re often right — but equality of opportunity is where we need to improve, not equality of outcome.

It’s true that some inequality in our economic system has been carved out through corruption or cronyism, and that’s absolutely something to be concerned about. But our focus should be on real solutions that address absolute poverty — not income inequality — and ensuring equality of opportunity, not equality of outcome. Millennials need to rethink our priorities and realize that income inequality isn’t an issue that should be dividing us.