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Thursday, October 6, 2016

Some say income inequality is the defining issue of our time. One of the most famous tweets ever came from Pope Francis, who wrote, “Inequality is the root of social evil.”

This is a complex issue that requires solid economic thinking. Does the fact that some people are fabulously wealthy inherently mean there is less for the rest of us? The answer, as always, is that it’s nuanced and complicated. It depends on how the rich earn their wealth: Do they serve their fellow man or plunder them?


As an economist, I would say that the defining issue of our time is not that some are extremely wealthy but that some remain extremely poor. People don’t die because of income inequality — they die because they are malnourished, do not have access to clean water and lack ways to use their God-given human creativity. We know how to be rich; the defining issue of our time is that some don’t get to experience the benefits of high incomes.

Our job is to figure out how to change that.

Income inequality can reflect theft and abuse of power, and in those situations, we must stand up and stop it. However, income inequality (different incomes among different people with different skills and preferences) is a natural part of the human condition, and when a result of well-functioning, voluntary trade protected by a rule of law, it can be the sign of a vibrant society full of opportunities for the rich and the poor.

This is because those in the lowest income brackets should expect lots of income mobility over time, and their position at the bottom continues to improve — because they do not stay at the bottom.

It’s complicated, like much of the rest of life. Discerning what aspects of income inequality are inherently unjust is necessary for fostering productivity and thwarting theft and corruption.

Income inequality and theft

Historically, income inequality has been a sign of theft by the rich from others. It has also indicated an absence of modern market trade and access to trading partners.

Old Testament scholar Dr. Walter Kaiser suggests that in the Old Testament, most income inequality was the result of theft and political corruption.

He states: “Generally, it was very difficult to escape the conditions of poverty in Old Testament times, where markets were small and sporadic and income mobility was largely unlikely, unlike modern conditions. Those who achieved wealth and riches and became socially strong could use that position of strength to oppress those of another class, namely the poor (Amos 2:7, 4:1, 5:11). The rich did not oppress the poor simply because they were rich but because they were sinners. Part of this oppression could be seen in an insatiable hunger for more land (Amos 8:4, Isaiah 3:15).

“This, in turn, led to driving the poor off their inheritance (Micah 2:2, Isaiah 5:8-10). As the prophets warned, Yahweh was sure to see such that outright disobedience of his law was punished (Amos 2:13-15).”

Kaiser makes an important point in the first line of the above quote: In the days and times of the Old Testament, the vast global markets we have today did not exist. These markets have transformed the lives of everyone for the better, not just the rich.

Nothing can compare to the seemingly trivial aspects of our daily lives that we take for granted. The razor we use, the microwave, the dishwasher and the refrigerator are just some of the modern miracles we hardly think about. In this country even those in the lowest income quintiles have access to them.

The miracle of market trade is that we are alleviated from having to produce these things, or some crude substitutes for these items, all on our own. In contrast, a lack of trading partners forces us inward — to rely on ourselves for things that we are not good at doing.

Prior to A.D. 1500, life was a struggle for survival, and many needs for most people went unmet. Those who were rich were most often political leaders who lived off the backs of the population. They often acquired their riches through theft and oppressive tax confiscation, keeping nations and people poor. Yet even those who were able to live off the backs of others were not rich in the terms that you and I are today.

Income inequality and flourishing

What has changed over time is not the nature of man, but the institutional arrangement that fosters acquisition of income through the service to another rather than through pillaging.

This massive transition is new in human history. Only in the last 200 years has the West largely made this institutional shift, and massive prosperity for all income brackets is the result.

An understanding of how wealth is generated is important:

Without voluntary trade and value creation (people serving other people through trade), large-scale wealth creation and prosperity are impossible.

When people can use political power to acquire income, wealthy people had automatic power and could oppress others.

The advent of modern markets takes away that historic power of the wealthy because they have to serve us to maintain high levels of income.

The advent of modern market trade brought on by increasing specialization has brought us to the shift from surviving to thriving. It represents a historical and global transformation in the ability of individuals to earn higher levels of income and wealth, and to do so through value creation, product and service innovation and the overall service of humanity.

Did you know that over 100 million people in the U.S. have air conditioning in their homes? Or that 99 percent of families living at or under the U.S. poverty thresholds have a refrigerator? These things are incredibly important for our standard of living. It’s even more important that in a wealthy country like the U.S., the poor have access to them.

More income mobility

In this world of greater flourishing, we also observe greater levels of income inequality. This occurs because customers in markets value things differently, and that value is reconciled with the scarcity of resources required to produce the things we need and want.

The benefit is that all levels of income — particularly those of the poor — are constantly increasing in a prosperous society, a phenomenon known as income mobility.

This means that if you are born poor, you are not necessarily destined to stay poor.

Income inequality is not necessarily a sign of poverty in a flourishing society. Income inequality deals with how income is held over a society.

Unless everyone is exactly equal, there will always be a top and a bottom. What matters is how the folks at the bottom fare and whether they have opportunities to use their God-given creativity and skills to give them income mobility.

Rather than directing our energies toward the biggest incomes, perhaps our focus should be directed toward how we can help those trapped in poverty in this country — those who are born poor and stay poor. This will provide a useful map of how to help the least of these.

Anne Rathbone Bradley, Ph.D., is vice president of Economic Initiatives at the Institute for Faith, Work & Economics (www.tifwe.org) and co-editor of “For the Least of These: A Biblical Answer to Poverty.” IFWE is a nonprofit, 501(c)(3) Christian research organization committed to promoting biblical and economic principles that help individuals find fulfillment in their work and contribute to a free and flourishing society.


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