News and Tribune


January 29, 2014

HICKS: The choices of income inequality

— Income inequality in the United States is hardly a new issue, but the many signs of a widening gap between rich and poor will fuel debate for some time to come. So it is good to try to understand some of the dimension of the matter.

There are many causes to income inequality, most significantly that labor markets value different skills in different ways. Tending bar pays less well than teaching finance, which is far less well compensated than pitching in game six of the World Series.

Some of these skills are endowed at birth. Folks with I.Q.s much below 90 probably cannot teach finance, and it takes some natural attributes to play championship baseball. Still, the overwhelming difference between these skills is not a gift of birth, but the result of hard work over many years.

Technology plays a role in income disparities. A century ago, teaching finance was more lucrative than baseball. Now that millions, not thousands, of people can watch a single baseball game, there are fewer, far better paid athletes. Bartending remains largely unchanged from its low-tech days, and the pay has not changed much, either.

Personal choice plays heavily into lifetime earnings. The decision to try a highly addictive drug, drop out of high school or have a child while in your teens is a virtual guarantee of a life on the edge of poverty. Indeed, for healthy adults in persistent poverty, effectively all have made one or more of these three choices.

High earners also make choices. They forgo short-term benefits for longer-term gains, enduring years of education or training. Most of this is not aimed at getting rich, but out of love for medicine, invention or baseball.

Perhaps most importantly, nearly every one of us could make more money elsewhere, doing something else, but choose to live different lives perhaps raising children and living near family or in a place we like. Again, these are choices.

Chance also plays a part. For those who are ill or disabled, wealth will be far harder to acquire than it is for those who are essentially healthy. I do not believe there is broad disagreement on this issue. But, beyond that, most income determining factors are the result of life's choices.

So here is the beginning problem with an income inequality discussion. While there are any number of policy tools with which ways to move wealth around, any talk of fairness has to acknowledge that income differences are almost exclusively driven by individual choices. Aggressively transferring wealth from those who've made one set of choices to those who have made others will never form the basis for a fair or enduring government.

I can already hear the accumulated voices of the poverty lobby screaming at my callous pronouncement that income inequality is the result of choices. Yet, these are powerful truths that urge us to action.

If we really want to reduce poverty — and I am not really sure everyone does — then we are going to have help people make better choices, not just subsidize them when they do not.

— Michael Hicks is director of the Center for Business and Economic Research and professor of economics at Ball State University.

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