Since the effects of income inequality on the middle class is the most prominent economic issue of the 2016 presidential election, it would be beneficial, as informed first- and second-time voters, to make sure we are asking the right questions. We should be looking to find a lasting solution to this extremely important problem without negatively affecting the longest period of positive GDP growth since the Great Recession – thereby restricting the prosperity of every American.
First let’s ask ourselves “What is wealth?” to clear up the central misconception that prevents a feasible solution from solving this problem. When I was four, I thought electrical sockets created electricity; I had no idea there were power plants miles away generating it. Similarly, it does not occur to most kids that wealth is also generated from “afar”. From a child’ perspective, wealth seems to be something that comes directly from one’s parents. Due to the circumstances in which they encounter it, children misunderstand what wealth is. They confuse wealth with money due to the circumstances in which they encounter it. As children, we believe there is a fixed amount of money or wealth available and that it is distributed by the “authorities” (parents), and therefore, each sibling should have a roughly equal amount of their parents’ wealth at their disposal to purchase what they want or need. In reality, wealth is the goods and services one can afford with money. Money technically is not worth anything unless it is guaranteed by the United States government as the official means of representing an exchange of wealth to acquire goods and services (without a fiat currency as it’s formally called society would operate under a barter system). Which brings us to our second and most important misconception: How does one create wealth?
The solution is simple, yet extremely hard to achieve in the real world: to acquire vast amounts of wealth an individual’s work must be highly demanded, yet uncommonly scarce. In other words, individuals who have lots of wealth have created valuable goods or services that other individuals in the economy can’t recreate sufficiently to meet consumers’ demands. This clarification brings us back to the first question. One percent of the world is employed in professions that the 99 percent can’t or will struggle to perform as well. The self-interested distortion of the basic principles of open markets (supply and demand) is the reason we should not legitimize the journalists and bloggers who selfishly lament that their output is more valuable than the vague boogeyman of “corporate interests” by turning these deceptions into a cornerstone of the national dialogue about the least fortunate Americans. Even though this argument is completely based on morality, in economics a moral compass should be set aside in favor of empiricism. If these writers’ work was more valuable than the goods and services that corporate America produces, then the market would compensate them accordingly;the invisible hand doesn’t lie. Of course, there are some imperfections in this model; I don’t support excessive CEO compensation or “golden parachutes” for a job poorly done.
To solve the issue of income inequality, it may be beneficial to abandon the hopes of reviving the late 20th century “middle-class” paradigm. These Americans have lost their jobs due to globalization and increased productivity, with it being the largest indicator of a population’s’ economic prosperity in the long-run. These trends will not reverse; Pandora’s Box cannot be closed. Instead we should reorient our efforts to help the 45 million Americans , 14.5% of the United States’ population, who live below the poverty line. The policies to lift these individuals out of hardship won’t negatively affect America’s economic prosperity and will help those who are most often ignored. Maybe there is room for morality in capitalism after all.