There has been a lot of talk about income inequality lately. Thomas Sowell has a five-part series dispelling the idea that such disparities carry either moral or policy significance. In Part 1, he points out that not understanding why something works as it does is the normal condition of most people most of the time. So if you don’t understand why someone makes a lot of money, don’t think any more of it than the fact that you don’t know how to fix your car:
Ninety-nine percent of all the things that happen in this world "make no sense" to any given individual. Do you understand how your automobile's transmission works? Could you repair it if something went wrong?
Do you understand how aspirin stops headaches? How to make yogurt?
Years ago, a famous essay pointed out that nobody knows how to make a simple lead pencil. That is, there is no single individual anywhere who knows how to grow the wood, mine the graphite, produce the rubber, and manufacture the paint.
Complex economic processes cause all these things to be done and coordinated by a wide variety of people, just in order to produce something as simple as a lead pencil. Multiply that by a hundred or a thousand when it comes to the complexity of producing a car or a computer.
If you cannot understand something as simple as making a lead pencil, why should you be surprised that you don't understand why someone is making a lot more money than somebody else?
Sowell says it makes no sense to talk about income gaps without understanding the sources of those gaps. For a variety of reasons, some people are more productive than others, and most of those reasons are not amenable to change by policy. One particularly important factor, says Sowell (examining the international dimension of income gaps in Part 2), is culture:
In our own time, the economic effects of these cultural differences often dwarf the effects of differences in material things like natural resources.
Natural resources in Uruguay and Venezuela are worth several times as much per capita as natural resources in Japan and Switzerland. But income per capita in Japan and Switzerland is about double that of Uruguay and several times that of Venezuela.
Nobody likes to see poverty in a world where technology and economic know-how already exist that could give everyone everywhere a decent standard of living.
All you have to do is change people. But have you ever tried to do that?
In Part 3, Sowell points out that millions of people around the world in the past couple of decades have risen out of destitution for reasons that have nothing to do with efforts to redistribute income.
An important question for those who take offense at income disparities is: How would you go about deciding how much money someone else should make? In Parts 4 and 5 Sowell develops the idea that economic value makes no sense apart from the context of individuals voluntarily agreeing to trade one thing for another:
[I]f there were an objective value—whether of goods or of labor—then economic transactions would make no sense.
When you buy a computer, the only reason you part with your money is that the computer is worth more to you than the money. But the only reason someone sells you the computer is that the money is worth more to them than the computer.
The difference in value of the same thing to different people is the whole basis for economic transactions. If there was any such thing as an objective value, these transactions would make no sense. Why bother making an exchange if what you get is no more valuable to you than what you give?
Those who earn a lot of money do so because they have convinced somebody else to pay them that money. Sowell:
Things are worth it or not worth it to particular individuals. What these things might be worth to somebody else is irrelevant.
People who think that they, or the government, ought to be deciding how much income people make are in effect saying that they know the value of people's output better than those who use that output and pay for it with their own money.