7 Myths About Income Inequality And How We Think About It

////7 Myths About Income Inequality And How We Think About It

7 Myths About Income Inequality And How We Think About It

We’re a country of absolutes in attitudes. Maybe it’s a craving for simplicity and certainty, but we frequently frame problems and their potential solutions starkly. That’s true for income inequality, social mobility, economic fairness, opportunity, and many related issues — innovation, education, jobs, crime, poverty, budget deficits and more.

Our absolutist views become manufactured truisms. These myths undercut the search for solutions. When you think you understand a problem before you look at it clearly and know what always will bring about a resolution, no matter the circumstances, you’re in a box. People frequently ignore what contradicts what they think they already know.

Here are some of the myths that cloud discussion.

1. Definitions don’t count

Discussions, which are the start of solutions, require mutual understanding. People must use the same words in the same ways, except often they don’t, particularly in political and economics. I had mentioned in a discussion on Twitter recently that socialism and democratic socialism weren’t the same thing (one difference is that under democratic socialism, governments don’t own major companies or industries). Some people who regarded themselves as conservatives kept insisting there was no difference. A conversation became completely impossible.

Talk to people on the left and you may hear that capitalism is always evil and involves oppression of people, which isn’t necessarily the case. Look at Adam Smith’s original take and you see something closer to demand creating a sensible division of labor, so you don’t have everything trying to do every single thing for themselves.

A rational discussion requires the ability to exchange ideas. If you don’t have common definitions, you can agree when you think you disagree or be divided when you assume you’re united.

2. Ideological theory will solve all our problems

Economic and political theories are fine, but they have inherent problems. In engineering and science, practitioners create models that are simplified views of reality. They do so because if you take in all the possible variables, problems become insoluble. More importantly, when conditions change enough, the people working in these fields shift or modify models to take the new situation into account.

In politics and economics, though, models — whether capitalism, socialism, democratic socialism, laissez-faire, democracy, communism, or what have you — have become articles of faith. The models turn into a religion and proponents insist that only that approach can work, and that the results, whatever they are, become a moral necessity.

The number of millions that have died and suffered under the certainty of regimes is beyond count. Feudalism, Social Darwinist self-centered capitalism of the 19th century, the socialism of the USSR and China (which technically never became communist, going back to the previous point), and fascism are all examples of the insanity of absolute belief in simplistic economic models. Even more complex ones can turn upside down: Just ask Alan Greenspan about the Great Recession. What works in one circumstance may not in another. If the assumptions are wrong, they may never actually work at all.

3. Free markets fix all problems

This is an example of the second point. Given the amount of protectionism, laws tailored to benefit certain groups, crony deals, highly concentrated ownership of wealth, and money in politics, there are no truly free markets and probably have never been since the first ruler granted special favors to supporters. If markets were free, banks and automakers would never have received bailouts. Big companies would be left to fail, just as small ones are forced to. We can’t say that free markets would fix all problems because we have no idea, having never experienced them.

4. Hard work gets you anything you want (or never helps)

The first version is particularly endearing to those who already do well. It is possible in some circumstances. For example, Andrew Carnegie came from Scotland and became incredibly wealthy. He also arrived at a time with greater social mobility than today. Getting into business in a significant way at an existing company didn’t require passing gatekeepers who wanted to see degrees from the right schools.

There are also people with outstanding talent whose hard work produces far more than what others will achieve. Some people can run a marathon in a little over two hours. Most cannot and will never, no matter how long and hard they train.

Effort does not guarantee success in any field, including making money. Many poor people work multiple jobs and face logistical hurdles that would leave the average person distraught. At the same time, the opposite view — that everything is a matter of privilege and effort won’t change anything — is equally wrong-headed. There needs to be hard work and the channels to let those who provide it reap rewards.

Read more at Forbes