There is no solution for income inequality

There are two seasons in Canada: Winter and July.

Social inequality is nothing new, it has existed since the beginning of civilization. Some people like to focus on building wealth and some people focus in other activities other than building wealth.

Here is a short excerpt for Plutarch in the year 594: “the disparity of fortune between the rich and the poor had reached its height, so that the city seemed to be in a dangerous condition, and no other means for freeing it from disturbances… seemed possible but despotic power.”

No only has income inequality existed for thousands of years, but it has existed in all the geographical areas of the globe. In short, income inequality is just one more trait of humankind.

And why wouldn’t it exist? Business people who like to accumulate capital practice their craft with the same tenacity that a pianist practice his scales, or a painter practice his techniques. If a musician gets better with each practice session, shouldn’t a capital accumulator get better with each business deal? Imagine that we tell a guitarist who practice 8 hours per day, that he has to give half of his skills to someone who only practice 30 minutes per week. It doesn’t make sense, but we don’t think twice to tax a business person more that 50% of his income to re-distribute his wealth.

We live in North America, a land full of opportunities and choices.

You present two college students with two career options. One career pays $80K per year and the other pays $35K per year. One student picks the career which is better paid and the other picks the career which is less well paid. These are choices these students took out of their own free will. One student is going to earn more than the other one. Why should we penalize him/her by taking some of his earnings away?

Two consumers are presented with two smart phones, an iPhone and an Android. One cost almost $1,000 and the other one cost about $100. Both of the phone do phone calls, text, Facebook and YouTube just the same. One buys the iPhone and the other buys the Android and invest the savings. For sure, after 10 years, the one who invested the money will be better off. Why should that person be penalized.

There are two apartment renters, each one renting a two-bedroom apartment. One uses the extra bedroom as an office/storage room. The other one uses the extra room to rent it to a friend. One is going to accumulate more money that the other one every month. Why should we penalize his money making decision?

Income inequality will never go away. We should not penalize a person for making a decision which will benefit him/her financially. Instead, we should educate people to become more savvy consumer, better informed investors. We should teach people about the magic of compound interest, about  investments, about how to become better consumers and don’t waste money on brands.

Once we do a better job educating people about the investments opportunity presented at their feet every day, then we will have a better chance of reducing income inequality.

2 thoughts on “There is no solution for income inequality

  1. Thank you for your comment.

    This is a simplified quote from an interview with Margaret Thacher. The problem with socialism is that eventually you run out of other people’s money.

    There was an interesting socialism in Zimbabwe in the 1980s when president Mugabe confiscated the land of white owners and redistributed it to the rest of the country. Guest what happened? Zimbabwe went into an economic crisis and they are still paying the price.

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