Why Reducing Income Inequality Solves Very Few Problems

As progressives contemplate the living standards of Americans today, many of them are coming to the conclusion that reducing income inequality is the answer to building a thriving economy. Naturally, many of them believe that socialism is the solution for this income gap we are seeing today.

In the Democratic Party, we are seeing more and more candidates step forward in support of a socialistic society. This idea is particularly popular among millennials. The youth of today are earning college degrees and finding out that the job market does not embrace them like it did for college graduates in the past. Naturally, they are willing to embrace anything but the status quo – since the existing government isn’t serving them very well.

But the problem is that these people who believe that reducing income inequality is the answer will become very disappointed with the results. There are several things about socialism that the general public is not aware as it pertains to income inequality. 

Unknown Factors about Socialism and Income Inequality

Let us examine four (4) ideas and preconceived notions that has misled the general public about socialism and income inequality.

Americans Do Not Remain at One Income Level Throughout Their Entire Lives. This fact undermines a huge misconception among those who support socialism. Someone who is among the top 1% income level today is not likely to be there in the future. The income status of all Americans is very flexible. Even among the poor, there are several income changes. In fact, almost 75% of all people will be among the upper middle class at some point in their lives. No other country in the world offers such opportunities. Socialism would stop this flow of people through the various income levels.

Those With Wealth Always Buy Our Work. This is a fact that will always be true. In America, the biggest employers are small businesses. This is where people with the most money (at any given time) will create working opportunities for others. Those with higher levels of knowledge and skills – who are scarcer – will naturally earn the most income. As they earn more, they will eventually buy the work of others themselves as they invest in small businesses too – causing the economy to grow further.

Socialism Offers No Incentive for Investing Money. Have you ever stopped to wonder how a socialistic society will grow economically? There are no reasons for citizens to pump their money into a government that doesn’t provide a reward for doing so. Taxation is the only mechanism available to spark the flow of money through a socialistic government. And the taxation rate will have to be extremely high to support all the required functions of a society.

Socialism Creates Other Forms of Hierarchy. While socialism greatly reduces income inequality, it actually creates other undesirable forms of hierarchy. This has been observed in post War societies like Poland. As equal income, employment opportunities, and free education were made available to everyone, there were no longer any incentives to work harder. As a result, economic productivity drastically declined. New status based inequalities were created where certain people were given liberties that the masses were deprived of – this ALWAYS occurs within socialist societies. For this reason, it is virtually impossible to stamp out all inequality.