There is no shortage of opinions regarding income inequality in America.
- “Systemic inequality is actually starkest in the top tier of the economic ladder, which is populated primarily by white men.”—Taylor Telford, Washington Post
- “I believe our current system of capitalism is slavery by another name.”—Congressman, Jamaal Bowman D-N.Y.
- “People who fight ‘racial capitalism’ are combating a system that played an important role in human history…woke capitalism, rather than racial capitalism, is the ascendant order of the day.”— Nicholas Tampio & Enzo Ross—Market Watch
- “Bad parenting, not capitalism, is the main cause of income inequality in America… no political system can nurture individuals so they can achieve success if the basics of personal responsibility and education are absent.And only parents can instill those basics.”—Bill O’Reilly.
Some argue the economic disparity in America is a result of capitalism, and in particular, “racial capitalism.” But there are numerous reasons for the income disparity between/among demographic groups in America that go well beyond the naïve notion that capitalism is the cause. To illustrate, the following matrix contrasts four separate demographic groups, three of which are minorities.
ASIAN AMERICANS WHITE HISPANIC BLACK
MEDIAN HOUSEHOLD INCOME $98,000 $76,000 $56,000 $45,000
Public high school graduation rate 92% 89% 81% 74%
Total Avg. SAT scores 1223 1123 990 946
College Degrees 50% 30% 11% 17%
Advanced Degrees 21% 14% 5% 8%
Children raised in two-parent homes 84% 76% 58% 34%
Unwed mothers at birth of the child 12% 28% 52% 69%
Sociologists can analyze the reasons for the disparity; but one would have to be obtuse not to see a pattern in these statistics, which come from the U.S. Census Bureau and the National Center for Education Statistics.
There are numerous reasons for income inequality in America, but capitalism isn’t one of them. Meanwhile, those who study history understand that prior to the advent of capitalism, unless someone was “highborn” the only way to amass great wealth was by looting, plundering or enslaving one’s fellow man. It was capitalism that made it possible to become wealthy by improving the lives of others.
The great fortunes in American history were a result of someone figuring out how to deliver a better product at a lower price. Henry Ford did this with the automobile, Andrew Carnegie with steel, Sam Walton with retail and Gates & Jobs with computers. Yes, these entrepreneurs made fortunes, but at the same time millions around the world have improved their quality of life because of the efforts of these men.
Economics is the study of the use of scarce resources that have alternative uses. And it’s how well a society uses those scarce resources that determines the success or failure of its economic system and the attendant well-being of its citizens. And no system has yet been devised that makes better use of those scarce resources than capitalism and free trade.
People have an innate desire to improve the quality of their lives. And capitalism allows them to do that. The hope for profit coupled with the fear of loss is what motivates the business owner to produce the best product at the lowest possible price, which when delivered, benefits not just the business owner but the thousands or perhaps millions of consumers who use those products—it’s a win-win.
The concept is quite straightforward: if a business is to remain viable it must continually innovate, increase efficiency and remain flexible when providing its goods and services. And lest we forget, the only person whose lifestyle is truly contingent on how well a business provides a benefit to the consumer is the business owner.
Those who denigrate capitalism forget the only thing that truly belongs to the business owner is the legal ownership of whatever residual is left after workers and creditors are paid; a residual that may be positive or negative. And if there’s a better way to motivate someone to produce better and less expensive products than by making his or her lifestyle dependent upon their own performance, I’d like to see it.
Milton Friedman told us, “If you want to know where the masses are worst off, it’s exactly in the kinds of society that depart from capitalism and free trade… there is no alternative way, so far discovered, of improving the lives of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”
Quote of the day: “Were we directed from Washington when to sow and when to reap, we should soon want bread”—Thomas Jefferson
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