How I Fought Envy, Part 3
By David Henderson
The third thing that helps me when I feel envious is to realize that the language of economics has set me up, along with many others, to feel envious. Pick up any basic economics textbook and you’ll probably find a section on the distribution of income. The distribution of income is simply a statistical measure of how many people earn or receive various amounts of income. However, people, including many economists, often mistakenly talk as if society is “distributing” income and people are passively receiving it. When I think of someone distributing income, I imagine a truck backing up to a crowd of people, the tailgate coming down, and someone on the truck throwing out wads of dollar bills. If you think someone is just handing out money, then the most natural thing in the world is to think that everyone should get the same amount and that it’s unfair if they don’t.
I have news for people who think that society is distributing income: No one is distributing. In a free society, we earn our income. [DRH note: I should have pointed out that some income is inherited.] Society didn’t wake up one morning and decide that Michael Jordan deserved $10 million for playing basketball and $30 million for advertising consumer products. Instead, Michael Jordan woke every morning for more than 15 years with a fierce determination to stay in tremendous physical shape, to practice for hours a day, often with weights on his arms and legs, and to be the awesome athlete that he was. And millions of basketball fans and buyers of consumer products didn’t “distribute” to Mr. Jordan. Instead they decided, one by one, to spend a little more time watching Jordan on TV, or to spend a few pennies or dollars more for products that he advertised. That’s how his income was determined: not by society distributing, but by Jordan earning.
So, whenever you hear that the top 20 percent receive 45 percent of all income or that the top 5 percent receive 20 percent of all income, remember what that really means. It means that the top 20 percent produced 45 percent of all output and that the top 5 percent produced 20 percent of all output. Also, the connection between the number of family members producing and the income they generate is a major factor in the inequality of family income. An average household in the top fifth has about 2.5 times as many workers as an average household in the bottom fifth. The bottom fifth includes many single mothers, a lot of them on welfare. The top fifth includes a high number of two-earner married couples along with, presumably, some working teenagers or young adults.
You might think I exaggerate when I say that the word “distribution” misleads people into thinking that someone is distributing. But if people aren’t misled, then why, when we talk about government taking from some and giving to others, do we use the word redistribution? If no one is distributing in the first place, then such government measures should simply be called distribution. Where does the “re” in redistribution come from? It must come from the mistaken assumption that someone distributed wealth in the first place. Of course, the idea that someone is distributing is ludicrous. But our language makes many of us think that way, with highly destructive consequences.
Fortunately, there is a lot of clear thinking on this issue, especially by people who have not received a lot of formal education and therefore have not been corrupted by what almost all American universities teach. One incident in particular was one of the first things that made me want to move to the United States. While running for the Democratic presidential nomination in 1972, George McGovern proposed a 100 percent tax–complete confiscation–on all inheritances over $500,000 (about $2.5 million in year 2001 dollars). Gordon L. Weil, one of McGovern’s advisors who favored the plan, later wrote,
McGovern was completely comfortable with the admittedly radical proposal, because we all shared the belief that most people had a strong bias against great concentrations of inherited wealth. The proposals would directly affect only a handful of people.
But the good Democratic citizens of New Hampshire, from whom McGovern was seeking votes, were not at all comfortable with the proposal. Weil writes,
I remember sitting one day in the Lafayette Club in Nashua with a group of workmen who opposed the idea of a confiscatory inheritance tax. Although none of them stood to be penalized by it, they argued that it was unfair to take away all that a man had received. McGovern was receiving similar reactions in the plants we visited and believed that all men nourished the hope of receiving a large inheritance or of winning a lottery.
Notice that McGovern assumed that these workers held out unrealistic hopes of “winning a lottery,” instead of believing that what they said upset them really was what upset them, namely that they simply found McGovern’s confiscatory tax unfair.