"Three Cheers for Inequality"

      Sydney M. Williams

Thought of the Day

“Three Cheers for Inequality”

May 14, 2014

There are few political requests so obviously insincere as the call by those on the Left for equality. Certainly, those like Barack Obama, Hillary Clinton, Nancy Pelosi and Harry Reid consider themselves superior. They expect the masses to rely on their and government’s wisdom. It is hypocrisy at its worst. The same could be said for mainstream media. Do you really believe that the editorial staff at the New York Times considers itself inferior to, or even the same as, those at the New York Post?

Democrat leaders generally accept inequality when applied to their intellectual, moral and empathetic traits. But, they also accept inequality when it comes to their individual wealth. Otherwise, why would Al Gore, an outspoken foe of fossil fuels, sell his “dismal-rating-achieving” Current TV (words from the Washington Post) to oil-funded Al Jazeera for $500 million? Why do politicians like Harry Reid become rich after years earning modest salaries in Washington? Why do those like the Clintons and Gores chase dollars with such fervor once leaving office? Hint: it is not a desire for equality.

All Americans, including “hard-hearted” conservatives who are targets of Mr. Obama’s sarcasm and Harry Reid’s venom, believe in equality of opportunity and equality before the law. In the first sentence of the second paragraph of the Declaration of Independence, Thomas Jefferson’s use of “equal” implies that our laws should treat everyone equally, and not favor a few as was true in England at the time. He was not suggesting that everyone should be equal in terms of income or wealth, or in any other material, physical or intellectual way. He knew they weren’t.

Liberté, egalité, fraternité was the motto of the French Revolution, not of the American. The founding fathers wanted self government. George Washington, when offered a monarchy, rejected the concept and the title, as it would create an aristocracy alien to the principles of the American Revolution. Wealth and position should be determined by merit, not birth.  The French Revolution, which advocated equality, introduced a ‘Reign of Terror’ for twelve years that included guillotining 16,500 unfortunate souls and murdering another 30,000. The First Republic ended with the ascension of Napoleon in 1804. Napoleon was not exactly a model republican. France, now in its Fifth Republic and for all my fondness for the Country, has not been exactly a model of stability.

Besides five Republics, France in the past 222 years has had two empires, a 34-year Bourbon restoration period and for four years was occupied by the Nazis. The United States, with its emphasis on personal freedom and a government of limited powers (with what power it has spread equally between three separate branches) functioning under the rule of law, has been far more stable than France, despite the latter’s greater emphasis on egalitarianism.

Equality in terms of income and wealth, at least in the last hundred years, has come closest to parity in nations that have adopted Communism. But that is because everyone, with the exception of Party leaders, is poor. A good example in our Hemisphere is Cuba, among the poorer countries in the Americas. China’s recent economic success has been largely based on allowing greater income inequality, motivating workers by paying them based on productivity. Even today, however, to garner great wealth one must be a member of the Party, which is limited to about eight percent of the population. Members of China’s Communist Party have more in common, in terms of birthrights, with aristocracies than with democracies.

The reality is that the success of any entity, be it a family, business or government, is based on the concept of exceptionalism – of individuals and institutions. Abilities vary in unequal ways. Intelligence, aspiration and diligence differ from one person to the next, as do physical strength, character and looks. It is the differences, not the similarities that drive change. Joseph Schumpeter’s concept of creative destruction is only possible in societies that allow individuals with special talents to create products and services the market demands. These are products and services first imagined by unique individuals, produced by skilled workers and sold by incentivized people. Compensation in our strongest companies is based on productivity, not on years of service. It is the belief in equality of outcomes that has led to so many problems with unionized teachers.

Inequities in income exist in all fields. Can you imagine what the Yankee line up might look like if all players were paid the same? CC Sabathia is paid 60X the average for a major league player, and 2400X the average for a minor league player. Most Hollywood stars, despite vocal protests for liberal causes, live lives in which they flaunt the fruit of their unequal incomes and wealth. But why should it be otherwise? Do not such incentives give us the best ballplayers and the most talented entertainers? The same is true in the field of money management. Limited partners in hedge funds care about the net returns to their investments, not the amount of money a skilled manager makes. Should carried interest be treated as ordinary income? I don’t know. It doesn’t affect me, so I don’t care.

Where I agree that some complaints have merit is in public companies where cronyism between directors and management can cause mediocre executives to be paid extravagant amounts, at the expense of shareholders who own the business. Ironically, much of that excess has been an unintended consequence of a rule imposed by the Clinton Administration to cap the deductibility of executive compensation at a million dollars. While the rule applies to salary, bonuses and stock grants, it does not apply to stock options and non-equity incentive plans that meet the IRS requirements for “performance-based” compensation. A consequence was the granting of millions of options – keep in mind, options are dilutive to existing shareholders – early in a bull market that allowed a few executives to make hundreds of millions of dollars. The injustice of some of these compensation schemes only became obvious when the tech bubble burst in 2000.

The danger to populist rhetoric calling for equality in incomes and wealth is that it risks destroying the very factors that allowed this country to become wealthy. Rewards for superior performance, whether in academics, sports, entertainments or business, are integral to success, not only for individuals, but for society. We can see the contra side in the poor performance in too many of our schools where teacher compensation is too often based on longevity and in many government bureaucracies where employees are not incentivized to provide superior service. Unions and/or time-in-service, not merit, determine incomes.

Those who are pushing the politics of inequality are getting support from colleges and universities. Once fountains of ideas and committed to the concept of diversity of thought, these institutions are creating a generation of Eloi. Instead of capturing the meaning of the phrase on the Great Seal of the United States (E Pluribus Unum), they are choosing to exchange the strength of a melting pot into many multicultural hegemons, each, conveniently, representing a specific bloc of votes.

America has thrived because exceptional people have been allowed to rise. Equality is fundamental to the way we are treated under the law and should be present in the terms of opportunities, but controlling outcomes by reducing incentives will destroy the fabric that has made this nation great. That statement is self evident; even to those calling for greater equality. For most of them consider themselves above average. Attempts to homogenize us will destroy us. Some people are aspirant; others work harder. Some people are suburb athletes; others great entertainers. Some have unusual quantitative skills; others, a capacity with words, paints or music. Outcomes will invariably be unequal. Could government help moderate differences using the tax code? Of course, but should they? Is it not likely that the medicine will be worse than the disease? Higher tax rates inhibit economic growth, because control of the marginal dollar gets taken from the consumer and given to government.

We measure success in myriad ways. To some it is the money or possessions accumulated; to others it is the pleasures life provides, and for others it is the family raised. There is no right or wrong measurement, other than doing something that makes one happy. What we are not is equal in any of these traits, talents or wants. It is those differences that are worth celebrating, both because of the value such special characteristics in others bring us, whether watching a ballgame or attending the theater, and because it is that uniqueness of the individual that has allowed us as a nation to grow and to prosper.

So, three cheers for inequality!