Shaquille O’Neal ($32 million), Tiger Woods ($80 million), Oprah Winfrey ($210 million), Barry Bonds ($23 million), Mel Gibson ($210 million) and Lance Armstrong ($19 million) are at or near the top of their professions, and their annual earnings show it. But is it fair? After all, there are many other decent, hard-working basketball and baseball players, movie producers and bicyclists who don’t earn anywhere near that kind of income. For example, Shaq is a professional basketball player, and so is Jamal Sampson. What’s just about Shaq being paid $31 million and Jamal $349,458? This is gross income inequality.
Why do some people earn higher income compared to others? Are they simply “winners in the lottery of life,” as Rep. Richard Gephardt (D-Mo.) puts it? Nothing can be further from the truth. People are different. Among the ways we differ are: ambition, skills, aptitude, perseverance, intelligence and physical strength.
Some people pursue paths that are more rewarding than others. Then, there’s the sheer luck of having demanding parents, tenacious mentors and being in the right place at the right time. Then, there’s another explanation for income differences that people seldom take into account – vicious consumer discrimination. Shaquille plays basketball, and so can I. So why don’t I earn as much money? It’s because millions of people like you will plunk down $80 to $500 to watch Shaquille play, but how much will you plunk down to watch me play? You might even expect me to pay you.
In sports, at least, it’s fairly easy to see that those who are more productive tend to earn the higher salaries. Their productivity might be measured by the points they score and/or their impact on gate revenues. Mel Gibson’s and Oprah Winfrey’s earnings are explained by productivity as well; they satisfy millions upon millions of people. Another, perhaps more useful way of explaining earnings differentials is that one’s earnings depend on his ability to serve his fellow man plus the value his fellow man places upon that service.
Then, there’s a supply side of the story. Shaquille earns many times more than the brightest neurosurgeon. Why? It isn’t because basketball is more important to society than neurosurgery; it’s because the supply of people with aptitudes to become bright neurosurgeons far exceeds those with skills to do what Shaquille does. However, if it were the other way around, thousands upon thousands with Shaquille skills and few with neurosurgeon skills, the earnings picture would be reversed.
People spend too much time worrying about income inequality. Listening to much of that discussion, one would think that it’s a dealer of dollars who determines income. The reason some people have more money than others is that the dollar dealer is a racist, sexist or multinationalist. Hence, justice requires a redealing or redistribution of the dollars.
Far better good could be done for our fellow man by focusing more of our attention on productive inequality rather than income inequality. Income inequality is a result, and it’s productive inequality that mostly explains that result rather than some insidious plot afoot. Whether it’s individuals or countries, one seldom sees highly productive people poor or highly unproductive people rich unless there are government restrictions and subsidies at play. Making people more productive is the challenge. Whining about income inequality is a cop-out.