Income inequality is mostly matter of supply, demand

07/08/07
By Hal Heaton Printed in the Deseret News

A couple of months ago, I wrote about an article I read in which the author expressed outrage about the income inequality that exists throughout the world. This week, I'd like to ask your indulgence for a few more thoughts on the matter.

The author of the article in question found the world's income inequality to be morally unacceptable. In other words, he is concerned about the fact that some labor is valued so much more than others. To me, this is a simple issue of supply and demand.

Why are people willing to pay the heart surgeon 200 times more per hour than the person who mows their lawn? This, it seems to me, has more to do with values and priorities than income inequality. If you're going to make any changes here, you're going to have to change value systems, which probably isn't going to happen easily.

Of course, there's another way to approach the same issue. Why don't people who mow lawns quit and become heart surgeons? If they did, there would be fewer people to mow lawns and more heart surgeons. Presumably, the wages of lawn mowers would then go up and the wages of heart surgeons would come down.

Taken a step further, perhaps this is really an issue of ability. Maybe some people simply do not have the talent to become doctors. I wish I could play basketball as well as Michael Jordan, but I can't, no matter how hard I try. I just don't have the talent.

Our society currently pays for a public education. Overwhelmingly, the single biggest factor determining income is education. When a student sluffs class, drops out because of boredom, drops out to have a child out of . wedlock, doesn't do his/her homework, it is almost always a free will

choice. In effect, they are choosing to be poor. Is the author proposing a penal system where he would force people not to make such dumb choices? Again, I suspect the author won't get much support

Maybe the author is complaining about the students who work hard, spend evenings studying rather than partying or getting high, make it through medical school and become the surgeons who then earn $2,000 per hour. Are these students evil to work so hard to be eventually able to charge $2,000 per hour?

One could argue that the $2,000 per hour simply reimburses surgeons for all the unpaid time they spent in high school/college/graduate school to become a surgeon. If so, the $2,000 per hour simply represents these costs being passed on to the customer. The $2,000 needs to be high to offset the fewer years that a doctor has to practice. Is the author complaining that these medical students should not develop their talents? In my value system, it would be wrong not to develop talents.

Whenever I have conversations with people who complain about income inequality, it seems that they do not mind that professional athletes, rap artists and movie stars make so much money. Usually they don't even mind that doctors are paid a lot more than gardeners. The thing that really bothers them is the high income of business people and entrepreneurs.

What the author probably really wants is a tax system that takes money from high-income people and gives it to low-income people. If so, then, in effect, the author wants to take money disproportionately from the students who worked hard and became heart surgeons and give it disproportionately to those who dropped out of high school.

Stated in those terms, he might have some pushback.

Mr. Hal Heaton is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu.