But what about that “gap between the rich and poor”? Is that fair? Actually, an income gap, by itself, is a non-issue. There’s a much larger wealth gap between Bill Gates and the average American dentist than between that same dentist and a Costa Rican farmer who earns $1,000 a year. Nevertheless, we are far more concerned about the second gap, because we understand that the farmer likely cannot meet basic needs like shelter and food.
Poverty—real, absolute poverty—is the problem. Gaps are a distraction. They seem unjust because we think, mistakenly, that an economy is like a cherry pie—if Paul gets a big slice, then Peter must get a smaller slice. But a “gap” doesn’t mean that wealth was transferred from the poor to the rich. In fact, it implies that the rich had to make others better off to become rich, that they had to serve their customers. Steve Jobs and his many well-paid employees didn’t get rich by stealing iPads from homeless people. Creating iPads made people better off than they were before both by creating a new product that was valuable and by creating jobs necessary to produce that product.
Wealth generation is the only antidote to poverty. So instead of fixating on gaps, we ought to ask: What is the level of flourishing of those at the bottom of the economic ladder? Do they have opportunities to move up that ladder, or are they trapped, no matter what they do?
If you look at the US Census Bureau stats, you find that every income category has gone up from 1967 to 2009, even though the population has nearly doubled and there has been stagnation in the middle incomes for the last several years. The rich did get richer, but not at the expense of the poor.
Even more important, the income categories don’t contain all the same people over the long run. In the US, there is widespread income mobility—millions of people move up the ladder over time. A 2008 report by the US Treasury found that between 1996 and 2005 more than half of all US taxpayers moved into a higher income quintile. Roughly half who started in the lowest quintile in 1996 moved into a higher quintile by 2005. To talk about five income “quintiles” of the population, as if they always contain the same people, is to fall for a statistical illusion.
In free societies, incomes are unequal, but opportunities are widespread, so people can work themselves out of severe poverty. Economic freedom allows people to freely use their gifts (in Bruce Springsteen’s case, his passion for music) to create value and serve others. It creates an opportunity society where people can lift themselves into higher levels of wealth. If wealth creation is the antidote to poverty, an opportunity society needs to be the focus. Societies that fixate on income gaps, in contrast, tend to find only equality in misery.