 This is the first time I've done this lecture, and I think it's the first time we've had this lecture at Mises University. You know, this was a very dry almost inconsequential topic when I was in graduate school and for Austrians it's even more sort of not that important because income distribution is just a result of the processes that we study and theorize about all the time and it's only recently become an important really critical topic politically and ideologically over the last ten years. I think the promoters of this concept economic inequality and equity those sorts of issues have been working on the issue for well since we first realized more globally that Mises was right about socialism and communism that's when the socialists sort of shifted gears and one thing they shifted to very early on this has already been mentioned by Gene Epstein is that they were going to drop the idea of national socialism and nationalized industries and central planning in favor of things like economic inequality. So politically it's become very very important. We see articles and reports and studies about how bad income distribution has become that the high incomes now earn 40 or 60 or a hundred times what low-income people have or that corporate CEOs make a hundred or two hundred or a thousand times what their average worker makes and things of that nature that's more or less propaganda than it is statistics and facts and figures as I'm going to show Now as an introduction, I'd like to point out that Austrians love economic inequality in the sense of the natural inequalities that human beings have in so many different respects and how the market can turn these unequal statuses into great things for all parties considered. The second thing that's going to bog down the lecture a little bit is just laying out on the table all of the different types of equality and inequality. The third thing and most important I think is that the socialist voice opposition to economic inequality. They see an unequal distribution of income or an equal distribution of wealth or any of the precursors to those achievements as being fundamentally flawed, evil, unethical, immoral and of the greatest concern for government to come in and change. But their voice I argue is basically filled with lies, distortions and the unseen. What goes on in the economy that we don't actually see and of course we do see incomes reported to the IRS unfortunately and we do see various forms of welfare benefits going out to help the poor and the low income. But what we're going to find out is that a lot of this socialist voice is based on a house of intentionally bad cards. And I would suggest that reality to the extent that we can find it out there these days is a good guide to understanding the issues and to dealing with the socialist voice. Now I'm going to begin with a statement by Murray Rothbard about the natural inequality that exists in humanity. And so this is basically reality. If men were like ants there would be no interest in human freedom. If individual men like ants were uniform, interchangeable, devoid of specific personality traits of their own, then who would care whether they were free or not? Who indeed would care if they lived or died? The glory of the human race is the uniqueness of each individual. The fact that every person, though similar in many ways to others, possesses a completely individuated personality of his own. It is the fact of each person's uniqueness, the fact that no two people can be wholly interchangeable that makes each and every man irreplaceable and that makes us care whether he lives or dies. Whether he is happy or oppressed. And finally, it is a fact that these unique personalities need freedom for their full development that constitutes one of the major arguments for a free society. So that's just an observation of reality on Rothbard's part and a reflection upon what brings forth the greatest results from this reality. You know, I was thinking about this and in many many cases, it's not the fact that we are similar to one another or just like one another that really allows us to reach our full potential as students, as workers, as collaborators, as artists, as entrepreneurs and business people. Very often, it's the case that when we associate with people who are very much different than ourselves, is when we very often find the greatest rewards. Aspects of human inequality, and this is just a very crude list of some of the ways in which we differ from one another when we start with a physical and biological. We go to our individual tastes and preferences for good services, art, music, food, and so forth. Then there are issue related, job issue related differences in intelligence, talents, education, training, and experience. Some of the basic economic characteristics of individual humans are our tastes, such as labor versus leisure. Some of us are quote-unquote hard working, and others of us are lazier and more laid back, and there's really nothing wrong with differences in tastes, in the marketplace. Some of us excel, we're go-getters, we are people who get things done, and there's other people who sit back and study and contemplate things are not really active. They don't look active. So if you go down the hall and you look at me in my office, I'm going to look like I'm not very active, but I'm really doing some important contemplating about the future of things to come, and the next brand new economic theory. Very important here is time preference. Whether we're now intensive, where we're only concerned about the now, we want to consume everything right now. And there are others, people who are more future-oriented. They're not interested in the here and now. They don't spend all of their money, you know, going out and having great food at the restaurants and wonderful clothes and so on and so forth. And then there are other people who, you know, eat peanut butter and jelly and wear old clothes and save their money. And then there is risk-taking preferences. Some people are risk-oriented and they might be inclined to become entrepreneurs, where other people are less interested in the risk. We're afraid of risk. We're afraid of uncertainty and most humans are actually of this sort. Where we don't really want to be out there, we don't want to be under the spotlight, we don't want to be taking risks. And like most other things, the market simply takes this as an objective state of reality and allows us to take advantage of those differences. The Law of Comparative Advantage, which has been talked about in the lecture on labor, so this is an extension in part about that. The Law of Comparative Advantage basically tells us that we all have a comparative advantage or comparative advantages that might need developing but certainly are available to us. So we all have a place in this marketplace or this market society. Then there are dubious types of equality in markets. So the previous slide we looked at differences in people and this is a slide where we look at wrong-headed types of equality in markets. There's the inequality at birth, the equality by birth, the equality of opportunity, and the equality of results. None of these things are actually equal in the world. They're not really possible in the world. Our births are, you know, a happy coincidence of people, circumstances, genetic codes, and all the rest, and so we come out unique into this world and we can be an important part of this market society and everything that comes from that. And we obviously don't have equality by birth, no place under no set of circumstances or any kind of system is that the case. And obviously people have different opportunities in this world. Some people are born into dire circumstances. They're born into difficult situations. They run into all sorts of negative consequences, whether they're born into a communist state or born into a war-torn area of the world. There's obviously negatives as well as positives and there's no real conceivable way, no realistic way outside of some kind of academic game that that could actually be brought into some sort of equality for all. Equality of results is obviously wrong in every attempt to create equality of results is going to fail. And in the limit, Mises says, found and demonstrated that the attempt at equalization will destroy civilization. So there's a lot at stake here, but we also recognize the reality of the benefits that come from all this inequality from the genetic level all the way up through everything, including our individual experience. Now we can look at the issue of inequality and various types of systems where we look not just at the individual, but we look at the system in which we find them. And there are some basic types of system, natural law, which is sort of pre-society on up to the present, and the rule of law, which developed in a market setting and is still with us in bits and pieces, obviously. And those systems find that in various specific terms, we are in fact equal and we can, at least in theory, exist in a just system. Now the political systems, theocracy, monarchy, democracy, dictatorship, socialism, whether it's the Russian style socialism or American progressivism, all of those systems are in some sense caste systems, where you are born into a position into the system. And that position is different from the person sitting next to you and the person sitting behind you and the person on the stage. I used to have democracy as a rotating caste system long ago, where we voted and, you know, it could be you running the system, one election and you running it the next one, and then that person all the way in the back sleeping is could be running the system the next round. Of course, then the Bushes came along and the Clintons came along and I realized that it really didn't rotate throughout the entire system, but just amongst a couple of well-placed aggressive families. Capitalism in the sense of anarcho-capitalism or anarcho-capitalism with law is a system that is at least based on equality of opportunity and and of law and it's a system of justice. And I'm not going to get into any philosophical disquisitions about any of this. I'm just laying out all of the terms that you might come across in debates and discussions with your friends or your teachers and that sort of thing. You know, they're the socialists are very shifty and they could easily switch from one form of equality to another or one form of inequality to another and there are many different ways to define those terms. Now once we have the basic conditions of reality and we look at this reality in terms of nature and specifically in terms of the market society or even the mostly market society we see the path towards human economic development and actually it's it's not just basic economic development it's development in all of its many in assorted forms. So we begin with reality Mises says quote the diversity of nature which does not repeat itself but creates the universe in infinite inexhaustible varieties okay sort of restating what I opened the lecture with in terms of Rothbard's disquisition on reality okay the reality is is that we're not little fixed creatures were very unique and were subject to change. Okay human economic development requires freedom and despotism of every sort stymies human development and economic development. In development here is defined as the movement from subsistence to a more or less advanced economy. The best example of this is the industrial revolution. Okay the best example of this is the industrial revolution when human beings went from almost an entirely subsistence existence ruled by a bunch of men on horses with long spears and told what to do to a position of being independent relatively independent actors who were able to consume earn and consume more than subsistence more than just staying alive. Okay so that in the 19th century for example and really the first half of the 19th century the income and standard of living in England which was the first one of the first countries to develop economically income rose noticeably and even dramatically above subsistence. And if you go back in time archaeologists and economic historians have gone back in time they basically find humans living at subsistence levels. So then we have this process of economic growth involving savings, capitalists, entrepreneurs you know doing their various roles in society. Workers saving depositing money with banks capitalist accumulating savings investing in companies and entrepreneurs increasing productivity so on and so forth all managed by entrepreneurs at risk and every one of those roles in societies is harder than it looks. What the socialist will point out is examples of people like oh you know that person you know twiddled his fingers and all of a sudden he was a billionaire and he didn't do anything and now he's buying a giant boat and you know or whatever that's what that's how the socialists want you to condemn civilization on anecdotes that really don't reflect any of the underlying reality. This is a very hard system that has developed over hundreds of years the global division of labor and our standard of living that increases not just incomes but population life expectancy even equality is much better under in a market society than it is in other types of totalitarian or despot societies. Capitalists of course have to deprive themselves from consumption in order to have savings to lend to entrepreneurs and they're still subject to all sorts of risks they might not get paid the money back okay that happens all the time and yet they earn and quote unquote unearned income widely vilified. Entrepreneurs bear uncertainty and we see the extreme success stories but never the 100 or 1000 entrepreneurs who failed or who barely survived their journey of entrepreneurship and even labor you know if labor wants to earn more they've got to work more or they've got to invest in their quote unquote human capital through education or training or experience and that's not easy that's difficult it's expensive college is expensive okay and you have to give up something it's an opportunity cost if you're in college chances are you're not working a full-time job that you could qualify for uh with your current education experience background resume etc so i started by looking at what socialists have done and they've turned away from the efficiency standard they marks and his followers said you know communism socialism is going to be much more efficient we're not going to need 17 different types of toothpaste we're only going to need one it's not going to have to be advertised it's you know we're going to just produce so much of that stuff that everybody's going to have way more toothpaste than they could ever possible use and that's going to be true for everything and we're going to be able to you know work in the minds and learn the trumpet and you know play soccer and all sorts of things so they had this sort of efficiency productivity issue that fell apart with the downfall downfall of socialism and they've turned to equity the redistribution of income and wealth and of course they've also turned to ecology global warming climate change and so forth and both of those things involve technocratic expert driven solutions to issues where science really is detached from the situation like with covidia or the kovid crisis and vaccines and all that stuff nobody knows enough to break through all the proclamations of government scientists um in any substantial way so we're you know the the general population is a bunch of sheep when it comes to income distribution or global warming or covid science so that's where we are today and i want to bring up an example of this misinformation as it relates to income distribution and this is well first of all the the biasing of the debate is important in terms of income distribution the actual distribution statistics that you're familiar with and have been exposed to do not count all of the money american taxpayers provide for low income families and by low income i mean below the median income household uh does not count all of the tax dollars taken away from people who actually earn income so it understates welfare and it understates taxation and it also doesn't do things like consider all of the business failures So the top one percent. Oh, yeah, that's great. I wish I was in the top one percent but you know 99 out of 100 people failed completely in their pursuit of achieving that one percent and then it doesn't consider all of the economic potential that mises demanded that we pay attention to specifically the fact that some people earn abnormally high incomes and stymie competitors at the same time it doesn't consider the fact that welfare recipients are capable of working more than they currently are and it doesn't consider that taxpayers are widely discouraged from maximizing their free market incomes in other words I'm going to show you the sort of lie beneath American economic income statistics in a different way than gene epstein did But there's a lot here that's left unsaid Okay, there's a lot left on the table We could have more total income The economic pie could be much bigger if we didn't have the system of high taxes and generous welfare benefits This is from a forthcoming book by Graham Eaklin in early it's called the myth of American inequality how government biases policy debate and basically what they did was they took all forms of welfare benefits that are missing from the statistics Okay, so the statistics count like a dozen different welfare type of payments there's actually over 100 different welfare programs and they do get smaller and smaller and smaller but collectively they're very large They also include all forms of taxation especially at the federal level and what they do in great detail is on this graph here and this is income distribution for households broken into quintiles so you have the bottom 20% of household incomes the middle 20% of household incomes and the top quintiles so there's five quintiles representing 20% of households each and the dashed line here is the household earned income when they went out and got a job or got dividends something that they actually earned of their own accord and so that graph starts at near zero down here at the bottom quintile and it goes up to $350,000 per year per household for the top quintile that's the average so within the top quintile there are people earning $220,000 there are people who are earning $22 million of income but the average is about $300,000 per household per year now when we start adjusting that for transfers or welfare and taxes what we find is that the bottom two quintiles actually get a big boost in income from welfare and other transfer payments so that even in the lowest quintile their ability to consume is almost $50,000 per household where if they had to go on their own accord without welfare with their current work effort they'd be down here $10,000, $2,000, $12,000 per household but actually they're able to consume about $50,000 which is just slightly less than the second quintile which is not much less than the third quintile so these bottom three quintiles with the help of big welfare payments and taxes over here have been kind of equalized in terms of their consumption possibilities and then as we move to the fourth quintile we see that taxes become a greater burden and there's no net transfers in to that 60 to 80 percentile range and then finally in the fifth quintile the high income quintile it's nothing but net taxation and it can be rather extreme the highest income categories essentially pay all the net federal taxes and the bottom quintiles pay no net federal taxes but receive very substantial welfare payments as a result so we go from a this is the United States we go from a distribution here where people are not working or hardly working at all to people who are probably working a lot you know if you run into somebody who's making a big young person who's making a big salary chances are they're working all the time and as I said as you go to the top 1% this figure rises very dramatically once you break it out of 20 household 20 household groups so if you you know if you looked at just earned income the people in the bottom 20% earn say $2,000 and relative to that in the upper income groups it's like 120 so the relative income from the top to the bottom is 60 to 1 the US government when they make their adjustments the ratio goes to 16.7 to 1 reflecting some taxes and some welfare benefits and if you look at this graph where you take all welfare and all taxes into consideration the top quintile household on average only consumes potentially consumes four times what the bottom household consumes or is able to consume so it's a big distortion it goes from 60 to 1 down to 4 to 1 in terms of poverty this is the official poverty rate from after world war 2 to the COVID period and after world war 2 35% of Americans were in poverty and that gradually declined well actually dramatically declined to less than 10% in the mid 60s and then in the mid 60s legislation was passed to enact the war on poverty and as a result the official poverty rate according to the way they measured things sort of cycled around that 10 to 15% ratio ever since so right now if you look at the past if you went back and look at the stories from 2021 you'd find out well you know the poverty rates fall and it's great you know we're in a bubble who cares the poverty rate the official poverty rate did fall okay and now as we go further into 2022 and 2023 the poverty the official poverty rate is going to escalate quite a bit because it does so according to the business cycle but if you look at the trend in the poverty rate as measured by Graham, Eakland and Early when you take into consideration all the welfare benefits and all the taxes the poverty rate has actually come down to 2.7% in 2017 and it almost follows that historic trajectory before we had the war on poverty established in 1965 so the the war on poverty actually froze the poverty rate that had been declining very very rapidly so those are just two examples of misrepresentation and distortion of the data because the academics the media the politicians they want to use poverty and income distribution essentially to take more money from taxpayers that's big that's basically it they want to raise taxes they want a wealth tax they want a profits tax they want to increase the tax on high incomes everything and anything they just want more going into the government they don't ever say that we want this money going to low income people but they definitely want your money okay that's clear and it's only clear once we understand these statistical distortions that you know you would think that the government bureaucrats would want to correct their statistics or politicians would want more accurate statistical data or social sciences but this has been going on incorrectly for decades and I was really surprised when I read their results okay so our takeaways here are the you and everybody else are being misled by those that are inclined to socialism which includes the government the media the political parties Thomas Piketty in particular as from the academic side of things they've been more or less intentionally misleading you and in Piketty's case if you read his books which I don't recommend actually because it's fantasy you know and it's so much fantasy that these people and many others believe in you know the romantic writings of Charles Dickens and Ebenezer Scrooge and all of that they think that that somehow history and Piketty and his book capital actually does say that he said you know all these romantic writers they were talking about this obscene poverty and you know they just didn't make it up well yeah fiction writers make things up that's what they're that's how they make money is they make things up okay most important is that inequality is something it's kind of like the raw material the raw fuel of the market economy and then economic development it means that everybody certainly can do much much better they can survive and do much much better in a market economy no matter what their inherent disadvantages are they can always do much much better it's part and parcel of the market and it's why Austrians have a tendency a strong tendency to value freedom and economic freedom in particular third is that policies designed to equalize economic results are disastrous okay Mises showed that you know perfect socialism and perfect equality of results will break down society into economic chaos but that any movement towards equality does the same sort of thing so as Americans are taxing high incomes and rewarding people who don't earn income who aren't working essentially we're reducing the our economic pie we're stifling the people in the low income categories and we're stifling the people in the high income categories and we're stifling the people in the middle income categories which means that if we reduce those burdens taxation and welfare the economic pie would grow and there would be even more that would come out into the distribution and economic freedom also results in greater economic equality some of the inequality in our current system is not the result of a pure market process it's the result of government monopolies and favoritisms all the things that Frederick Bastiat argued against that we shouldn't protect that we shouldn't advantage any single individual or group of individuals we shouldn't give them preference we shouldn't give them protection in America and some of those really unbelievable stories of income and wealth are fueled by government privilege so or some combination of the two so that's another action item that Austrians advocate it's not just reducing taxes reducing welfare but it's also reducing privilege reducing intervention in the economy all interventions create some privilege some protection somewhere and the less we have of it the better thank you very much