We are not all Equal. It's Income Disparity, not Income Inequality.

January 24, 2018

Originally published: Jan 24, 2014

 

“Takers” exist in every societal governance. No matter ideology, the “takers” share of resources is typically finite. In capitalistic democracies, to stimulate productivity and deter “takers,” the concept of equal opportunities, not equal outcomes are employed. For this enticement to succeed, balance between opportunities and outcomes are essential. When outcomes enrich a few, opportunities diminish, and the system breaks down. Concentration of wealth and opportunities narrow further. Eventually, the bulk of society is badly weakened. The vicious circle becomes a death spiral.

 

What constitutes a debilitating disproportion of treasure is subject to debate. For the embattled, the economic and social consequences can be everlasting. In real-time they are punished by substandard compensation. Then, sinisterly, their future incomes are stunted—as potential earnings are often tied to past wages. Meanwhile, they are callously punished by compound interest, receiving lower rates on savings and paying higher rates when borrowing. Perhaps the most egregious affront is their health and well-being. Analyzing life expectancy by zip code offers damning proof. Most politicians and talking heads label these discrepancies as products of “income inequality.” Unfortunately, the term has failed to resonate with the public—and the death spiral quickens.

 

Elevate the Issue. It’s not the Message, but how the Message is Delivered.

 

The term “Income inequality,” is often conveyed in a derisive manner. The slanted delivery implies “income inequality” is a subjective, theoretical measure of unfairness. Hence, many determine an unjust segment of society wants handouts and to declare everyone “equal.” Because “life is not fair,” they tune out the debate. To eliminate any negative connotations describing societies’ most vexing issue, “income disparity” should be used in lieu of “income inequality.” However subtle the change, the word “disparity” focuses on objective, quantifiable gaps. It removes any emotional triggers the word “inequality” sparks. The message remains the same, but how it is delivered has changed—for the better.

 

If the argument regarding the distribution of outcomes remains stagnant, gross disproportion of compensation will remain. Capital will continue to subjugate labor. The imbalances accumulated over the past thirty-five years will reach unprecedented levels and further widen the opportunity gap between the wealthiest and the rest of society. Unabated, the disenfranchised will become hopeless and ineffective. Feeling entitled, the upper class will turn complacent. Animal spirits will die, competition will fade. How the message is delivered must be changed—else America’s dominant position in the world economy will be jeopardized.

 

The reasons “income disparity” exists are many and complex. Arguably the most sacred explanation is the Pareto Principle. Better known as the 80-20 rule, the notion cedes most things in life are not evenly distributed. Taken literally, the Pareto Principle can be applied to virtually every human element. Attributes such as: intelligence, creativeness, wisdom, heart and desire, ability to communicate—even social circles are unevenly distributed. Quite simply, we are not all equals. As a result, “income disparity” rightfully exists. But should it be constrained by the 80-20 Rule?

 

Identified in 1896, much has changed since the Pareto Principle introduced the 80-20 parameters. Specifically, the ability to effortlessly transfer knowledge opens countless opportunities. The sheer volume of accessible information should enable societies to obliterate old boundaries. Imagine the social and economic benefits of the 75-25 or even a 70-30 rule. To enhance achieving that objective, we must change how the message is delivered. Forget “income inequality”; it’s an unsustainable level of “income disparity” that has stifled creativity, curtailed economic activity and hampered job growth.

 

Unfortunately, even with world’s knowledge at everyone’s finger tips, income disparity’s Pareto Principle’s 80-20 bands have not contracted. In fact, it can be argued the spread has widened. That the transfer of wealth since the 1980’s that shredded the lower and middle-classes and flowed to upper echelons of society overpowered all other factors. Now, an 80-20 split seems unrealistic, a ratio of 75-25 a pipe dream. The scourge of income disparity must be tempered. A handful of policies can help. But if leaders fail to communicate those policies with a gripping narrative, the ratio of Pareto Principle regarding income disparity will reach 90-10, perhaps even 95-5. No one wants to imagine that.

 

It’s time to change how the message is delivered. We are not all equal. It’s income disparity, not income inequality.

 

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