Undoubtedly one of the most pressing issues in American politics today is wealth distribution. The divide between the haves and the have-nots in this country has grown, and many across the nation are clamoring for a change. While such a change is likely necessary, I find the way in which this issue is discussed to be discomfiting.
In political debates and talk shows, the story of wealth inequality is all too often depicted in the language of class conflict: the fat cat billionaires lounging in castles while the hard-working common man struggles to get by. No doubt steps must be taken to solve the major problem of income inequality. I take significant issue, however, with how the problem is framed. This language distorts the root of the problem and directs blame — sometimes to the point of villainization, and often on the basis of financial success.
First, consider this: Salaries are not arbitrary. Yes, high-ranking executives at large firms often receive massive salaries, which from the outside can appear exorbitant. But large paychecks do not imply wastefulness. Top executives are sought after and highly paid for good reason: They help businesses succeed. In strictly economic terms, employees should be paid based on the profit they generate.
To be clear, governments could help rebalance wealth through tax policies and welfare programs. Focus on raising the minimum wage and making college more affordable is relevant and necessary; many agree that all employees should be paid a livable wage, and that college should be more accessible.
But businesses have no incentive to overpay their CEOs. For the profit-maximizing firm, large salaries compensate large revenue producers. There is no evil scheme, no top-down conspiracy — this is business. The idea that someone must always be to blame is immature; the world is not made up of heroes and villains.
Another argument I often hear about income inequality is based on the fact that people working in certain professions like professional athletes are vastly overpaid, while other, more “honorable” workers like nurses deserve more than they get. With some workers, such as teachers, I can understand that higher pay would attract higher quality employees and thus benefit society as a whole. Increasing the pay of teachers is an investment in the country’s future, and I do not object to this argument because it is an economic one. On the whole, however, I find the idea that more honest professions deserve higher pay checks a preposterous notion because it completely ignores the actual reasons behind why and how people are paid.
Let’s start with an obvious point: No one ever said you would be paid based on how virtuous your job was. There are benefits to such jobs, like fulfillment and a sense of purpose — just not financial ones. That’s why we have starving artists and poor monks.
The argument for increasing the compensation of “honorable” professions utterly ignores the fact that there are other measures of value in the world than money. The size of a bank account doesn’t determine a person’s worth, so why should a person’s paycheck reward his or her good-heartedness? This may sound cold and calculated, but the reality is that a salary is a detached and nondiscriminatory metric that measures your value as a profit generator, not as a person.
That brings us to athletes — the classic example, in many eyes, of overpaid employees. It can seem absurd, on the surface, to hand out millions of dollars to people who play games for a living. But the reality of American sports is that professional athletes are drastically underpaid. Professional sports leagues like the NBA, MLB, NHL and NFL operate essentially as monopolies, artificially driving down the salaries of athletes through maximum contracts, salary caps and luxury taxes (paid by those teams who exceed the salary cap to teams that do not).
A 2013 Bleacher Report article, for example, estimated what the value of NBA star Lebron James would be on a true “open-market.” The article concluded that he would command over $65.7 million — a far cry from the $17.5 million he was being paid at the time.
The same argument is also made of movie stars, and the same counterargument exists. For his role in “Avengers,” Robert Downey Jr. reportedly earned $50 million — a salary that many would call extravagant. But when you consider the fact that the movie surpassed $1 billion in global earnings, such numbers make sense. Leisure is a valuable commodity for which there will always be a market. People will always watch movies and go to baseball games, and while these products may not seem as valuable to society as teachers or nurses, the reality of how we spend our money suggests otherwise.
All in all, the point is not that income inequality should be allowed to persist, or that baseball players are more valuable to society than school teachers. The point, rather, is that these discrepancies exist not because villainous and corrupt billionaires want them to. Economic principles guide economic activity, and economic self-interest guides all economic interactions. Steps can and must be taken to eliminate the worst of economic inequality and to ensure equality of opportunity. The reality is, however, that the world is not run on virtue, and that money is the cold, detached arbiter of value in an economic system.
Nicholas Esemplare ’18 is an economics and English double concentrator. He can be reached at nicholas_esemplare@brown.edu.
