Points in this article:

1. Income inequality is growing within industrialized countries, but it is being reduced on a global scale.
2. The main reason for the increase and decrease in income inequality is globalization and better communication methods.
3. So, what can we do about it? Improve systems.

Making money is a talent like many others

People have many different talents and attributes. Some people are amazing artists, others are great at sports, some women might be extraordinarily attractive and they know how to leverage their looks, and some people are good at the game of making money.

However, I never hear statements like: “That artist is too good, let’s take away some of his abilities,” or “That athlete is too good, let’s make him less skilled so others can better compete with him,” or “That woman is too beautiful, let’s make her less attractive so other women don’t feel bad about themselves.”

But when a person is skilled at making lots of money—let’s say like Elon Musk or Jeff Bezos—people often claim, “That’s unfair, because he’s rich and the rest of us are poorer. Let’s take a big chunk of his money and redistribute it among ourselves.” This happens all the time. Our tax system penalizes successful people who make money. The more money they make, the more they are taxed; that’s what a progressive tax system is.

Millions of people want to come to the U.S., the most capitalist country in the world, because they want to make money.

Failures attempting income/wealth redistribution

There are countries where there is hardly any income inequality because everyone is equally poor. No one is risking their lives to go to Cuba, Venezuela, North Korea, or China.

We’ve seen three experiments in income redistribution that culminated in complete failure:

In 1972, Uganda expelled 80,000 residents of Indian origin because they were good at business and dominated most of the economy. The departure of these Indian businesspeople caused the complete collapse of the Ugandan economy.

In the early 2000s, the president of Zimbabwe decided to redistribute land owned by wealthy white farmers to the rest of the population. This is the dream scenario for politicians such as Bernie Sanders and Elizabeth Warren. However, the consequences were disastrous. The country suffered from hyperinflation, food shortages, and a sharp decline in GDP. Later on, the government recognized the failure of their policies and offered to return the land to the white farmers.

You might argue that income redistribution will work better in industrialized countries.

In 2010, President François Hollande of France tried to increase taxes on the rich. Surprise! The rich moved to Belgium, Switzerland, and the United Kingdom, and the higher taxes did not produce any additional revenue.

The Laffer Curve and the optimum level of taxation

Economist Arthur Laffer proposed the Laffer Curve to find the optimum taxation point that generates tax revenue without causing millionaires to flee (as they did in France). Increasing tax rates actually leads to decreased revenue due to:

• Potential “brain drain” as high earners leave for lower-tax jurisdictions
• Increased tax avoidance and evasion
• Reduced economic activity

According to the Laffer Curve, if the government charges no taxes, the government gets nothing, on the other hand, if the government charges 100% taxes, the government gets nothing as well. There have to be place in the curve where the government can charge the maximum amount without pissing off the rich.

Personally, I think that taxes between 25% and 33% should be more than enough to fund the government. Anything over 50% is too much.

Globalization is bringing millions of people of poverty

People complain about income inequality when they compare themselves to Elon Musk and Jeff Bezos, but in reality, income inequality has been declining on a global scale.

According to the World Bank, in 1990, nearly 36% of the global population lived in extreme poverty. By 2015, that number had dropped to about 10%, and recent estimates suggest that millions of people continue to move out of extreme poverty each year. The greatest reductions in poverty have been seen in East Asia and the Pacific, largely driven by economic growth in countries like China and Vietnam. China alone lifted over 800 million people out of poverty from 1980 to 2015.

The main reason for the poverty reduction is globalization. Increased interconnectedness has allowed developing countries to access international markets, boosting exports and economic growth. This has helped millions of people secure jobs and improve their standards of living. At the same time, businesspeople in North America, rwho understand how to get the best deals globally have been able to benefit more than the population at large.

As for income inequality at the local level, the biggest disparities are happening in the U.S., primarily because that’s where the world’s greatest innovations are being created. Just think of the innovations created by Elon Musk, Jeff Bezos, and Bill Gates—these are innovations that are changing the world every day.

Also, the distribution of content is playing a big role. Author J.K. Rowling has become a billionaire through her Harry Potter series. Taylor Swift has become a billionaire from her music, and model Bella Thorne makes $11 million per month with her OnlyFans account.

So, What Can We Do About It?

This is one of those cases where the remedy might be worse than the disease.

1. If you have high taxes, rich people will simply leave and create jobs somewhere else.
2. If you have rent controls, people will stop building housing.
3. If you nationalize industries, as Venezuela did with its oil production, people will leave, and market efficiencies will disappear.
4. If you create a welfare system, something like Universal Basic Income, people may stop working and expect something for nothing, like it happened during Covid.

The solutions are often structural, such as:

1. Eliminate Restrictive Zoning: Simplify or eliminate single-family zoning laws to allow for the development of multifamily housing units like duplexes, triplexes, and apartment buildings. This can increase housing supply and reduce costs.
2. Simplify Business Licensing: Streamline the process for obtaining business licenses to encourage entrepreneurship and small business growth.
3. Promote Online and Hybrid Education: Encourage the development of accredited online programs that offer flexibility and lower costs compared to traditional in-person education.
4. Affordable Public Transportation: Invest in accessible public transit to reduce reliance on cars, saving money for households.
5. Tax Incentives for Land Use: Introduce taxes on underutilized land to encourage development and reduce speculative property holding.
6. Lower the Cost of Internet in Rural Areas: Elon Musk’s Starlink can provide low-cost internet to the most remote areas in the world. When people are connected online, they can create all kinds of online businesses and don’t need to compete for housing and municipal services in cities. To reduce inequality globally give easy access to the internet to people all over the world. A kid in Rwanda should be able to learn and create a business through the internet, the same way many of us can do it right here in Canada and the U.S.

Conclusion:

In conclusion, while income inequality is a complex and often divisive issue, the solutions to it are not as simple as simply redistributing wealth. History has shown that attempts to forcibly level the playing field through drastic measures often lead to economic collapse and a decrease in overall prosperity. Instead, the focus should be on improving systems and creating structural changes that foster innovation, entrepreneurship, and global interconnectedness.

Summary

While income inequality is increasing within industrialized countries, it is actually decreasing on a global scale due to globalization. This is because globalization has created opportunities for economic advancement in developing nations, leading to millions of people being lifted out of poverty. However, the increased wealth of a select few individuals in developed countries, like Elon Musk and Jeff Bezos, often leads to criticisms of unfairness and calls for wealth redistribution. However, countries where wealth redistribution policies have led to disastrous economic consequences, such as Uganda, Zimbabwe, and France. Instead of focusing on income redistribution, we should focus on creating an environment that fosters economic growth and opportunity, such as simplifying business licensing, promoting online education, and expanding affordable public transportation. Promoting economic freedom and opportunity is the best way to reduce poverty and create a more equitable society.

Rich people leaving Norway due to high taxation.

Here’s how insane things have gotten in Norway:

The Socialist Party has a “wall of shame” in their office with “rich people who have left Norway” – due to the outrageous taxes they’re now being charged.

Who do you find on that wall?

Startup founders like @hagaetc – who was… pic.twitter.com/6XULn3V9K7

— Alex Svanevik 🐧 (@ASvanevik) November 15, 2024

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