Considering Income Inequality Rationally

The excerpt below is from Thomas Sowell's most recent work on economics. If you haven't read Dr. Sowell's economic texts, there has never been a more critical time to do so. I think the passage below completely exposes the false and subversive notion that inequitable income distribution is an evil that any enlightened society cannot tolerate. That assertion, so often parroted by a generation of Americans completely unequipped to think rationally about basic economic principles, has the potential to destroy the prosperity that has enriched the lives of so many and allowed this nation to extend its blessings to less fortunate people around the world. The fact that adherents to this view proceed with the purest of intentions makes it no less destructive.

The version of Dr. Sowell's work presented here is heavily abridged due to obvious space constraints, but the full text of this section can be found on pages 148-152 of Economic Facts and Fallacies.
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"[A]n economy is not a moral seminar authorized to hand out badges of merit to deserving people. An economy is a mechanism for generating the material wealth on which the standard of living of millions of people depends. Pay is not a retrospective reward for merit, but a prospective incentive for contributing to production...

"George Bernard Shaw...said: 'A division in which one woman gets a shilling and another three thousand shillings for an hour of work has no moral sense in it: it is just something that happens, and that ought not to happen. A child with an interesting face and pretty ways, and some talent for acting, may, by working for the films, earn a hundred times as much as its mother can earn by drudging at an ordinary trade.'

"Here are encapsulated the crucial elements in most critiques of 'income distribution' till this day. First, there is the implicit assumption that wealth is collective and hence must be divided up in order to be dispensed, followed by the assumption that this division currently has no principle involved but 'just happens,' and finally the implicit assumption that the effort put forth by the recipient of income is a valid yardstick for gauging the value of what was produced and the appropriateness of the reward. In reality, most income is not distributed, so the fashionable metaphor of 'income distribution' is misleading. Most income is earned by the production of goods and services, and how much that production is 'really' worth is a question that need not be left for third parties to determine, since those who directly receive the benefits of that production know better than anyone else how much that production is worth to them - and have the most incentives to seek alternative ways of getting that production as inexpensively as possible.

"In short, a collective decision for society as a whole is as unnecessary as it is impossible, not to mention presumptuous. It is not a question of rewarding input efforts or merits, but of securing output at values determined by those who use that output, rather than by third party onlookers. If the pleasure gained by watching a child movie star is valued more highly by millions of moviegoers than the benefits received by a much smaller number of people who benefit from buying the product of the drudgery of that child's mother, by what right is George Bernard Shaw or anyone else authorized to veto all these people's choices of what to do with their own money?
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"Despite the popularity of the phrase 'income distribution,' most income is earned - not distributed.... But much of the rhetoric surrounding variations in income proceeds as if 'society' is collectively deciding how much to hand out to different individuals. From there it is a small step to arguing that, since 'society' distributes income with given results today that many do not understand or like, there should be a simple change to distributing income in a different pattern that would be more desirable.

"In reality, this would by no means be either a simple or innocuous change. On the contrary, it would mean going from an economic system in which most people are paid by those particular individuals that benefit from their goods and services - at rates of compensation determined by supply and demand involving those consumers, employers, and others who assess the benefits received by themselves - to an economy in which incomes are in fact distributed by 'society,' represented by surrogate, third-party decision-makers who determine what everyone 'deserves.'
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"No third parties can possibly know the values, preferences, priorities, potentialities, circumstances, and constraints of millions of individuals better than those individuals know themselves."