{"id":73929,"date":"2019-12-01T05:00:44","date_gmt":"2019-12-01T12:00:44","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=73929"},"modified":"2024-02-23T15:59:23","modified_gmt":"2024-02-23T22:59:23","slug":"2015-07-18-income-inequalitysuperior-people-unfair-system","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2015-07-18-income-inequalitysuperior-people-unfair-system","title":{"rendered":"Income Inequality: Are the Wealthy Superior People or Is the System Unfair?"},"content":{"rendered":"

I\u2019ve often wondered philosophically about discrepancies in human ability. Human beings are inherently different in many ways. We differ first and most obviously in our physical strength, stamina, height, and weight\u2014our physicality. We are also different in our ability to think, reason, and judge\u2014our mental prowess. Finally, we differ in our outlook, work ethic, and humor\u2014our attitude.<\/p>\n

It’s an uncomfortable realization, then, to understand that if the above are true, that some human beings are as a matter of fact \u201dbetter\u201d or \u201cworse\u201d than others in each of these areas\u2014perhaps we can even acknowledge that some individuals are \u201cfar better<\/i>” than us in some or even all<\/i> of those areas.<\/p>\n

An Example of a \u201cBetter\u201d Person Physically<\/h2>\n

I\u2019d imagine that in a broad test of our athletic abilities, Calvin Johnson and I would differ dramatically. I\u2019d expect to lose in everything from a sprint, to the high jump, to long distance running, to the balance beam\u2014and any other competition I can imagine.<\/p>\n

Calvin Johnson would probably run a 100-yard sprint in just about 10 seconds. I ran one the other day and clocked in at 13.2 seconds That\u2019s a huge difference, insurmountable in a lot of ways. But if we were to measure that mathematically, Calvin Johnson is probably about 30% faster than me.<\/p>\n

Along the same lines, I can just barely reach the rim of a basketball hoop 10 feet off the ground. Calvin Johnson can reach a point that\u2019s over 12 feet, 5 inches off the ground<\/a>. Mathematically speaking, he might jump 25% higher.<\/p>\n

What I\u2019d like to point out here is that against Calvin Johnson, I (an average athlete) would lose in every athletic competition that I can dream up at present.<\/p>\n

I\u2019d also like to point out that in spite of the fact that I\u2019d lose in every competition, the differences physically between an average guy like myself and one of the great athletes of all time are not that large<\/i>. He\u2019s only perhaps 30% better.<\/p>\n

But his income is 20,000% higher.<\/p>\n

Is that unfair?<\/p>\n

Small Ability Differences Result in Massive Income Differences<\/h2>\n

At the time of this writing, Calvin Johnson\u2019s athletic prowess is worth $64 million\u2014guaranteed<\/a>. In contrast, my skill set out of college was worth about $50K per year, with no guarantees. In this case, the 30% variation in our physical ability amounts to a HUGE income discrepancy\u2013he will probably make 200 times what I make in the first six years out of college.<\/p>\n

When it comes to income, folks who produce better work can and should get better pay. Calvin Johnson produces far more yards, catches, and touchdowns than the other receiver options in the NFL. He is a better producer and is paid better than the rest of us as a result.<\/p>\n

\"wealthy-recession\"<\/p>\n

This discrepancy might be considered unfair if income really made a linear difference in quality of life. It is unlikely that any set of circumstances could arise in which I would be able to compete with Calvin Johnson physically. Thus, it would be frustratingly unfair that his relatively small physical advantages (~30% superior to an average guy like me) equates to immense earnings differences and a lifestyle 200 times better than my own.<\/p>\n

But this leads to another question: Just how much does income matter when it comes to quality of life? Quality of life is, after all, what we really care about here, right?<\/p>\n

How Impactful Is Income Inequality on Lifestyle?<\/h2>\n

In spite of earning more income, I\u2019d be surprised if life is actually that much different or better for a person who earns 100 or 200 times more than me.<\/p>\n

A person with high earnings might drive a Lamborghini to work, whereas I own a Toyota Corolla. I actually prefer<\/i> to bike to work\u2014yes, even in the rain\u2014and probably still would if I had access to a Lamborghini. Sure, the difference in cost between our vehicles is 50 fold, but the quality of life difference is probably not that large.<\/p>\n

On a daily basis, it might come back to that 30% better mark. Feel free to disagree\u2014maybe a Lambo is two times better for you, maybe it’s 10 times better, but would your life be 100x better if you drove a Lambo? That initial “This is so cool, I’m driving a $1M car!” wouldn’t wear off after a month? Really?<\/p>\n

The high earner might live in a huge house with fancy furniture and a huge TV. I live in a space that\u2019s less than 700 square feet with a roommate. But is watching Game of Thrones<\/i> really way better for the guy with the fancy stuff? How much more comfortable is his couch, bed, hot tub, or the other luxuries that big spenders tend to accumulate?<\/p>\n

The high earner probably eats at fancy restaurants or might even have a personal chef preparing his meals. I cook my own food and eat out at cheaper fast food joints like Chipotle. I would be very surprised if anyone making a median salary could not eat food nearly as healthy and delicious as the wealthiest folks on the planet do. No, I don\u2019t eat lobster or caviar, but vegetables, fruits, and quality meats are well within the realm of reason for most.
\nRelated:<\/strong> The 5 Steps Necessary to Master Your Personal Finances<\/a><\/em>
\nIn my opinion, income inequality doesn\u2019t really make much of a difference at the end of the day. Slightly better items and luxuries don’t change the day-to-day freedoms and passions that we pursue. I bet that most of us don’t think that life is 100 times better for a high earner versus a low one.<\/p>\n

I prefer to take that assumption a step further, as I think that earnings have almost nothing to do with happiness or quality of my life. Think about two different people: the guy who earns $25,000 per year but works 10 hours per week and surfs all day in Mexico on the beach, and the $1M per year executive who works 100 hour weeks. Who is happier?<\/p>\n

The answer is that they\u2019re probably both<\/i> happy in equal and opposite ways. One may love freedom;<\/b> the other may love productivity<\/b>. They might also be unhappy<\/i>\u2014one might yearn for money and luxuries, while the other may yearn for freedom and peace. Honestly, I don’t know which I’d rather choose!<\/p>\n

\"income\"<\/a><\/p>\n

Wealth Inequality vs. Income Inequality<\/h2>\n

The really big problem is NOT that Calvin Johnson earns 200 times more than me; that\u2019s income inequality<\/i>. The problem is in wealth inequality<\/i>.<\/p>\n

Income inequality might best be evidenced by the immensely impactful Taylor Swift earning $64 Million in 2014<\/a>. Wealth inequality might best be evidenced by this average guy who became a billionaire<\/a>. One person inarguably produces a benefit to millions of people in our society. The other “did nothing for decades.”<\/p>\n

Jay Z and Dr. Dre, are examples of famous people that have wealth<\/em>. While they earned high incomes<\/em> during their musical careers, it’s important to distinguish their financial position from that of Mike Tyson or 50 Cent.<\/p>\n

Mike Tyson and 50 Cent are perfect examples of high-income earners with low wealth. They both went bankrupt, and it\u2019s important to remember that\u2019s the exact same amount of assets as the person begging on the street corner. While they will probably go out and earn more down the line, their ability to control their environment will always be limited to what others pay them. Jay Z will be wealthy forever, even if he never produces another piece of musical content.<\/p>\n

Where income inequality becomes a real problem is when it is combined with wealth inequality. Income is usually (not always) based on merit and natural ability. Income can be taken away and can come and go. Wealth, on the other hand, is a function of knowledge and time. Wealth in the right hands is much harder to lose and, in many cases, accelerates forever.<\/p>\n

50 Cent earning and losing tens or hundreds of millions of dollars is not a sign of systemic unfairness in society today. His power is limited to what he can collect during the most physically capable and appealing years of his life.<\/p>\n

It\u2019s actually the folks like Warren Buffet and Carlos Slim, folks that have 1.5 million<\/em> times more wealth than your regular Joe, that are the real problem. Their wealth and power are virtually unlimited and perpetually growing. It can be passed to the next generation and allowed to continue accelerating infinitely.<\/p>\n

Buffet has $66,900,000,000<\/a> in wealth vs. $45,000<\/a> for Mr. Average Joe. And Buffet’s not slowing down.<\/p>\n

That\u2019s<\/i> a problem.<\/p>\n

Is Massive Wealth Inequality Unfair?<\/h2>\n

Individuals like Calvin Johnson earn good money early in their careers due to inarguable natural abilities\u2014mentally, physically, or with respect to their attitudes and their work ethic.<\/p>\n

That part makes sense to most of us.<\/p>\n

What\u2019s incomprehensible to many folks is that while the mega rich billionaires of the world earn way more than Average Joe, they also understand how to make their money work for them. This is a manipulation of a money system that harnesses mathematical principles to snowball wealth over long periods of time into staggering sums.<\/p>\n

Now, neither Buffet, Slim, nor any other billionaire necessarily did anything wrong, and they have all provided a lot of value to the world. In fact, many billionaires have pledged to give away<\/a> all or materially all of their massive fortunes. That’s fantastic and wonderful\u2014but totally optional.<\/p>\n

Where our society fails is when the masses neglect to become aware of the fundamentals of wealth creation. This knowledge and the skill of patience and long-term thinking are learned and must be taught early<\/em>. When that fails to happen, the wealthy continue to snowball into evermore powerful, almost mythical beings, while much of the society doesn’t even know where to begin.<\/a><\/p>\n

It\u2019s this disparity in wealth and the corresponding differences in power and control over others that are the societal problem. It’s not a problem that skilled, athletic, or hardworking people are paid more. The problem is that average Joes that possess a certain type of knowledge are worth more<\/em> than their peers.<\/p>\n

That problem compounds exponentially when skilled, athletic and hardworking folks with high incomes harness the system of wealth creation. It results in a situation where a select few wield the same economic power as millions.<\/p>\n

\"tenant-renter\"<\/p>\n

Conclusion<\/h2>\n

Wealth doesn\u2019t care if you are smart, stupid, fat, skinny, tall, short, white, black, male, or female\u2014though some evidence certainly indicates<\/a> that income is perhaps unfairly impacted by these characteristics. But for wealth, it doesn\u2019t matter if you are \u201cbetter\u201d or \u201cworse\u201d than someone else.<\/p>\n

Wealth is simply a function of knowledge, action and time. Wealth is a system<\/em>. The principles of wealth are well within the grasp of every human that has the capacity to learn.<\/p>\n

Thirty years from now, it won\u2019t matter what your income level was at 25. If you understand and apply fundamental financial concepts (earn, save, invest), then mathematically you\u2019ll automatically become a millionaire<\/a> without making noticeable changes to your lifestyle and happiness.<\/p>\n

Imagine what happens if you go even just a little<\/em> above and beyond in the pursuit of financial gain. You\u2019ll wield almost complete economic power over those who either aren\u2019t exposed to or don\u2019t bother to learn about building wealth\u2014and those who learn too late. It\u2019s not a bad system, but the results can be unequal or (in my opinion) unfair when only a tiny portion possesses sufficient knowledge early enough in their lives.
\nRelated:<\/strong> 3 Negatively Cashflowing \u201cAssets\u201d That Devastate 20-Somethings\u2019 Finances<\/a><\/em>
\nIn our system, knowledge<\/em> is key. I want to make a clear distinction between knowledge and intelligence, as finance doesn’t necessitate intelligence, but a simple ability to manage basic financial math, to speak the language of money, and to develop a long-term outlook.<\/p>\n

Educate yourself and learn about the incredible power of long-term wealth creation and the principles of investing and value creation. Make your money work for you. If you don\u2019t, you\u2019ll be stuck in a rut, complaining about rising income inequality and not discuss the real issue: incomprehensible inequity of wealth<\/em>.<\/p>\n

Fail to learn about finance, and you’ll be like those sad folks who tried to “Occupy Wall Street<\/a>.” They knew that something was wrong\u2014they knew that the guys on Wall Street had something they didn’t and that the unfairness was represented in terms of dollars. But the Occupy Wall Street folks didn’t even know how to begin solving the problem. They didn’t understand that there are entire financial concepts that aren’t a part of their world.<\/p>\n

This topic is immensely important to our society. I\u2019m definitely of the opinion that early possession of this knowledge is an unfair advantage and believe that the only way to level the playing field (short of moving away from capitalism to a far worse system like communism or socialism) is to educate folks, early in their lives, on how to be successful given the current framework.<\/p>\n

For the record, I\u2019m personally making sure that I do everything I possibly can to take (unfair?) advantage of the knowledge I’ve gained and my youth to build wealth for myself by earning, saving, and investing systematically for the long-term.<\/p>\n

I\u2019d be a fool not to.<\/p>\n

\"\"<\/a><\/p>\n

What are your thoughts on this subject? What do you think is the best solution for better educating the population on finance?<\/em><\/p>\n

Be sure to weigh in with a comment.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

What are the true reasons for income inequality\u2014and what should be done about it? This article may change your point of view on this controversial subject!<\/p>\n","protected":false},"author":1676,"featured_media":119918,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433],"tags":[],"class_list":["post-73929","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/73929","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1676"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=73929"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/73929\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/119918"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=73929"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=73929"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=73929"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}