Politicians love to talk about this idea of income inequality, which they use to get you to vote for them.
It’s a way of making you feel like something’s unfair or has been taken away from you – and it works.
The truth is, there is no fixed pie.
Just because someone has achieved success and made money doesn’t make it harder for someone else to get the same thing.
To illustrate this point, imagine an isolated society with no U.S dollars to trade. Now imagine there’s someone collecting clean water, someone producing food, and someone making clothing – each of them is specializing and selling their items in the marketplace.
In such case, everyone is benefiting from these goods and thus is better off.
The success of these people depends on the level in which they serve the community - and that’s how an economy works.
However, income inequality has gone up more than most of history in the last 20 years.
Someone amount of income inequality is inevitable because you’re going to have people who produce more than others. But the Federal Reserve – which is the bank of last resort – has kept interests very low.
Which means, the rich can borrow money at almost no risk.
The rich can borrow at almost no costs and put it into investments of their choosing, while at the same time you get less money in the bank and pay higher prices for your goods.
This causes the inflation rate to rise, making the groceries you pay for and the house you buy more expensive.
This is no fault of the free market, no fault of economic trade, but it’s 100 percent the fault of the Federal Reserve.
The next time you hear a politician whine and complain about income inequality as a way to rile you up against a group of people who produced something in the economy, just remember: it’s their fault.
DISCOVER MORE STORIES ABOUT INCOME INEQUALITY ON CAPITALISM.COM:
• Income Inequality: A Simple Case of Supply and Demand
• Busting Myths About Gender Equality in the Workplace with Kristin Tate