An annual income of just over $101,500 is required to enter the ranks of the richest 20 percent of American households—a married dental hygienist and a police officer, for example. These are working households in the sense that 76 percent of income comes from wages or salary.
The plain fact is, of the households with earnings in the top fifth, only 0.0016 percent earn more than half their income from stock dividends. Simply put, most rich households work.
It is also plainly true that someone else’s riches don’t come at the expense of the rest of us. There is not a finite amount of income. Earnings growth comes from economic growth, and those who cause growth keep a disproportionate share. That is simply how any successful economy works, though unsuccessful economies have tried other models.
Even supposing a corporate CEO can convince the board to overpay him, the payment comes not from the company’s workers or customers, where wages and prices are disciplined by markets. No, any overpayment to a CEO comes from the shareholders. This is mostly a transfer from one rich person to another.
Though I think most anger at the rich is simply greed born of ignorance, there are better reasons to think poorly of some. Many of us (me included) feel disdain for a corporate executive earning a huge salary while the company founders. Some of us even feel that way about highly paid athletes or plainly bad pop musicians.
But there can be another explanation for anger at great riches.
Many of us were raised in a culture of personal responsibility. Watching a failed CEO rake in tens of millions of dollars is distasteful even if we feel no pain from it. I think most of us would be ashamed to do so, as it would appear selfish and diminish us in the eyes of our friends and family.
As always, Adam Smith said it better: “The man of the most perfect virtue … is he who joins, to the most perfect command of his own original and selfish feelings, the most exquisite sensibility … [to the] feelings of others.”
Perhaps resentment toward some rich people is not because they are rich, but because their wealth appears undeserved through effort or talent. This brings us back to the basics on the income inequality debate.
It is human nature to dislike selfish choices, whether it is an executive pilfering his failing company or a teenager fathering a child he cannot afford to nurture.•
Hicks is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears weekly. He can be reached at email@example.com.