The Challenge of Income Inequality

“Some folks are born into a good life; And other folks get it anyway, anyhow…”
—from “Darkness on the Edge of Town” as performed by Bruce Springsteen

If Warren Buffett and Jeff Bezos and Mark Zuckerberg knew their personal annual income was limited to $2 or $3 million, would they have studied and innovated and worked

Here in America, we are limited in how wealthy we can become only by our imagination, creativity, drive, persistence and ambition. Putting limits on CEO compensation or individual wealth isn’t the way to deal with income inequality. If we limit CEO pay to 50 times what the average employee in the company makes, say $50,000 a year, CEO compensation in that company would top out at $2.5 million annually. Now that's a very nice salary, but this type of "cap" violates what we know about incentives and motivation. Huey Long and others advanced this “limit the top earners” concept during the Great Depression. It failed then, and it should fail now.

After all, in today’s globally connected community, an extremely effective CEO can add billions of dollars in shareholder value. If “hiring” LeBron James, who is compensated lavishly, even by NBA standards, brings your team a championship, everyone benefits.

Consider a successful small business owner who invested their entire life savings to start a small business. After 15 years of 100-hour weeks and personal sacrifices, they finally turn a nice profit. Shouldn't he or she, as the business owner who took all the risk and invested their own money, be allowed to profit by as much as they reasonably can?

Instead, what we ought to do, through private and public initiatives, is lift the earning power of all people, not limit income for one segment to benefit another. Businesses should be encouraged to provide training and part-time employment opportunities for high school and college students, who receive academic credit and a salary for their labor. When they graduate, they’d have real life job experience and often would go to work full time at the company where they’d been interning. This serves the corporation and the work force.

Ultimately, we've got to remake our work force into a viable one that can compete successfully in global markets and deal effectively with challenges like automation and cheaper labor abroad. This requires training and investment. Income inequality is a complicated issue, but our country is capable of creating this kind of sea change in the labor force.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.