Income inequality is rarely viewed as a positive but one expert argued Tuesday that it’s actually good for promoting innovation.
Income inequality activists have fought to reduce the divide between rich and poor as much as possible. American Enterprise Institute Scholar Edward Conard, however, argues that income inequality has a huge upside. He stated during a policy discussion that it helps to promote innovation and economic growth.
“What is the upside of inequality,” Conard said during the discussion. “I would say that it’s a deep pool of properly trained, highly motivated talent that is endeavoring to create innovation that grows our knowledge-based economy.”
Conard states entrepreneurs become more likely to take risks the higher the potential payoff is. Becoming rich is a huge reward for creating a successful idea. He adds that it also makes investors and people who have institutional knowledge more likely to invest in new ideas.
“It’s the payoffs for risk taking that motivate risk taking and create these institutional capabilities,” Conard said. “They logically take the risks that create more institutional capabilities that make our most talented workers more productive.”
Democratic Sen. Bernie Sanders has been at the forefront of fighting income inequality. He made the issue a cornerstone of his recent presidential campaign and career as a senator. He even introduced a bill July 2015 to raise the federal minimum wage to $15 an hour to help low-income workers earn more.
“There are two ways to think about the one percent, the Bernie Sanders way where we’re all competing for a zero sum pie where it’s just a question of negotiations,” Conard said. “The second way, which is the one I put forward, is no, it’s really innovation in a knowledge-based economy.”
Advocates argue that over the years the rich have seen their profits soar while many have suffered wage stagnation. Conard notes the claim is misleading because it doesn’t take into account the wage differences within industries. He notes the highest paid CEOs tend to have higher paid workers.
“If you look at CEO pay relative to their own workers’ pay, it has not increased,” Conard said. “It’s the creation of new companies at the high end of the pay scale and the low end of the pay scale.”
The $15 minimum wage has been a very popular idea for addressing income inequality. The Fight for $15 movement has pushed for local and federal policies to enact the increase anywhere they can. Advocates argue it could help address poverty but those opposed argue it reduces employment opportunity by increasing the cost of labor.
Additionally, when entrepreneurs create new ideas it can lead to more jobs for workers along with the creation of products and services that benefit consumers. Conard further detailed his views in his book The Upside of Inequality: How Good Intentions Undermine the Middle Class.