Republicans, Libertarians, and Any Rand aficionados like to talk about income inequality as if it is an intrinsically socialist concept. And there is some truth to that. Socialists and other distributionists often appeal to income inequality in order to violate private property rights and rob from Peter in order to pay Paula, DaPaul and Pedro. Income equality can be, and has often been used to justify socialism.
However, superior talent, hard work, and luck combined with a capitalist system are not the only source of income inequality. Income inequality also comes from theft, fraud, government corruption and other evils. And that is the very sort of income inequality that is not only indefensible, but is ever bit as problematic economically as it is morally. Zerohedge explains the dark side of income inequality:
This brings us to the second undesirable and unjustified source of income inequalities, i.e., the creation of money out of thin air, or legal counterfeiting, by central banks. It should be no surprise the growing gap in income inequalities has coincided with the adoption of fiat currencies worldwide. Every dollar the central bank creates benefits the early recipients of the money—the government and the banking sector — at the expense of the late recipients of the money, the wage earners, and the poor. Since the creation of a fiat currency system in 1971, the dollar has lost 82 percent of its value while the banking sector has gone from 4 percent of GDP to well over 10 percent today.
The central bank does not create anything real; neither resources nor goods and services. When it creates money it causes the price of transactions to increase. The original quantity theory of money clearly related money to the price of anything money can buy, including assets. When the central bank creates money, traders, hedge funds and banks — being first in line — benefit from the increased variability and upward trend in asset prices. Also, future contracts and other derivative products on exchange rates or interest rates were unnecessary prior to 1971, since hedging activity was mostly unnecessary. The central bank is responsible for this added risk, variability, and surge in asset prices unjustified by fundamentals.
The banking sector has been able to significantly increase its profits or claims on goods and services. However, more claims held by one sector, which essentially does not create anything of real value, means less claims on real goods and services for everyone else. This is why counterfeiting is illegal. Hence, the central bank has been playing a central role as a “reverse Robin Hood” by increasing the economic pie going to the rich and by slowly sinking the middle class toward poverty.
One need not be a socialist, or oppose capitalism, to oppose the income equality that is the result of theft. With the assistance of the Federal Reserve and Congress, the banks have financially raped the American economy and the American people through fraud and political corruption. A reckoning is overdue. Everything that has been done in the last five years has been done in order to postpone it. And yet, a reckoning is coming nevertheless, because that which cannot continue will not continue. The rich simply cannot consume enough to substitute for more equitable consumption; how many cars can a man drive? In how many homes can a man dwell?