The Beauty of Income Inequality: Part I

In 1998 I finished 30 years in education as an elementary school principal.  That same year Mark McGwire broke the major league home run record with 70 swats that went over the fences.  That year I was making a little less than $80,000 and he was making a little less than $9 million. 

You did not hear me whine about income inequality.   While I have my doubts about McGwire’s ability to do what I did, I know for a fact that I could not play major league ball.  There is also a fairly large pool of people who could replace me and precious few people who can hit 70 homers a year.  

            Being easily replaceable makes you worth less on the job market—a fact which has nothing to do with your worth as a human being.  Never confuse the salary of a worker with the dearness of humanity.  

Both President Obama and Hillary Clinton have noted the discrepancy in pay between the top 25 hedge fund managers to the entirety of the nation’s kindergarten teachers.   My initial reaction (after throwing up in the back of my throat) was to tell kindergarten teachers everywhere to abandon their posts and seek employment as hedge fund managers.  Any one can do it, right?  You need to get an MBA or, preferably, a Ph.D. in quantitative analysis.  You have to do internships and then start working at investment firms where you build a personal portfolio of money and clients.  Then you can apply for the barely 300 openings that show up each year.

According to the Bureau of Labor Statistics there are about 158,000 kindergarten teachers in USA, earning an average salary of $53,480 (which puts them in the top 48% of income earners in the country).  Compare that to the top 25 hedge fund managers who each earned about $464 million.  With that kind of motivation it should be easy for teachers to make the switch. 

Hedge funds are alternative investments that use pooled funds to achieve aggressive returns on investments.  They use multiple strategies, including the use of derivatives, to leverage alpha (a measure of performance on a risk-adjusted basis) for their investors.  The gains can be either absolute or specific apropos to a market benchmark.  If the vocabulary is making your head spin, let alone that pesky math with all those Greek letters instead of numbers, maybe you should stick with the kindergarten curriculum.    

Hedge fund managers also have to analyze data to form a competitive advantage and manage risk.  That risk part is important because if your choices cost money instead of making money you lose.  You lose your own money, you lose clients, and you lose a chance to continue in your chosen field.  You risk much, which is why you may (though it is not guaranteed) earn much.

How about kindergarten teachers only being paid for the students who learn based on independent and totally indifferent tests?  The teacher’s pay would be prorated according to how much their students gain or lose.  If too many losses were shown the teacher would be dismissed.  No salary schedule, no tenure. No union.  Sixty hour work weeks. 

So here is the point, income inequality occurs when people have different skills and abilities.  That is a good thing.  It makes us competitive.  It redistributes wealth according to real value.  Workers with rare skills are worth more than those with common skills.  It isn’t a moral judgment; it is the world as it should be in order to encourage excellence.  

   Be thankful for those more talented than you and keep the faith.