Why Are Some People Poor While Others Are Rich?

It may seem a bit unfair that some people have a lot of money while other people are very poor. But why does this happen in the first place? And should governments get involved and try to make everyone equal?

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Here is the transcript of our conversation:

Brittany: Hi Connor.

Connor: Hey Brittany.

Brittany: In a previous episode we talked about equality and how each of us has different skills. It can be used in different ways. And one of the takeaways from that episode was that being different isn’t a bad thing. We’re kind of often told, however, I kind of wanted to talk about another kind of inequality that happens, and that’s kind of a bigger question of why are some people rich when some people are poor.

Connor: So there’s a term for this, right? I hear it a lot. It’s income inequality, right? As you point out, some people make a lot of money, some people don’t make very much. Sometimes we hear about it where men a lot of people think men make more than women for the same type of roles. And so income and inequality. So kind of shooting from the hip. Yeah, you might say it seems unfair that some people can make more than others, but I like the idea that I think it’s Elon Musk, who we’ve talked about, I think he tweeted this once, but other people have said it too, where you’re often compensated in proportion with the size of the problems you solve. Oh, I like that. So if you’re an entrepreneur solving really big problems or solving a little problem for a lot of people, you’re gonna get compensated very well. Whereas if you’re just flipping burgers at McDonald’s, right, anyone can do that and now robots can do that, right? And so maybe you’re not gonna make as much money at all, but is that kind of a satisfactory answer or is there something bigger? When we talk about income inequality,

Brittany: I Think there’s something bigger cuz I can even see somebody having some problems with what you just said. Maybe somebody would say, Well, the person flipping burgers, we can’t live without food. Maybe we need the person flipping burgers more than we need the person coming up with the robots who are gonna take the jobs of flipping burgers. So I think a lot of people get confused and they start seeing this as saying that somebody should make more than other people maybe saying that somebody’s worth less than somebody else. And obviously, we’re not talking about their value as an individual. We were talking about like you said, solving a big problem.

Connor: Not so much their value as a person, their personal worth as much as their economic value. If they’re doing a lot, they’re an economist, let’s just use that as an example, and you are doing really complicated equations or you’re helping a business figure out how to make really smart business decisions, where to invest their money, things like that. You’re kind of an expert and so you’re gonna get paid a lot because you’re hard to replace. Whereas if you are just kind of washing cars at the local car wash and 80 teenagers apply every year and they hire 10, well there’s a lot of demand for those jobs. And what, it’s not really hard to train for it. And so if we don’t like you, then we’ll just fire you and find someone else that the skills that those people have acquired are not very high. This is why when you just start out in life, when you just start working for jobs, you’re not gonna be paid very much cause you haven’t developed those skills. Your economic value to others, whether we’re talking about your employer like your boss, or if you’re just an entrepreneur, your value to your clients and your customers probably isn’t that big yet. So it takes a little bit of time to get there

Brittany: Yeah I think. And there’s also the question of what we should do to even correct this. So we know that some people make more, and people make less. And I think a lot of people’s argument would be, Well, should we have more government? Maybe we need more government to come in and make people equal. But what do you think about that? Do you think that’s a solution to the problem?

Connor: I remember reading a number of years ago, Brittany, you’ve probably read the book Animal Farm by George Orwell

Brittany: I actually had never read

Connor: That one. Okay, Brittany, you have homework to do. Now, in Animal Farm, there’s this quote that goes something to the effect of some animals being more equal than others because the idea was on this farm, there were certain animals saying we should all be equal and be treated equally, and so forth. But then there was an inequality cuz some animals in power liked to have more benefits and more power of course. So even though they all had equality and were all equal, some animals are more equal than others. And that’s kind of a silly saying cuz you can’t be more equal than someone else. You’re either equal or you’re not. But it gets to, I think your question, Brittany, where it’s a good point to make. There’s inequality, some people make more than others. And it’s not to say that the market is perfect.

It’s not to say that if you solve big problems, you’ll be paid a lot. Some people, like Tesla, for example, had all these crazy inventions and did some really amazing things to benefit humanity, but did not end up with the fame and fortune that you might deserve if you even though Elon Musk named his company after him, there are some people who solve big problems who aren’t necessarily paid a lot. And there are some people who for one reason or another don’t have the greatest skills, but they might land a really cush job that pays ’em a lot of money. So it’s not that the market’s totally perfect and that everything is consistent, it’s not cuz what’s the market, Brittany? It’s just a bunch of people. It’s people. And some people make decisions for weird reasons and silly reasons and stupid reasons. But as a general rule, I think that is true, that if you’re solving big problems if you’re serving a lot of people then they will want to pay you.

But then if we get the government involved then there are all sorts of problems that are introduced because some animals are more equal than others. What I mean by sharing that is you always have corruption. You always, when you put a bureaucrat or a government employee in charge of deciding how money should be spent or who’s gonna get more money, or Hey, we have these government grants, who wants them? Well, I’m gonna give them first to my buddies and or people I agree with politically. And then if there’s leftover, I’ll give it out to other people. You get those kinds of issues when there are people in power who get to make those decisions. And so I don’t know that the government is even able Brittany to create or enforce equality because it’s just gonna have a different kind of inequality and one that they prefer rather than one that’s more like naturally occurring just from people making their own decisions.

Brittany: I think you’re right. I think also too, a lot of their policies actually kind of keep people trapped in poverty. I think it’s almost one step worse that not only can they not solve the problem, but they’re actually making it worse.

Connor: So that’s an interesting point. Maybe share, can you share an example of that? How can the government make things worse for people who are poor?

Brittany: And we’ve talked about this before occupational licensing, we haven’t talked about it from this angle, but we’ve talked about the word occupational licensing. And that’s where essentially before you can start earning money, there are a lot of occupations where you have to pay the government to get a permission slip. Now, if I am somebody who comes from maybe a poor, poor neighborhood, a poor background, and I really want to start making money, and let’s say I wanna be a barber and I go to barber school and I save, and I spend all my money on just getting through school. Well now before I can even be a barber and start cutting hair and making money, I have to pay a lot to get just this permission slip. So what you’re telling somebody to do is we’re saying you can’t even go to work until you pay money, but how are you gonna pay money if you don’t have a job to pay the money for the license? So a lot of these situations, we’re forcing people out of work. We’re not even letting them work. And all in the name of protecting everybody, you’re making sure that we have a certain amount of professionalism, but it’s actually keeping people trapped in poverty.

Connor: This is such an important thing to talk about. I am aware of several stories, Britney kind of like you’re sharing. I remember one he was a refugee from a South American country where the government was causing a lot of problems. So he had to leave his country, and his home and his family were able to come to America. And he was a doctor, a very smart individual, very talented, very successful. However, he wasn’t able to be a doctor in America, even though the body is no difference between an American and a, I can’t remember if he was from Venezuela or Ecuador or something, but human bodies aren’t any different. he was very successful. He never had any problems in his past career or anything. But the rules in his state, and probably nearly every state, if not every state do not allow for doctors from other countries to start practicing medicine.

Here in America, the supposed land of the free, you have to go get your license, your permission slip here, you have to go through the motions, you have to go to school, you have to pass certain tests and get your credentials. So I’m trying to remember what profession he landed. I think he ended up becoming a landscaper or something here. This highly trained, very intelligent individual, couldn’t work in the career that he loved because he made the decision for his own safety and so forth to come here. But that was just crazy. Another one that I’m aware of is this individual who was a physicist. He was a scientist. He had practiced physics his whole career. He wanted in his retirement to earn some money and pay the bills. He wanted to teach at the local school. He wanted to be a physics-like teacher. I think it was a high school, and it was either a middle school or a high school. So he thought, I mean, I’m a competent individual, of course, I can teach physics in my sleep like physics 101, basic physics. He wasn’t allowed to because he didn’t have the proper teacher credentials and license. He didn’t go through the same process that other people do to learn how to teach. And here’s a physicist who knows physics, and he wasn’t allowed to.

Brittany: So just because he didn’t have the teaching license, right?

Connor: Right. And so you’re right to point this out that especially if you are poor if your circumstances are creating a challenge for you when you have these barriers that the government puts in place that’s harder to work, share one final one. This is one that there have been similar stories across the country, but here in our state, there’s this woman named Justina Clayton. And she was from Sierra Leon in Africa, a black woman, and had several kids. Well, she came to America and she had been braiding hair, like African hair braiding. If you can visualize that. Taming one of her daughters froze into a cute little braided hairdo. She’d been doing this for literally decades, and she lived in a neighborhood that was predominantly white. However, there were a number of families who had adopted black babies from different parts of the world over the years.

And so she started to say, Well, you know what? I could be my own little entrepreneur. I know how to braid hair really well. These white moms don’t really know how to deal with black hair, so I can offer my services and help them. Again, entrepreneurship is service. She was solving a problem for other people. So she started doing it. And of course, these moms in the neighborhood loved it, right? They were getting helped by Justina. Well, then the government found out that she was doing this. Someone ratted on her to the government. And the government came to her and said, You’re not allowed to do that because you don’t have what’s called a cosmetology license, basically doing hair and stuff. And they said, you have to get a license, which means you have to go. At the time it was 2000 hours of school, and she’s a mom, she doesn’t have the money.

She’s an immigrant, She doesn’t have the money to go to school. So number one, that’s a problem. But number two, what was crazy is a couple of things, Brittany. One is all the kids going to school to these cosmetology schools. They were like 9, 18, 19, 20 kinds of age. Justina had been braiding hair without problems longer than any of these kids in cosmetology school had even been alive, right? And so here’s this person who knew how to do it, safety. And the second point is these cosmetology schools did not even teach African hair braiding. And so the government was saying, You have to get a cosmetology license,

Brittany: But for no real reason, That’s Ridiculous

Connor: And the schools were only teaching basic safety and how to do hair that isn’t black and isn’t hair braiding. And so it was silly for the government to come there and say, Nope, you’re not allowed to do that. And if you do it, we’re gonna punish you because you don’t have the proper permission slip. And so you can see how an immigrant, like a, or think of food trucks, a lot of immigrant, poor type families will do micro, what are called microenterprises. Very small businesses. And food trucks are a great example. Oh yeah, you don’t need a whole lot of money to start a food truck. And you can get a small loan maybe from your friends and family or the bank to get started. And yet, around the country, food trucks are very heavily regulated and it’s often hard to have a business. And so the government, you think a lot, we often grow upright, thinking that the government’s here to help. And if you’re in need, well the government sure will give you a handout, right? They’ll say, Oh, here’s your welfare so that you can just sit there and do nothing, whatever. But when you’re wanting to be like an entrepreneur, when you’re wanting to do something, the government is actually putting barriers in the way for poor people to actually be able to make more money and grow their wealth and no longer become poor. It’s very frustrating.

Brittany: Well, And you brought up a good word. You talked about kind of incentives, and I think we’ve talked about this on our show before, but with unemployment and things like this, we saw that happen during Covid where they were giving people even more unemployment. And what happens when you pay somebody almost not to work? They’re not working, right? So not only are these license laws, licensing laws standing in the way, but then if somebody decides that they’re too hard, maybe they don’t wanna go through all the government hoops, then they can actually choose if they fit all the criteria to sit home and almost be paid not to work. So our whole system seems to be a little bit broken.

Connor: Definitely is in need of a lot of correction. And fortunately, even despite these challenges, even despite these barriers and the problems that the government introduces, it’s still possible for people to excel, to work hard, to navigate around those barriers, to figure out a way, maybe gotta move to a different state that has fewer rules about something or whatever for people who wanna apply themselves. The so-called American dream is very much still possible. But I think the important lesson here is not that poor people are always gonna be poor or rich. People all just have had the benefit cuz they grew up rich, therefore they’re going to be rich. Really, it’s about what problems are you solving. How hard are you working? Are you gonna try and provide a lot of value to other people? Serve a lot of people, whatever your background is. If your family was poor growing up, you didn’t have a lot of money or whatever. The amazing thing about the free market is if you wanna work hard and really excel, you’re gonna be able to thrive. So a fun lesson, Good conversation. Brittany, thanks for joining us and we’ll see you on the next episode.

Brittany: See you next time