The world is being torn apart by inequality. The greedy top 1 per cent are pillaging wealth from the rest of us.
The poorest are getting poorer. More and more people are starving. The global trajectory is towards abject squalor. We must do something, and fast. This narrative has been shoved down our throats for the past decade. The catch? It is total garbage.
Inequality is not increasing. The rich aren’t ‘stealing’ from the rest of us. The poorest are rising out of poverty at pace and fewer are starving than ever before. The general trajectory is upwards.
Let’s start with Australia. The top 1 per cent of income earners receive about 9 per cent of all income (and pay 17 per cent of all income tax), a slight increase since the 1980s. But this is less than the 1950s, when the top 1 per cent earned 14 per cent. Regardless, this measure tells us little. It is only about how much those at the top are earning, not how income is more broadly spread or whether people are doing well.
Reputable economists use the Gini coefficient, which measures inequality on a scale from zero – perfectly equal, everyone earning the same – to one, perfectly unequal, one person earning all income. The OECD calls this the “standard measure of inequality”.
Census shows there has been a slight decline in inequality from 0.38 in 2011 to 0.37 in 2016. The University of Melbourne’s HILDA survey, which looks by household, concludes that there “has been little net change in income inequality between 2001 and 2017”. The United Kingdom, the United States and other developed countries have similarly had relatively stable levels. Inequality is not, as we have been told, on the way up.
The broader story is even more comforting. Since 1982, 100,000 people have lifted themselves out of extreme poverty every single day, even while population increased by 3 billion. The closing of the gap between rich and poor countries means that global inequality is in decline for the first time since the Industrial Revolution.
Even so, inequality is a false god. Our real goal should be lifting everyone up.
"Just because one person is becoming richer does not mean that everyone else suddenly becomes poorer. Economics is not a zero-sum game."
Just because one person is becoming richer does not mean that everyone else suddenly becomes poorer.
Economics is not a zero-sum game. People become rich by providing products that others want to purchase. This exchange benefits both sides.
Let’s take the case of J K Rowling. She’s fabulously rich, worth many hundreds of millions of dollars. But is anyone worse off because she wrote Harry Potter? We have all benefited from the enchanting stories. The same goes with practically everyone on global rich lists, who today are more likely than ever to be entrepreneurs who created innovative products that benefit us all.
Ultimately what matters is not the gap, but how people are actually going. While some people are rich, practically everyone in a Western country has a relatively similar quality of life. We can all access housing, food, healthcare, holidays, entertainment, smartphones, internet and much more.
The challenge is to ensure that everyone has access to these basics, and a bit more. Unless you are driven by spite and envy, your focus should be on lifting the poorest not on hating the richest.
The rich being poorer doesn’t make us better off – particularly if it means punitive measures like France’s now-abolished 75 per cent top marginal tax that scared away entrepreneurs and wealth-creators.
Recessions, wars and plagues do tend to decrease inequality. This is by either reducing the wealth of those at the top or reducing the number of available workers, increasing incomes in the short-run. But perhaps millions dying and others being worse off isn’t the solution here.
What we need is economic growth, which lifts all boats. With freer market economies and trade the poorest are more likely to be employed and see their incomes rise. The poor getting better off is ultimately more important than irrationally hating the rich.
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