Inequality and Progress

The author begins by noting that, however much economic inequality has become an obsession in developed countries in the 21st century, it is “not a fundamental component of well-being… like health, prosperity, knowledge, safety, or peace.” Citing philosopher Harry Frankfurt, he argues that “inequality itself is not morally objectionable; what is objectionable is poverty… it is not important everyone should have the same. What is morally important is that each should have enough.”

The widespread confusion of inequality with poverty is viewed as deriving from the “lump” or “zero-sum” fallacy,” which effectively assumes the impossibility of gains from trade or creating social wealth. The corollary to this belief is that if and when some people get richer, others must have been the losers or somehow impoverished by that process of creating wealth.

Another source of confusion is the conflation of inequality with unfairness. Contrary to the popular view, research has shown that people actually tend to prefer unequal distributions among citizens in their country, provided they sense that the allocation process is based on merit—that bonuses tend to go to harder workers, more generous helpers, or even the lucky winners of an impartial lottery.  What’s more, inequality is almost the inevitable accompaniment of social progress. When a society starts to generate substantial wealth, an increase in absolute inequality is almost a mathematical necessity.

Nevertheless, as countries grow richer, they spend more on help for the poor. Citing the Gini calculations by economist Branko Milanović, the author demonstrates that inequality between countries has been falling even as inequality within countries has risen since about 1980, and that the “winners” since 1980 have included most of humanity. And in explaining how people seemingly reconcile obvious improvements in living standards in recent decades with the conventional wisdom of economic stagnation, the author identifies four other serious misconceptions perpetuated by conventional inequality statistics:

1. Failure to distinguish between absolute and relative poverty;
2. Failure to recognize social mobility;
3. Failure to reflect increased social spending and wealth transfers; and
4. Failure to reflect increases in the quality of goods consumed.

The good news is that the long-term trend in history since the Enlightenment has been for the fortunes of all to rise. And while generating massive amounts of wealth, modern societies have been devoting an increasing proportion of that wealth to benefiting those less well-off.