Inequality of inequalities

Inequality has long been a topic of great interest to politicians and political commentators.

Most on the Left believe that it is ‘unfair’ that ‘rich’ people have lots of stuff and ‘poor’ people have much less stuff. Because it is ‘unfair’, they argue, government policy must seek to re-distribute wealth from the haves to the have-nots. It matters not that however poor you are in New Zealand today, you are incomparably well off compared to the vast bulk of humanity outside the first world. Nor does it matter that New Zealand’s disadvantaged enjoy luxuries undreamt of by even wealthy denizens of developed countries even 50 years ago.

For whatever reason, concerns about inequality are very tightly focussed. First, for the most part inequality is only considered relevant where it occurs within an arbitrarily-defined geographic region, to whit, the borders of whatever nation state is being discussed.

Secondly, it is generally only financial inequality that is considered worth talking about, although an honourable mention goes to educational inequality but mostly because it perpetuates the former.

Thirdly, even within the broad rubric of financial inequality, the Left tend to focus solely on income inequality and largely ignore asset wealth.

Each of these features is evidenced by the recent OECD report Divided We Stand: Why Inequality Keeps Rising . The sole focus of the report was on income inequality within each OECD state. Inequality between citizens of OECD countries was apparently not a problem. Nor was asset wealth inequality. Interestingly, in his critique of Wilkinson & Picket’s awful book The Spirit Level: Why More Equal Societies Almost Always Do Better, Christopher Snowdon points out that asset wealth inequality is mentioned only once in the whole book. The reason, he believes, is that Sweden and Norway look a lot less egalitarian when that measure is employed and that this was not germane to the authors’ message.

There are numerous other inequalities that apparently do not concern those on the Left, one amusing example of which is the subject of a post at Offsetting Behaviour.

I have yet to come across a convincing line of reasoning as to why anyone should be concerned about income inequality. Poverty, in absolute terms, is certainly an issue, but where everyone is comfortable, why should we care that some are more comfortable than others? And relativistic definitions of poverty are an iron-clad guarantee that we’ll never eradicate poverty and that it will always be there as a political tool for those on the Left.

There are a number of questions I would love to have answered from those concerned about income inequality. No-one to my knowledge has articulated clearly how much income inequality is acceptable. New Zealand’s Gini coefficient is .33, which is on the high end within the OECD, and so is apparently bad. But would income inequality cease to be an issue if all OECD countries’ Gini coefficients were .33? If so, would .5 be OK as long as inequality was equal within a select group of wealthy nations? Only a tiny proportion of the population seriously believe that we should aim for a Gini coefficient of zero, so everyone else who is concerned about inequality believes that it should be more than 0, but less than .33. What is their target level of inequality, and how did they decide upon that level? And would it still be an acceptable level if everyone else in the OECD was lower?

My own theory on income inequality is that it can largely be explained by technological development. I haven’t bothered to do any research to determine whether anyone else has the same theory, and if so whether they’ve done the numbers, but essentially my theory is that technological improvements magnify natural differences in productivity.

In a non-technological society a 10% difference in baseline productivity between two people would result in a 10% difference in total output. If a technology is introduced to increase productivity by 50%, then the individual who is only 10% more productive is still responsible for 10% more output, but the difference in total income if the difference is monetised increases by 50%.

Let’s assume that the two individuals do different jobs, and that the 10% difference in productivity is a result of the difference in how their society values what they produce. Because relatively small differences in total income would result in larger differences in disposable income, technological innovators would have an incentive to focus their innovation on increasing the productivity of more valuable roles, because the individuals in those roles are able to pay the innovators more.

Technology, therefore, disproportionately increases the productivity difference between individuals in high-value roles and those in low-value roles. As such, assuming no change in government wealth redistribution, income inequality and labour productivity should be strongly correlated. I might do some research on this, but controlling for government wealth redistribution would be a pain.

If this theory is correct, then continued technological growth will spur both increased living standards overall, and more inequality for leftists to use threat of force to address. Given that successful entrepreneurs, or indeed almost anyone who manages to make a lot of money, generates their personal wealth by creating even more value for society, we really should accept income inequality as an inevitable, and morally neutral, consequence of progress.

Nobody, with the possible exception of left-wing politicians and the odd unionist, is made better off by worrying about inequality.

And remember, it was wealthy business people and entrepreneurs who made big-screen TVs, home theatre systems and Nintendo Wiis cheap enough for each household interviewed for Bryan Bruce’s stupid documentary on child poverty to afford.


3 comments on “Inequality of inequalities

  1. Isla says:

    I think the idea science you are looking for re technological influence is the Solow Growth Model.


  2. […] I had been looking for a new topic to start the year with, but as it happens the only discussion thus far this year to capture my interest sufficiently to break my lazy retreat is a continuation of a discussion from last year – namely Brian Bruce’s stupid child poverty documentary. […]

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