Inequality Just Isn't A Big Deal
Absolute outcomes matters more than relative ones
I listened to AOC’s podcast with Jon Stewart, and they talked a lot about the hollowing out of the working class at the expense of the capital class. How the plumber is now losing out to the banker. It sounded like something straight out of a Trump rally. I wouldn’t be surprised if they were wearing their MAGA hats while they were spewing this nonsense.
This idea being pervasive on both sides of the aisle makes it worth a look. If this logic is true, you’d expect a low median personal income. Basically, the numbers should look something like 1,1,1,1,1,1,1,1,2,3,3,3,3,8,8,9. A lot of people getting boot stomped at the bottom, and a few fat cats at the top. So, let’s go look at the numbers…oh shit.
Ok, but maybe the poorest people are being left behind on wage growth. Let’s go check…and nope it’s not that either.
But things are more expensive now! Well, when you actually look at the time value of goods, things are much, much cheaper now.
Maybe social mobility has been killed and the ceiling has been lowered….nope.
The last possible explanation is that income inequality has increased. This one is actually true, as the Gini Index shows.
So, inequality seems to be the crux of the issue. It drives people crazy that Elon has hundreds of billions while the blue collar guy only has tens of thousands. Maybe I’m just a stupid libertarian, but I actually don’t see an issue with this at all.
Let’s say my friend and I both get jobs after college. I earn $50,000, while he earns $100,000. In two years, we both get a promotion. He now earns $150,000, while I earn $70,000. Technically, that increases the inequality between us, but it’s hard for me to say that I’m worse off. I’m still earning more than I did before. Why does it matter if somebody is making more than me?
Similarly, incomes were more equal in the late 1970s than they are today, but I’d much rather live in today’s world than in the late 1970s. The Roman and Byzantium empires had about the same level of income inequality that we do today, but you couldn’t pay me to trade my life today for a life in ancient Rome.
I don’t see the case that inequality hurts social mobility either. Sure, Danish people can move up classes more easily, but isn’t that just because they have so much less absolute money? For example, Danes have a median net worth of around $111,000. Americans have a median net worth of $192,900. I’d still rather be an unequal American than an equal Dane. Bryan Caplan makes this point. If you think being relatively rich would solve your problems, go move to Haiti. Turns out nobody wants to do that.
I can maybe see the argument that it harms social harmony. But isn’t this more of a personal problem than a societal problem? If rich people are upset that there are people way richer than them, how do you even solve that on a societal scale? Solutions I’ve seen online all basically come back to “redistribution” or “higher budgetary spending.” That’s like cutting your leg off when you stub your toe. It’s just pure zero-sum thinking.
So, if you think inequality is a big problem, I want to know:
Why?
How would you solve it?
What level of inequality, if any, is acceptable?