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Unequal where it matters 

2 April 2014 By Edward Hadas

Many serious people think economic inequality in the United States and other developed economies should be a hot political topic. But the general public hardly cares. There is a bad reason behind lack of public interest.

President Barack Obama said last December that a “dangerous and growing inequality” is “the defining issue of our time,” but the most recent Gallup poll suggests that view is not widely shared. Only 3 percent of Americans chose the “gap between rich and poor” as the country’s “most important problem” and 4 percent went for poverty. Unemployment scored 19 percent.

The American indifference is surprising because the measured increase in inequality there has been relatively large by international standards, to judge from the recent Chartbook of Economic Inequality from the Institute for New Economic Thinking at the Oxford Martin School. But the lack of concern is widespread. Neither help-the-poor nor soak-the-rich politicians have gained much traction in any rich country.

Debilitating economic inequality is in fact diminishing on a planetary scale. Each year, fewer people have to live without the basic economic goods of adequate food, clean water, decent housing and clothing, electricity and so forth. More people are experiencing a middle-class lifestyle. Almost every year, the gap between average incomes in developing and developed countries narrows.

However, the Chartbook shows that income and wealth are both increasingly concentrated at the top of society in countries from Canada to Germany. Why is the rest of the population not burning with indignation? The best explanation is that the statistics are misleading. In developed economies, actual consumption is not becoming more unequal to the degree suggested by most widely cited measures.

The pretax income numbers ignore the equalising forces built into modern economies. Taxes fall somewhat more heavily on the rich and benefits add more to the effective income of the poor. Many important goods and services are available universally, either by government fiat or in practice, because everyone has enough money to afford them. The lifestyle of a single mother on welfare is a million miles away from that of Bill Gates. But they use the same roads and can watch the same shows on television. They both have access to sophisticated healthcare.

The focus on widening differences in incomes diverts attention from the central trend: actual lifestyles are improving at roughly the same pace from top to bottom. The economic logic of mass production ensures that new products spread rapidly through the whole population. The rich may have fancier phones earlier than the poor, but in a few years almost everyone can take almost equal advantage of the network.

Of course, the rich always live better than the middle classes, in material terms. And in dollar terms, the top 10 percent may have pulled away a bit in recent years. However, the lifestyle gap has not widened very much. On both the poorer and richer sides of the divide, most people’s consumption has increased along with the advances in technology and the development of services.

The rich, though, were already about as comfortable as possible when the income gap started to widen. So there was little space to increase the distance from the rest. Most of their additional income has gone into investments. Some was given away and the rest was spent on fripperies which add almost nothing to the actual quality of life. So the wealth gap has widened more than the lifestyle gap.

The increase in this aspect of inequality is far from harmless. Those additional investments and donations have bought additional power. The more money people have to fling around, the greater their influence on legislators, jurists, and charitable and educational institutions. They can shape tax laws and push companies to favour shareholders – that is themselves – over customers and workers.

More insidiously, the ultra-rich can fund foundations and think tanks and back publications which help shape the public debate. Hedge fund billionaires, Bill Gates and the Koch brothers can make themselves heard over the crowd.

There is nothing historically unusual in the proximity of wealth and power. However, the two were supposed to be separated in modern democracies. These societies are founded on the principles of equality – among voters, before the law and in the world of ideas.

The latest economic trends may not add to actual economic inequality, but they threaten to undermine completely the more important civic equality. Even if most citizens hardly notice the loss, the gains of prosperity should be distributed more evenly.

 

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