Good reasons to worry about inequalities

25 July, 2016 at 13:22 | Posted in Economics, Politics & Society | 1 Comment

Focussing upon inequality statistics … misses an important point. What matters is not just the level of income inequality, but how that inequality arose. A free market society in which high incomes arise from the free choices of consenting adults – as in Robert Nozick’s Wilt Chamberlain parable – might have the same Gini coefficient as a crony capitalist society. But they are two different things. A good reason to be worried about current inequality – even if it hasn’t changed – is that it is a symptom of market failures such as corporate welfare, regulatory capture or the implicit subsidy to banks.

trickle-downIn this context, what matters is not just inequalities of income but inequalities of power. Top footballers and top bankers might be earning similar sums, but one’s salary is the product of market forces and the other of a tax-payer subsidy. The freelancer on £30,000 who’s worrying where his next contract is coming from has similar income to the bullying middle managers who created intolerable working conditions at (for example) Sports Direct. But they have very different degrees of economic power. And the low income that results from having to take a lousy job where your wages are topped up by tax credits gives you much less power than the same income that would come from a basic income and the freer choice to take or leave a low wage job.

My point here is a simple one. There are very good reasons why we should worry about inequality – not just leftists but also rightists who want freer markets and “bourgeois” virtues. Focusing only upon the stability of the Gini coefficient is a form of statistical fetishism which overlooks important questions.

Chris Dillow

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1 Comment

  1. My point here is a simple one. There are very good reasons why we should worry about inequality – not just leftists but also rightists who want freer markets and “bourgeois” virtues. Focusing only upon the stability of the Gini coefficient is a form of statistical fetishism which overlooks important questions. Chris Dillow

    Government subsidies* for private credit creation enable those with equity to avoid sharing it but instead to use what is essentially the PUBLIC’S credit but for private gain.

    We can have an ethical money and credit system and we can have low interest rates too** so there’s no excuse for the current system.

    Excellent article; thanks for sharing it, Lars. And kudos to the author too.

    *Such as government-provided deposit insurance instead of inherently risk-free accounts for all citizens, their businesses, etc at the central bank itself.

    **Or at least a just form of fiat creation to punish risk-free money hoarding and thus encourage lending and investment.


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