Why inequality is not necessarily bad

There is no inherent harm to the rich getting richer, says Sam Murray.

An American banking executive. An American banking executive.

Too often inequality between social groups is used as a tool of measuring or assessing social outcomes, such as wage inequality between the rich and poor, or the inequality in life-spans of Indigenous and white Australians. Too often, it is just assumed that because there is inequality, or even worse, growing inequality, that this is something terribly, terribly wrong. But this is nonsense.

Don’t get me wrong; the average lifespan of Indigenous Australians is a national shame requiring our utmost attention. But the harm is that it is low in absolute terms, not that it is low relative to other people in society. The fact that the average Aboriginal person lives to 62.1 years is awful. The fact that the average Australian lives to 81.1 years is fantastic. Why? Because while progress in both is ideal, progress in just one isn’t something to be deplored (because ultimately, people are still living 22 years longer than they did a century ago).

This problem of assuming inequality itself is bad becomes even more logically inconsistent when wage inequality is considered. The accusation is frequently made against western, developed, capitalist states that they have created an environment where the gap between the richest 20 per cent and poorest 20 per cent is always widening. This means literally nothing provided that everyone in society is getting richer, which statistically they are.

Take the United States, universally considered the worst for income equality: even the lowest 20th percentile’s income increased by 28 per cent in the past 40 years. Is this ideal? No, it could be more. But there is no inherent harm that the top 95th percentile had their income rise by 74 per cent in the same period, because at the end of the day everyone is still getting more prosperous and living better. Provided there is a basic standard of living available to most members of society, the fact that other people have an uber-luxurious standard of living should be immaterial.

I concede that many people in western societies may not have that basic standard of living; but that is a specific problem that needs to be addressed, quite apart from an arbitrary comparison between the rich and poor. Why is this distinction important?

An American banking executive.

Firstly, this sort of discourse creates social antagonism. Divisions between white and Aboriginal, public school and private school, rich and poor only become worse and more clearly delineated when people from all these groups talk about the very real problems faced in terms of inequality, as it necessarily sets one group against the other, instead of working together to actually fix the problem. Consequently, the discourse around inequality perpetuates the single, identifiable harm of inequality; the social discord that follows as a consequence of people feeling as though the real issue isn’t how bad they have it, but how much better other people do, leading to activities that are either ineffectual (such as the Occupy movement) or downright harmful (such as the London riots).

The second reason why the distinction is important is because it determines how people approach the problem. In the inequality discourse, the focus is on narrowing the gap, the implication being that it’s just as normatively appropriate to pull the more fortunate group down than the less fortunate group up.

This was seen in the wave of angry populist sentiment toward the immense executive bonuses awarded by Goldman Sachs and the other investment banks in mid 2009. Nobody was harmed by those bonuses, yet people still felt aggrieved that the “undeserving” rich were getting richer.

Measures designed to curb this inequality may make people feel good for a time, but does nothing to fix actual societal problems of the needy. Instead, the focus should always be on lifting the poor up however possible, and if the rich get richer along the way, then that’s just dandy.

Modern society needs to abandon its envy of the successful, its desire to cut down every tall poppy in sight, and instead focus on what’s important: ensuring that everyone is doing as well as possible in absolute terms.

Vice Chancellor Michael Spence.

Michael Spence

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