Thomas Piketty, the French economist. (Photo: Getty)
But once we strip out these other potential issues all that is left of the "inequality" discussion is this: is it bad if some folk are rich? And in truth, almost no-one claims that it is.
Try this thought experiment. Suppose each of us lived on our own desert island, like Robinson Crusoe, with identical resources and skills – so we're all perfectly equal - and get our food in the form of fish from the teeming oceans (there is no scarcity of fish). Then suppose one of us works out a way to fish better, so inequality increases. Is everyone else somehow worse off? Clearly the answer is that everyone else is not worse off unless the better fisherman makes fish scarcer for them. The one person's riches do not come at others' expense.
Obviously this is a rather abstract thought experiment, but it points at something simple and important: almost all inequality in developed economies does not arise by the wealth of almost anyone else declining. (That does happen in less socially and politically developed societies, in which wealth arises from political control of resources or access to corruption.) In modern developed economies inequality arises when someone – a Gates or Zuckerberg or Cowell or Ronaldo or Rowling or just an ordinary businessman or professional – finds some way (some skill or invention or investment) that adds considerable value, and that value is not then shared equally.
In our modern globalised economy, the gains from a new idea or skill can now be leveraged over enormously more people. Instead of your new and better mousetrap being sold just to the fair folk of Wolverhampton, the whole world beats a path to your door. In such a world, improved added value creates large inequalities. But that is precisely because the added value of a Windows or Facebook or awesome evening's football skill benefits so enormously many people – even if each only benefits a little compared with the huge aggregate benefits benefits taken by the value-creator.
Many of those preaching the evils of inequality will at this point start to deny that this is actually how high inequality arises. They might claim that remuneration of executives or in the financial sector do not come from added value but, rather, from market failure. I would probably disagree, but at least they would then be talking about something interesting – the alleged market failure – rather than something of no intrinsic policy concern (the fact that some folk are rich).
Others will start telling you of the terrible social problems associated with inequality – the depression, violence, low life expectancy and so on. Well, insofar as these arise from poverty, we can debate how much to alleviate poverty. But then poverty is the issue, not inequality.
"Ah," say the evils-of-inequality purists, "but you miss the point that some of these social problems are psychologically connected to the fact that there are very rich people, not simply the result of the poverty itself." If that is the case offered, then my response is that you are either talking of aspiration or of envy. Aspiration – being discontent in your current circumstances and hoping to improve your lot and that of those you love – is a driver of progress. Obviously some will fail in their aspiration, and may suffer psychological consequences. But are we really saying it would be better if no-one aspired at all, than for some to aspire and not succeed? Others may not simply aspire, but may instead envy the success of those that have done better or who were luckier to begin with. It's hardly controversial that envy exists or that it may have negative consequences – that is, after all, presumably why it's one of the Seven Deadly Sins?
If someone said: "Women with beautiful eyes should cover them up to avoid inciting lust in others" we would say that's silly or oppressive. It's the luster's problem, not the person lusted after. Yet in the case of envy, somehow we're supposed to believe it's the envied person that's the bad one, not the envier? No. Envy may be harmful, but to the very limited extent it's a policy concern the correct response is to teach people not to envy.
Others say "In studies, unequal societies have lower social mobility". But that wouldn't be surprising if either low social mobility were a cause of high and persistent inequality (which it might be) or if the same forces that drove low social mobility also drive high returns (e.g. if societies are already highly meritocratic, social mobility is likely to be low, because children are likely to be similar in innate talent to their parents, and returns are likely to be high, because meritocracy is efficient).
The intellectual case that inequality is a concern in itself collapses fairly rapidly under probing, and always has done. Yet the political concern is remarkably durable. I suspect that is because an important element in the inequality discussion is actually a disguised and somewhat incoherent discussion about something else – namely, unearned income.
Truly unearned income can be an issue for Right-wingers as well as the left. Right-wing thinkers tend to subscribe to the Lockean theory of property, according to which property (as opposed to mere possession) arises from combining work with the "common treasury". For example, if you find a stick in the road, the stick is part of the common treasury and thus far your possession but not your property. But if you sharpen the end of the stick to make it a spear, that spear is your property.
Now, think about investment income. According to the Capitalist theory of lending at interest, the return on investment arises from two forms of work (risk-taking and investment project analysis) and one of sacrifice (giving up other opportunities to use the money). That means no investment income is strictly "unearned".
But now suppose, instead, that the way things worked were this: the wealthy lend money at interest, which grows systematically faster than wages, and the money lent is at no risk of loss, because if there is any risk of loss the State will intervene to bail the project out (e.g. by bailing out failed banks). Under that sort of system, it would be difficult to provide a justification for that element of wealth growth that was then truly unearned. Under the Lockean theory it isn't even the property of the wealthy person – who has done no work to produce it! It's mere possession and control of riches, not property at all.
Now 19th-century radicals, and radicals such as Thomas Piketty today, appear to me to have a rather pessimistic and fatalistic conception of politics. They believe it is inevitable that the wealthy will use their political influence to defend their wealth in this way. Consequently, the recommendation is that the wealthy be charged by the state in the form of wealth taxes – which we can see as a kind of payment to the state for defending their riches. Furthermore, it seems pretty obvious that once one started to charge the wealthy such wealth taxes, the political and moral pressure to bail them out to defend their position would be overwhelming – otherwise, what are the wealth taxes being paid for?
I would prefer a system in which the wealthy were allowed to lose their money if their investments go bad, in which the state does not intervene in the economy to keep the rich rich. I grant that we do not have such a political system now – the bank bailouts of 2008 and since have made that clear to everyone, and things like deposit insurance have become even more extensive in recent years. But I am optimistic that one day we can achieve a politics, society and economy in which investment capital is always genuinely at risk and the state does not think it is its job to keep the rich rich. It's nice to dream that, anyway…
http://blogs.telegraph.co.uk/finance/andrewlilico/100027182/inequality-isnt-a-problem-its-a-driver-of-progress/
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