Taking a Look at Income Inequality

By most standards the world is getting better. Global extreme poverty has plummeted in recent years. In 1800, 85% of the world was in extreme poverty. Thanks to the invention of a capitalistic economy, that number went down to 50% by 1966. By 2017 that figure is only 9%. Furthermore, life expectancy has increased in every country since 1800 without exception. Global life expectancy was 72 years in 2017 compared to just 53 years in 1960. Since the end of the cold war there has also been a significant decrease in violence worldwide. There have been fewer civil wars since 1991, a 90% decrease in deaths from genocide and a reversal of the slight uptick in homicide rates in the 1960s.

With all this progress it would be easy to think that everything is going to continue improving forever. Perhaps Pangloss was right- all is for the best in this best of all possible worlds (Voltaire). Maybe we really are living in the end of history. Unfortunately, this is not the case.

Earlier I credited capitalism for the improvement in living conditions that has taken place over the last 200 years. However, no system is perfect. Capitalism has done well to solve some problems but has created others. One of these glitches in the system is rampant inequality. A capitalist system is designed to incentivize individuals to take risks for the chance of earning profit. In this system, more benefit is given to the people who take the risks, and this in turn creates economic growth. The problem arises when regulation fails to keep this process in check. The GDP of the United States has increased greatly since 1980, and the income of the top 1% of earners has something to show for it. Since 1980, wages for the top 1% have increased by 138%. For the bottom 90%, that number is only 15%. Clearly there is a problem with a disproportionate amount of new wealth going to the richest members of our society.

It is only recently that we have begun talking about this problem on a large scale. While the Democratic Party has given it great lip service during recent debates and statements from current candidates, talking about income inequality was political suicide before the 2016 election cycle. As a result, there is much left for everyone to learn about this topic, and that’s what “The Spirit Level” by Richard Wilkinson and Kate Pickett took head on years before this problem had a national spotlight.

Income inequality is discussed as a purely economic issue — but Wilkinson and Pickett concluded that it has broader implications on quality of life issues. The two believe that rich countries are facing diminishing marginal returns from increasing their material wealth. People in rich countries have enough money to cover their basic needs like food and shelter, so increasing wealth will have less of an effect on well-being than in poor countries where some of these needs may not be met. Therefore, economic growth is not the main component of increasing social wellbeing in rich countries. Instead, the researchers found that the level of economic equality in the country is a better indicator for wellbeing.

The two researchers use data from various economic authorities like the World Bank to assert a positive correlation between equality and social wellbeing.

It makes intuitive sense that we would see a similar trend when we look at the same index compared to average income in a country, but that’s simply not the case.

There is surprisingly no correlation between increased levels of wealth in rich countries and social wellbeing. It is with this data in mind that the pair of researchers make the claim that increasing wealth is not the way to make our society better, but rather to ensure some degree of equality within a country.

If you want to better yourself and in turn the society you live in, striving for personal enrichment is not what will get you there. Instead, you should fight for a level of social and economic equity that allows all members of society to live with dignity. At the Gandhi Institute, we try to play our part by empowering young people (particularly those that face marginalization due to their race or income level) and promoting alternatives to the criminal and retributive justice systems that tend to exacerbate existing social inequities. It is wise to recognize how much better off we are compared to even fifty years ago, but it is also important to fight against injustice.

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