Rising inequality isn’t the problem

Laura Rapira on the Q&A panel just referred to the problem of rising inequality around the world as if it an unarguable problem.

There are similar increasing concerns being expressed about ‘inequality’ in New Zealand.

Income is just one aspect of inequality, but growing levels of inequality don’t necessarily indicate a growing problem.

If, say, twenty years ago…

  • the average income of the bottom 10 of people was $10,000
  • the average income of the top 10% of people was $100,000
  • the gap between the two is $80,000

…and the incomes of both have risen by 100% we would have:

  • the average income of the bottom 10 of people is now $20,000
  • the average income of the top 10% of people is now $200,000
  • the gap between the two is $180,000 (it has more doubled)

But this tells us nothing about the standard of living of the bottom 10% of people.

If inflation was high over the same period the poorest 10% would be finding things harder. Most of richest 10% will have had little trouble adjusting.

However if the incomes of the bottom 10% had been boosted ahead of inflation by greater tax redistribution (higher benefits and more tax advantages) they would be better off, regardless of the top 10% incomes.

But in the latter case we have a bigger envy gap.

Apart from that the size of the inequality gap isn’t the problem. The focus should be on helping the bottom 10% (and the bottom 50%) improve their standard of living, improve their education,improve their health, and improve their employment prospects.