Inequality is Inevitable and Irrelevant (Part 2)

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Part 2: Better Off Unequally Prosperous Than Equally Miserable

In Part 1, I discussed why inequality is an irrelevant topic of discussion because it is inevitable among humans. Inequality is a by-product and in itself is not harmful to society.

Instead of focusing on the gap between the high-income bracket and low-income bracket, we should focus on the conditions of the people in the low-income brackets. In other words, it does not matter what Warren Buffet makes, as long as the people in low-income brackets are not suffering from lack of basic necessities.

Let us discuss United States as an example. One stunning statistic is as follows: The median income of the bottom 5th percentile of US residents is higher than the income of two-thirds of the world population. That is, 97.5 percent of US residents belong to the top third of the world income bracket (see illustration).

The translation of this statistic into real-world conditions is that one will find a miniscule number of US citizens:

  • dying out of starvation (approximately 10 people in US die out of hunger and malnutrition every day compared to more than 22,000 people per day in India)
  • scavenging for food in garbage dumps and landfills
  • selling their children into slavery and prostitution
  • getting mowed down by drunk drivers when sleeping on sidewalks because they can’t afford decent shelter
  • (who are farmers) committing suicide by drinking pesticide because their crops were destroyed due to disease or lack of adequate rainfall

All the above examples are real-world situations that happen every day in many poor societies in Africa and Asia.

One statistic about so called ‘Hunger in America’ reads as follows: One in every six children in America has faced food insecurity sometime during childhood. ‘Food Insecurity’ means one does not know where one’s next meal will come from. Talk show host Jon Stewart remarked that he is shocked to hear about such an appalling statistic highlighting poverty in America.

Note that the Hunger-in-America statistic does not necessarily imply that the children actually go hungry. It merely states that the children do not know where they will get their next meal from.

My first reaction: If you have to conjure up such a frivolous statistic as ‘food insecurity’ to prove your point, you know you are really grasping for straws. My second reaction was exactly the opposite of Jon Stewart’s – You mean five in six children in America have never had to worry about where their next meal will come from?! In India, where I grew up, the statistic may be reversed for all we know, given that nearly two-thirds of the population lives on a per capita income of less than two dollars a day.

The child hunger statistic of America is incredible for exactly the opposite reasons. The statistic is indication of a level of prosperity that has never been achieved among large, diverse nations in the entire history of human civilization. In fact the bigger problem in US is the “epidemic” of childhood obesity, which is opposite of hunger. If you look at the problem at a global level and view it in terms of access to basic necessities, you will realize that America had indeed wiped out poverty decades ago.

Joseph Stiglitz talks at length about middle-class incomes being stagnant since 1970s. Yet, average new house in US today is 1000 square feet bigger compared to that in 1970s, even though the average number of residents per house is smaller today. Vehicle ownership has increased from less than 600 vehicles per 1000 people in 1970s to more than 800 today. People have more material possessions and avail more services in almost every aspect of life compared to 1970s.

‘Keeping up with the Joneses’ is an aspiration, not a burden. That’s a good thing!

Contrary to demagogues’ arguments, people in general do not begrudge others’ success. Joseph Stiglitz’s argument about inequality giving rise to ‘Keeping up with the Joneses’ scenario is a non-sense argument. In the United States, the billionaires of Silicon Valley are not derided for their riches.  But bankers on Wall Street are. The reason being Silicon Valley entrepreneurs have not taken government help to get rich. They made their billions by providing people with what they want. Silicon Valley profits are purely free market profits and they don’t involve any coercion. That is why ordinary people do not hate Steve Jobs, Bill Gates, and Mark Zuckerberg for being rich.

On the other hand, a large portion of profits made by Wall Street bankers, Big Oil, and Big Pharma are due to government intervention, which involves coercion. Economists have an ugly-sounding name for it – ‘rent seeking’. The implicit government guarantee for big banks and financial institutions has been a primary reason for banks taking on enormous risks resulting in outrageous profits. Big Oil reaps benefits from huge oil subsidies and relies heavily on US military might for protection in hostile territories. Big Pharma’s big profits are a result of sky-high regulatory barriers imposed by government regulations that restrict competition from smaller upstarts.

Elon Musk is an interesting case for a Silicon Valley entrepreneur. So far, Musk’s wealth has been built upon his Silicon Valley exploits which did not use any government help. But his newer ventures like SolarCity and Tesla rely heavily on government subsidies. However, neither of those ventures has made a dime of profit so far. What do you think the public perception will be if and when Musk starts making billions on these ventures based primarily on government subsidies?

Liberal-progressives attribute the general rise in discontent in USA to rising inequality. It couldn’t be farther from truth. Inequality and discontent are increasing in US with the increasing government encroachment on peoples’ economic, social, and religious freedoms. When people believe the rich earned it “fair and square”, there is no resentment. Fairness does not mean forcibly taking away from some and redistributing among others. In fact, it is unfair to take away someone’s hard-earned income.

Forget inequality and focus on eliminating poverty

Warren Buffet’s income and wealth would seem ridiculously high even when compared to that of person earning an annual income of $100,000, even though that person’s income would belong in the top one percent of the household incomes of world population. In other words, zooming in only toward the top of the income pyramid deceitfully exaggerates the extent of inequality. We need to stop comparing, and instead focus on absolutes.

Even though India has roughly the same Gini coefficient as US, conditions in India are extremely difficult for the people at the bottom rungs of the income ladder. Therefore, our focus should be on raising the income levels of the poor people so that they have better access to basic necessities. In other words, our focus should be purely on poverty elimination.

How do we eliminate poverty? Nobody can say it better than the great libertarian icon, Milton Friedman:

“So far as poverty is concerned, there has never in history been a more effective machine for eliminating poverty than the free enterprise system and the free market.”

To eliminate poverty we should champion free markets. We need to stop enacting public policies that seek to redistribute income and wealth because redistributive policies make the market less free and lead to lower rates of income growth for the people in the lowest income brackets. Another iconic Friedman quote:

“A society that aims for equality before liberty will end up with neither equality nor liberty. And a society that aims first for liberty, will not end up with equality, but it will end up with a closer approach to equality than any other kind of system that has ever been developed.”

History is witness to the fact that every society that has made strides towards free markets has seen the economic conditions of the people in the lowest income bracket improve tremendously. The bigger the stride towards free markets, the bigger the improvement in lives of the poorest people.

We are all far better off unequally prosperous than equally miserable.

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Satish Bapanapalli is a freelance writer and ardent admirer of the great economist and Nobel laureate Milton Friedman. Satish’s ideas closely resonate with libertarian or classic liberal thinking.

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