Is all the wealth just going to the rich?

Why does it matter that Gross Domestic Product (GDP) per capita has gone up so dramatically?  After stagnating at around $500 for thousands of years, it has increased 20 fold to over $10,000 in the 200 years since the Industrial Revolution.

“Though it’s easy to sneer at national income as a shallow and materialistic measure, it correlates with every indicator of human flourishing,” notes Steven Pinker in Enlightenment Now, including “longevity, health, and nutrition”.  

“Less obviously, it correlates with higher ethical values like peace, freedom, human rights, and tolerance.  Richer countries, on average, fight fewer wars with each other, are less likely to be driven by civil wars, are more likely to become and stay democratic, and have greater respect for human rights (on average, that is; Arab oil states are rich but repressive).  The citizens of richer countries have greater respect for “emancipative” or liberal values such as women’s equality, free speech, gay rights, participatory democracy, and protection of the environment.  Not surprisingly, as countries get richer they get happier; more surprisingly, as countries get richer they get smarter.”

But what about economic inequality?  Is all the wealth just going to the rich?  

Economic inequality has become an obsession, Steven observes.  Between 2009 and 2016, New York Times articles containing the word inequality soared tenfold, reaching 1 in 73.  Steven quotes Pope Francis who called inequality “the root of social evil.”  

Self-described socialist Bernie Sanders proclaimed “a nation will not survive morally or economically when so few have so much, while so many have so little.”  While running for President in 2016, Donald Trump, claimed the United States had become “a third-world country”.  He “blamed the declining fortunes of the working class not on Wall Street and the one percent but on immigration and foreign trade,” Steven notes.

“The left and right ends of the political spectrum, incensed by economic inequality for their different reasons, curled around to meet each other,” Steven writes.

So, what are the facts?  “Has rising inequality really immiserated the majority of citizens?” asks Steven.

“The new conventional wisdom is that the richest one percent have skimmed off all the economic growth of recent decades, and everyone else is treading water or slowly sinking,” Steven writes.

Not so fast, says Steven.  He dedicates a chapter of his book to this topic “because so many people have been swept up in the dystopian rhetoric and see inequality as a sign that modernity has failed to improve the human condition.  As we will see, this is wrong, and for many reasons,” he notes.

“The starting point for understanding inequality in the context of human progress is to recognize that income inequality is not a fundamental component of well-being,” notes Steven.  “It is not like health, prosperity, knowledge, safety, peace, and the other areas of progress.”

The reason is captured in an old joke from the Soviet Union…  

Igor and Boris are poor peasants, barely growing enough crops from their small plots of land to feed their families.  The only difference between them is that Boris owns one scraggly goat.  One day a fairy appears to Igor and grants him a wish.  Igor says, “I wish that Boris’s goat would die.”

The point of the joke is while the two peasants have become more equal, neither is better off.

“Indeed, a narrow focus on economic inequality can be destructive if it distracts us into killing Boris’s goat instead of figuring out how Igor can get one,” Steven writes.

Inequality and poverty are not the same.

“The confusion of inequality with poverty comes straight out of the lump fallacy—the mindset in which wealth is a finite resource, like an antelope carcass, which has to be divvied up in zero-sum fashion, so that if some people end up with more, others must have less,” Steven notes. 

As we’ve seen, wealth has expanded exponentially since the Industrial Revolution.  

Imagine a standard nine-inch pie pan.  It is the year 1700.  This pie represents all of the world’s wealth and prosperity at the time.

Today, the pie pan would be ten feet in diameter.

Put another way: of this ten foot diameter pie, “if we were to surgically carve out the teeniest slice imaginable-say, one that was two inches wide at its widest point-it would be the size of the entire pie in 1700,” Steven observes.

The data also shows that as countries become wealthier they “devote a substantial chunk of their wealth to health, education, pensions, and income support,” Steven notes.  The median percentage of social spending across twenty western democracies is 22 percent.

“Those who condemn modern capitalist societies for callousness toward the poor are probably unaware of how little the pre-capitalist societies of the past spent on poor relief,” writes Steven.  “It’s not just that they had less to spend in absolute terms; they spent a smaller proportion of their wealth.

A much smaller proportion.

“From the Renaissance through the early 20th century, European countries spent an average of 1.5 percent of their GDP on poor relief, education, and other social transfers. In many countries and periods, they spent nothing at all.”

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Reflection:  Am I surprised by the data above?  Why or why not?  

Action: Share this information with a friend or colleague who is convinced we live in the “worst of times.”

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