Does inequality matter?

TheGlobeandMail.com – news/opinions
Published Satyrday, Jan. 8, 2011.   Margaret Wente

Should you be worried that Canada’s top CEOs make, on average, 155 times more than the average Canadian worker? British author Richard Wilkinson certainly thinks so. He and co-author Kate Pickett have been touring Canada with the grim news that inequality isn’t just bad for the unfortunate folks at the bottom of the ladder – it’s bad for everyone. Unequal societies, he argues, have more crime, more drug abuse, more heart disease, more prisons and more of every social pathology than equal ones.

This is the heart of his recent book,The Spirit Level: Why Equality is Better for Everyone. It has received rapturous reviews in Britain (“A sweeping theory of everything,” enthused the Guardian) and got a great plug from Nicholas Kristof in The New York Times, who points out that the wealthiest 1 per cent of Americans now possess a greater collective net worth than the bottom 90 per cent.

“Inequality is divisive, and even small differences seem to make an important difference,” contends Mr. Wilkinson, an epidemiologist. His book is illustrated with a bunch of scatter diagrams to illustrate his point. As you’d expect, Japan, Norway, Finland and Sweden lead the developed world in income equality, while the U.S., Britain, and, for some reason, Portugal, bring up the rear. Canada is in the middle.

Mr. Wilkinson cites a pile of sociology to prove that inequality literally makes you sick. Lower-status people suffer from more stress, more anxiety and less self-respect, which are all connected to more physical and mental ailments, more self-destructive behaviour and more poverty.

He maintains that inequality is the cause of social problems, not the other way around. He argues that we need to engineer a “historic shift” in the sources of human satisfaction from economic growth to a more sociable society.

Who could be against more equality, community and friendliness? Certainly not me. But it isn’t hard to fire a cannonball through his thesis. Take Japan. It is extremely equal. But Japan is heading toward catastrophe, both demographic and financial. Japan is so xenophobic that immigrants are not welcome, full stop. Nobody has children any more, and Japan remains the most sexist country in the developed world. If Japan were a person, it would be diagnosed as morbidly depressed.

Mr. Wilkinson also ignores homogeneity – surely a major explanatory factor in places like Scandinavia. Small nations where everyone is basically related tend to foster more equality and trust than big nations where they’re not. And The Economist, among many others, argues there is no evidence that an increase in someone’s income causes envy and reduces the welfare and satisfaction of others. “In our estimates, the level of income inequality had no impact on levels of life satisfaction,” it noted in its quality-of-life index.

Besides, inequality isn’t what it used to be. Back in Dickensian England, a 155-times difference in income really meant something. It measured the difference between a little match girl dying on the street of hunger and cold, and a child who was decently dressed and fed (providing she survived past the age of 5, which was a chancy thing back then, even among the well-to-do). Today, the material differences between rich and poor have shrunk dramatically. CEOs may eat better than average Canadians, but they don’t eat more. Average Canadians do not die for lack of life’s necessities. Nearly everyone has a cellphone and a television, although CEOs have nicer ones. Thanks to new technologies and rising incomes, concluded one study, the average British person today lives better (and longer) than the very rich did in 1950.

There’s a reason people aren’t rioting in the streets over rising inequality. As Tyler Cowen writes in a widely noted essay (The Inequality that Matters) in The American Interest quarterly, “when average people read about or see income inequality, they don’t feel the moral outrage that radiates from the more passionate egalitarian quarters of society. Instead, they think their lives are pretty good and that they either earned through hard work or lucked into a healthy share of the American dream.”

In any event, if you want to work up a little moral outrage, Canada’s $6-million CEOs are the wrong target. They are practically paupers compared to the class of hedge-fund managers and investment bankers who make up a good part of the new super-duper global über-elite. It’s this class that has Mr. Cowen really worried – not because they’ve become so insanely rich, but because of the hazards they create for all the rest of us. They are the new plutocracy, he argues.

“For the time being, we need to accept the possibility that the financial sector has learned how to game the … system of state capitalism.” Unfortunately, there’s not much we can do to rein them in. “We probably don’t have any solution to the hazards created by our financial sector, not because plutocrats are preventing our political system from adopting appropriate remedies, but because we don’t know what those remedies are.”

There’s another problem with the new über-elite (who are also mostly über-smart – you don’t get to run a zillion-dollar hedge fund if you’re dumb). The richer they get, the more out of touch. They only hang around with one another. They never ride the subway, and don’t know a single ordinary person, or even a semi-ordinary one. They’re also super-arrogant. They think they’ve got all the answers. They passionately believe that their interests are our interests, even when they’re not. They are extraordinarily powerful. And they scare the heck out of me.

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