The inequality trap

Posted on November 30, 2015 in Equality Debates – Full Comment
November 30, 2015.   William Watson

Standfirst: In this excerpt from his new book, The Inequality Trap: Fighting Capitalism Instead of Poverty, McGill University economist and Post columnist William Watson describes the remarkable social progress that has occurred under capitalism and that may be put at risk by focusing public policy on income and wealth inequality. First of Three Parts.

Inequality has become the obsession of the age. The U.S. president ran for re-election against it in 2012 and won. The new pope wrote his first encyclical against it. And in 2014, a 600-page book about it, crammed with charts and data, became an unlikely publishing sensation, got its economist-author on the cover of Business Week (albeit not Time), and had usually quite sensible people predicting its influence in this century would be as great as that of John Maynard Keynes’ General Theory of Employment, Interest and Money in the last.

In my view, this preoccupation with inequality is both an error and a trap. It is an error because inequality, unlike poverty, is not the problem it is so widely presumed to be. Inequality can be good, it can be bad, and it can be neither good nor bad but benign. We may wish to have ways of thinking about and perhaps even public policies for each kind of inequality, but we do not need, and it would be a mistake to adopt, a single perspective or policy for inequality writ large. Evaluating the different types of inequality requires moral judgments that it would be wrong to try to finesse. A one-size-fits-all perspective or policy would involve us in meaningful and costly injustice, even, in the now ubiquitous but not always illuminating term, social injustice.

Not everyone miserable is poor and not everyone poor is miserable.

Inequality is also a trap — not a trap anyone has set for us but one of our own making — because concern with it leads us to focus on the top end of the income distribution when our preoccupation should instead be the bottom, where the bulk of human misery almost certainly resides. Not everyone miserable is poor and not everyone poor is miserable. Some currently poor people are med students, law clerks, and other varieties of the future rich working through their apprenticeship. But other poor people are stuck in poverty for the duration — for their duration, which may be shorter as a result of their poverty — and miss out on many advantages the rest of us take for granted. Their relative or even absolute deprivation may not prevent them from leading good lives, nor even the good life that has preoccupied philosophers since philosophy began. But it drastically limits their opportunities and in particular their chance to enjoy the fascinating and alluring gadgets, entertainments, and experiences, notably travel, that define modern affluence.

Maybe diverted focus is not a hazardous trap. Maybe we can walk and chew gum — that is, worry about both the top and bottom ends of the income and wealth distributions — at the same time. A deeper and more dangerous inequality trap, however, is that obsession with it may cause poor and non-poor alike to doubt capitalism, the social system whose advent coincided (almost certainly not coincidentally) with what Princeton economist and 2015 Nobelist Angus Deaton has called “the great escape.” This was our species’ dramatic leave-taking from the more or less perpetually low incomes and high death rates, especially among children, that until 1750 or so had been our fate for the 5,000 years of our written history and — more than likely, if evidence from anthropology and archaeology is admitted — for all our millennia before that.

Judging by the public debate on these matters, few people appreciate just how impressive the material progress of the last two centuries has been. In 1500 in Venice, one of the wealthiest places on Earth at the time, “the price of a book,” according to the author Jane Gleeson-White, was about a week’s salary for a teacher or a skilled artisan, equivalent to the price of a good desktop computer today.” Of course, today on a good or even lesser quality computer you can get access to millions of books for free via Google Books, and to millions of other books via various e-sellers very often for less than the hourly, not weekly, wage.

More generally, in 2014 the Organization for Economic Cooperation and Development (OECD) posted an interactive web page “How Was Life?” showing how various indicators of well-being have improved in its member countries since 1820, which some economic historians regard as the beginning of globalized capitalism. Between that year and 2010, GDP per capita increased 17-fold in Western Europe, 23-fold in the “Western offshoots” (Canada, the United States, and Australia), 17-fold in East Asia, 12-fold in Latin America and the Caribbean, 10-fold in the Middle East and North Africa, and 13-fold for the world on average. Consider that for a second: a 13-times improvement versus not a lot of change in the preceding 5,000 years.

If you don’t like GDP as a measure of well-being, the OECD’s historians have also calculated how many “subsistence baskets,” defined as enough food and fuel to keep a person going for a day, could be purchased with the daily wage of the average construction worker in different countries at different times. In Western Europe in the 1820s the average was 12.6 baskets, just enough with a little left over to feed the several children in such a worker’s family; in the first decade of the 21st century, it was 163.3, again a 13-fold increase. Data aren’t available for the “Western offshoots” all the way back to the 1820s, but in the 21st century the average building worker in this region could with a day’s wage buy almost 170 such baskets. In East Asia the improvement is 11-fold since 1820, for the world, 7.5-fold.

If you don’t like real wages, then how about the dramatic increase in life expectancy at birth? From 33.4 years in Western Europe in the 1830s to 79.7 years in the 21st century; from 40.3 years in the “Western offshoots” in the 1880s to 78.1 in the 21st century; from 35.6 years in the 1930s — the 1930s! — in East Asia to 74.7 in the 21st century; from 24.6 in South and South East Asia in the 1880s to 65.9 now: not high enough yet but much better than it was. For the world as a whole, life expectancy at birth is two and a half times higher now than it was in the 1880s. True, we don’t know how big an increase in well-being people experienced in the first decades after fire was discovered or the wheel invented, but in the eras for which we do have data, nothing like such an improvement has ever been seen.

Not all this progress is owing to capitalism. But if ever poverty is finally eradicated from this earth, it is hard to believe some variant of free, private enterprise will not be involved. Capitalism does generate inequality — that is how it works — but by unrelentingly expanding what is possible in terms of living standards, it also enables people to pull themselves up from poverty. And by reducing the necessary sacrifice, it makes the non-poor more willing to help: the richer I am the less of my income I need give up in order to help you.

But if we respond to growing inequality by increasingly fighting capitalism, our false enemy, rather than poverty, our true enemy, we may end up with more of both inequality and poverty and risk at least partly undoing the good accrued during these past, truly remarkable two and a half centuries.

Excerpted from The Inequality Trap: Fighting Capitalism Instead of Poverty, copyright University of Toronto Press 2015.

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