OP-ED: Is global inequality increasing?

Mark Twain once pointed out that “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so that does.” 

We need to keep this in mind when considering the entirely common claim that global inequality is increasing. This then being used as the reason why this globalized free market capitalism needs to be curbed with heavy taxation and redistribution.

The point being, right at the start, that global inequality is not increasing. Nor, actually, is any relevant, interesting, or important form of inequality. We can’t therefore use rising inequality -- the thing that doesn’t exist -- as the justification for anything.

This applies to such economic propagandists as Piketty, Saez, Zucman, and so on along with all their fellow travellers. And, sad to say, to a goodly portion of those who think of themselves as leftists.

Consider the basics here. The economy in Bangladesh -- both as a total, GDP, and also as a per person number, GDP per capita -- has been growing faster in Bangladesh for the past two decades than it has been in Britain. So, the gap between, the inequality, between the two countries and the two populations has been falling. This is largely true of poor countries in general as well. 

There are exceptions, idiot political policies have put development into reverse in places like Zimbabwe and Venezuela, certainly. But poor country economic growth has been higher than rich country growth for these past few decades. The gaps between must, by definition, have been falling.

Sure, it’s entirely possible for us to say that it should be closing faster, even that it should never have been as big as it was. But we are, at least, moving in the right direction now. 

A related claim is that wealth inequality -- what people own rather than their incomes -- is becoming greater and that’s a problem that needs to be solved. The problem there is slightly more technical. Wealth, in these calculations, is measured before all the things we do to reduce wealth inequality. It’s actually made quite clear in one of the founding papers on the subject (Saez and Zucman) that they are doing this. Nothing that government does is counted. 

So, as an example, private pensions savings are wealth. And pensions paid by companies are wealth. But pensions paid by government aren’t. But the reason we have state pensions is to reduce wealth -- and income -- inequality among old people. 

The measurements are not, that is, being done in good faith.

As to why this is being done I can only make a guess. There’s a certain mindset that just insists that the world would be a better place without all these markets and capitalists around. Over the years, there have been a number of justifications of this idea. Marx himself said it was because of expropriation, the exploitation of those who do the actual work. 

As his underlying idea, the labout theory of value, turned out to be wrong that didn’t work, it was then commonplace to insist that scientific socialism -- a planned economy in short -- would be more efficient than a market one. None of that mess and waste of competition and so on. This was surprisingly popular and was still in the main and basic economics textbook (Samuelson) in the 1980s. That the planned, Soviet-style economies were growing faster than the capitalist and market ones and would overtake.

Then came 1989, and it was possible to actually see when we looked east from the Berlin Wall and that idea therefore failed. The varied justifications for the politicians and their bureaucrats to tell us all what to do economically have all failed. But there are still those who insist that the politicians should be telling us, therefore a new reason must be found. 

Thus the current concentration upon inequality. 

The actual reality of this past few decades of neoliberal globalization -- the spread of capitalism, trade, and markets, the retreat of planning and redistribution -- has been that global inequality has been decreasing. It has also been the one single period in the history of our entire species with the greatest reduction of poverty. 

The whole capitalism and markets thing seems to do very well at the basic job of an economic system, making the average person richer over time. There are, unfortunately, many who know absolutely that this isn’t true but they are, as Twain says, getting both us and them into trouble for it ain’t so.

This doesn’t mean we can’t have redistribution, or high taxes, or big government. That’s a choice that can be made. I might be against it, but my preference there isn’t being proven to be correct, it’s just my preference. The thing being though, that we do actually know now that a roughly free market economy is what makes a place rich. So, that’s what we should have and people blathering about inequality doesn’t change that.

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.