Is inequality bad if overall standard of living is increasing?

No of course it isn't.


If you're only point is relative inequality rather than absolute quality of life, you don't have a point to make. The one caveat I would add however, is that if the loves of many only improve by a tiny amount and the lives of the wealthiest improve by huge amounts and this happens consistently over many years, I can see why people would say the system itself is wrong.

To present the argument of the other side, there is a book called The Spirit Level where the authors argue that inequality leads to a lot of social problems. These are some examples of arguments they put forwards regarding issues such as obesity, drug abuse and child well-being, being largely influenced by inequality.

https://www.equalitytrust.org.uk/obesity
https://www.equalitytrust.org.uk/drug-abuse
https://www.equalitytrust.org.uk/child-well-being

[video="youtube;pdR7WW3XR9c"]https://www.youtube.com/watch?v=pdR7WW3XR9c[/video]

Posting Maggie videos is less my style than you might think: notwithstanding, I agree with her on this point.

Is inequality bad if overall standard of living is increasing?

i.e poor/middle class people can access more goods and services, longer life spans etc.

The case that inequality is bad even if everybody's living standards are rising is persuasive, to me. Reducing inequality is not incompatible with rising living standards, so we should aim to do both.

Inequality and associated measures such as relative poverty could be argued to be important because they are measures of social exclusion. On utilitarian grounds, people's preferences are shaped by the society in which they live, and if they have lots of unsatisfied preferences due to a relative lack of wealth and possessions, then this is a bad thing. The field of happiness economics, indeed, has found that people's happiness depends to a significant extent on how others around them are doing. Whether or not this is irrational is irrelevant: from a utilitarian perspective.

On top of this, large inequality has led not only to large inequality in outcomes, but to inequality of opportunity, which everybody agrees is important.

Inequality of outcome, for instance, leads to those on high-incomes buying more nutritious, healthy food than those on low-incomes, who will buy cheap, energy-dense foods to save money. It's important to note that whether or not parents could still buy more nutritious food if they cut back on other costs is irrelevant; the fact of the matter is that those on low-incomes do tend to buy less nutritious food. This has effects on children both in utero and in early years. One study, conducted on working class children in the United States, found that vitamin and mineral supplementation significantly increased their IQs, with IQ being the best predictor of job performance and a good predictor of academic success.

Children who grow up in low-income households and neighbourhoods also have less access to books, and the number of books in a household is one of the major predictors of academic achievement. Correspondingly, low-income parents are substantially less likely to read to their children daily compared to upper-income parents, are less likely to be coached in learning skills or helped with homework, and are half as likely to engage in cultural activities such as museum-visiting. The growing human brain desperately needs coherent, novel, challenging input, and when this does not occur, the brain does not grow as much.

In addition, to grow up to be emotionally healthy, children, particularly under the age of 3, need a strong, primary caregiver who can give unconditional love; safe, predictable, stable environments; ten to 20 hours each week of harmonious, reciprocal interactions; and enrichment through personalized, increasingly complex activities. All of these needs are less likely to be met in low-income households, and deficits in these areas inhibit the production of new brain cells, alter the path of maturation, and rework the healthy neural circuitry in children's brains, thereby undermining emotional and social development and predisposing them to emotional dysfunction.

In low-income households, children receive less social support. Low-income parents are less responsive and more authoritarian, and are half as likely as high-income parents to be able to track them down in their neighbourhood, whilst low-income parents frequently don't know the names of their child's teachers or friends.

All of this directly impacts the life chances of children. Chaotic and sometimes abusive households lead to stress, and stress in turn leads to diminished cognitive function. The prefrontal cortex and the hippocampus, two of the areas most involved in higher reasoning, planning and working memory, are greatly affected by levels of cortisol, and stress can even shrink neurons in these areas of the brain.

While most of these issues could conceivably be addressed without tackling inequality of outcome, and instead growing the size of the economic pie to ensure that people can escape low-incomes, they are unlikely to be. The massive disparity in wealth and income that we see today allows for those at the top to ensure that their children will have a much higher chance of becoming successful in life, and instead of addressing all of these individual equality of opportunity issues, addressing inequality of outcome is a much easier and much more efficient way of addressing inequality of opportunity.

Indeed, aside from all of the above, concentration of wealth yields concentration of power, meaning that those who are at the top can influence government to a far greater extent to adopt policies that help them, but not society as a whole. Overall, as the Institute for Fiscal Studies has stated: it is “likely to be very hard to increase social mobility without tackling inequality”. They also implicitly note that, because social mobility also implies downward mobility – the opportunity for those from high-income backgrounds to fall to a low-income background – those at the top are going to invariably pursue policies which obstruct social mobility: “in a world in which the consequences of downward social mobility are significant, there will be many who find this mobility very uncomfortable.”

In sum, it would be wrong to expect those born into a family in the top 20% to be just as likely to stay in the top 20% as those born into a family in the bottom 20%: intelligence is significantly determined by genetics, and higher intelligence will cause higher income. And, because those born into high-income families are more likely to inherit high intelligence, they will be more likely to be in the top 20% when they grow up. But, the evidence also demonstrates that inequality of opportunity can only realistically be addressed by addressing inequality of outcome, and areas with high inequality of outcome also, predictably, have less social mobility.

In terms of economic growth, the IMF, in 2014, found that “lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution”. The OECD has similarly released studies finding that inequality is bad for economic growth. So, pursuing economic growth and reducing inequality are not incompatible, as I said earlier.

There are a number of policies which could have no real impact, or even a positive impact, on economic growth whilst reducing inequality at the same time. The OECD, in an important paper,found that cutting income tax on the poor, increasing in-work benefits along with an increase in the top rate of tax on the rich, and moving from personal income taxes to wealth (such as a Land Value Tax) and inheritance taxes may all strike this balance.

They also found that increasing the rate of graduation from secondary education will reduce inequality and increase GDP. Tuition fees can actually be used to reduce income inequality if, as in Britain, they are essentially a graduate tax on high-earning graduates and, if implemented, mean that a higher rate of graduation from tertiary education can also boost GDP per capita and reduce inequality. Finally, greater unionisation can reduce income inequality, so we should encourage workers to join trade unions.

The case that inequality is bad even if everybody's living standards are rising is persuasive, to me. Reducing inequality is not incompatible with rising living standards, so we should aim to do both.

Inequality and associated measures such as relative poverty could be argued to be important because they are measures of social exclusion. On utilitarian grounds, people's preferences are shaped by the society in which they live, and if they have lots of unsatisfied preferences due to a relative lack of wealth and possessions, then this is a bad thing. The field of happiness economics, indeed, has found that people's happiness depends to a significant extent on how others around them are doing. Whether or not this is irrational is irrelevant: from a utilitarian perspective.

On top of this, large inequality has led not only to large inequality in outcomes, but to inequality of opportunity, which everybody agrees is important.

Inequality of outcome, for instance, leads to those on high-incomes buying more nutritious, healthy food than those on low-incomes, who will buy cheap, energy-dense foods to save money. It's important to note that whether or not parents could still buy more nutritious food if they cut back on other costs is irrelevant; the fact of the matter is that those on low-incomes do tend to buy less nutritious food. This has effects on children both in utero and in early years. One study, conducted on working class children in the United States, found that vitamin and mineral supplementation significantly increased their IQs, with IQ being the best predictor of job performance and a good predictor of academic success.

Children who grow up in low-income households and neighbourhoods also have less access to books, and the number of books in a household is one of the major predictors of academic achievement. Correspondingly, low-income parents are substantially less likely to read to their children daily compared to upper-income parents, are less likely to be coached in learning skills or helped with homework, and are half as likely to engage in cultural activities such as museum-visiting. The growing human brain desperately needs coherent, novel, challenging input, and when this does not occur, the brain does not grow as much.

In addition, to grow up to be emotionally healthy, children, particularly under the age of 3, need a strong, primary caregiver who can give unconditional love; safe, predictable, stable environments; ten to 20 hours each week of harmonious, reciprocal interactions; and enrichment through personalized, increasingly complex activities. All of these needs are less likely to be met in low-income households, and deficits in these areas inhibit the production of new brain cells, alter the path of maturation, and rework the healthy neural circuitry in children's brains, thereby undermining emotional and social development and predisposing them to emotional dysfunction.

In low-income households, children receive less social support. Low-income parents are less responsive and more authoritarian, and are half as likely as high-income parents to be able to track them down in their neighbourhood, whilst low-income parents frequently don't know the names of their child's teachers or friends.

All of this directly impacts the life chances of children. Chaotic and sometimes abusive households lead to stress, and stress in turn leads to diminished cognitive function. The prefrontal cortex and the hippocampus, two of the areas most involved in higher reasoning, planning and working memory, are greatly affected by levels of cortisol, and stress can even shrink neurons in these areas of the brain.

While most of these issues could conceivably be addressed without tackling inequality of outcome, and instead growing the size of the economic pie to ensure that people can escape low-incomes, they are unlikely to be. The massive disparity in wealth and income that we see today allows for those at the top to ensure that their children will have a much higher chance of becoming successful in life, and instead of addressing all of these individual equality of opportunity issues, addressing inequality of outcome is a much easier and much more efficient way of addressing inequality of opportunity.

Indeed, aside from all of the above, concentration of wealth yields concentration of power, meaning that those who are at the top can influence government to a far greater extent to adopt policies that help them, but not society as a whole. Overall, as the Institute for Fiscal Studies has stated: it is “likely to be very hard to increase social mobility without tackling inequality”. They also implicitly note that, because social mobility also implies downward mobility – the opportunity for those from high-income backgrounds to fall to a low-income background – those at the top are going to invariably pursue policies which obstruct social mobility: “in a world in which the consequences of downward social mobility are significant, there will be many who find this mobility very uncomfortable.”

In sum, it would be wrong to expect those born into a family in the top 20% to be just as likely to stay in the top 20% as those born into a family in the bottom 20%: intelligence is significantly determined by genetics, and higher intelligence will cause higher income. And, because those born into high-income families are more likely to inherit high intelligence, they will be more likely to be in the top 20% when they grow up. But, the evidence also demonstrates that inequality of opportunity can only realistically be addressed by addressing inequality of outcome, and areas with high inequality of outcome also, predictably, have less social mobility.

In terms of economic growth, the IMF, in 2014, found that “lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution”. The OECD has similarly released studies finding that inequality is bad for economic growth. So, pursuing economic growth and reducing inequality are not incompatible, as I said earlier.

There are a number of policies which could have no real impact, or even a positive impact, on economic growth whilst reducing inequality at the same time. The OECD, in an important paper,found that cutting income tax on the poor, increasing in-work benefits along with an increase in the top rate of tax on the rich, and moving from personal income taxes to wealth (such as a Land Value Tax) and inheritance taxes may all strike this balance.

They also found that increasing the rate of graduation from secondary education will reduce inequality and increase GDP. Tuition fees can actually be used to reduce income inequality if, as in Britain, they are essentially a graduate tax on high-earning graduates and, if implemented, mean that a higher rate of graduation from tertiary education can also boost GDP per capita and reduce inequality. Finally, greater unionisation can reduce income inequality, so we should encourage workers to join trade unions.

It's a completely false premise.
It assumes that free market capitalism makes the poor richer, whereas the contention is that it does not. The poor very often get poorer, or stay the same, while those at the top get hugely wealthier.

Then there's the issue of those with wealth using that wealth to buy influence through lobbying.

What world do you live in, my friend? There has never been such an effective and rapid tool for the alleviation of poverty and mass movement of individuals from relative deprivation into relative well-being, as the free market. The only countries where the poor have consistently remained poor are socialist nations which are yet to adopt market policies.

Read it, one of the best post's i've seen on TSR although i might not agree with all of it. I think the biggest issue you will come across especially in the US or even in the UK now. Families/individuals in the top 20% will say they started also with nothing and built themselves up. But i hear all your arguments on the downsides of inequality, i've always found it quite weird people are more stressed about what's happening exactly around them i.e someone on the street has got a new car rather than a billionaire bribing government to have his way for his own interests.

What world do you live in, my friend? There has never been such an effective and rapid tool for the alleviation of poverty and mass movement of individuals from relative deprivation into relative well-being, as the free market. The only countries where the poor have consistently remained poor are socialist nations which are yet to adopt market policies.

Thanks.

Even if some people have managed to get into the top 20% from the bottom, it's still far too rare, of course. The fact that some people have been successful doesn't mean that we don't have a massive problem with equality of opportunity.

I think the main point is that reducing inequality is compatible with economic growth. The argument that we should just focus on everyone getting richer misses the point: if we can achieve the same level of economic growth but distribute the growth more equitably, that's a better outcome both in terms of happiness (people who are poorer gain more from every extra unit of income than those who are richer) and in terms of equality of opportunity and social mobility. We help the poor more when growth is distributed more equitably so long as the means by which we achieve this more equitable distribution do not impact the rate of growth. And, as I demonstrated, less inequality may actually increase economic growth.

There's also an interesting paper out by the Brookings Institution, which suggests that the reason that there is lower social mobility in areas with high inequality is young people from low-income backgrounds perceive less of a return from staying on in education.



There's never been a free-market society, though. Almost every country on Earth has a mixed-market economy, a mix of socialism and capitalism, and political debates are generally about what the best mix of socialism and capitalism is. China's liberalization of its economy was of course a good thing, but came from a baseline of full-on state socialism. My view is that both extremes: state socialism and pure, free-market capitalism, lead to terrible outcomes. Nations with the lowest poverty and inequality rates, which are also the happiest nations in the world, are the Scandinavian countries, which combine the best of socialism (a fair tax system; free, universal public services; a generous welfare state; strong trade unions; high public spending, and so on) with the best of capitalism (openness to free trade, little red tape for small and medium-sized businesses, and so on).

Thanks.

Even if some people have managed to get into the top 20% from the bottom, it's still far too rare, of course. The fact that some people have been successful doesn't mean that we don't have a massive problem with equality of opportunity.

I think the main point is that reducing inequality is compatible with economic growth. The argument that we should just focus on everyone getting richer misses the point: if we can achieve the same level of economic growth but distribute the growth more equitably, that's a better outcome both in terms of happiness (people who are poorer gain more from every extra unit of income than those who are richer) and in terms of equality of opportunity and social mobility. We help the poor more when growth is distributed more equitably so long as the means by which we achieve this more equitable distribution do not impact the rate of growth. And, as I demonstrated, less inequality may actually increase economic growth.

There's also an interesting paper out by the Brookings Institution, which suggests that the reason that there is lower social mobility in areas with high inequality is young people from low-income backgrounds perceive less of a return from staying on in education.



There's never been a free-market society, though. Almost every country on Earth has a mixed-market economy, a mix of socialism and capitalism, and political debates are generally about what the best mix of socialism and capitalism is. China's liberalization of its economy was of course a good thing, but came from a baseline of full-on state socialism - it has always struck me as odd that advocates of the free-market cite China, a country with considerable state control of its industries, to support their "capitalism is liberation" line.

My view is that both extremes: state socialism and pure, free-market capitalism, lead to terrible outcomes. Nations with the lowest poverty and inequality rates, which are also the happiest nations in the world, are the Scandinavian countries, which combine the best of socialism (a fair tax system; free, universal public services; a generous welfare state; strong trade unions; high public spending, and so on) with the best of capitalism (openness to free trade, little red tape for small and medium-sized businesses, and so on).