Why should you worry about income equality?

Featured image photo credit: Tax Credits via Foter.com / CC BY

It’s hardly controversial to notice that some people earn more money than other people. According to Inequality.org, the top 10% of Americans average nine times the income of the bottom 90% of Americans.

So, why should you worry about income inequality?

Umm, well, you shouldn’t.

There’s two problems with using income inequality as a measure of… well, I’m not really sure what it’s a measure of. It can’t be a measure of poverty unless you look at the world as a whole, and even then it fails to take into account cost differences between different areas. I guess maybe fairness or something, which I’ll get to in a second. Really, though, as far as I can see, income inequality is only a measure of… income inequality.

Anyway.

First, stating that income inequality is a problem carries the assumption that there is a limited pool of income to be had. The thing is, economies grow, and with that growth, comes growing incomes. Gross Domestic Product is an imperfect indicator of income, but it is a good measure of the size of the economy, and per this chart, GDP per person has increased over eighteen times since 1960:

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(Source: Google Public Data)

When the economy grows, the pool of income available increases, which means incomes will grow. Some people’s incomes will grow higher than others, of course which brings me to the second problem, the issue of fairness.

This one is harder to argue against, since it involves emotions far more than logic. After all, everyone wants their fair share of the pie, right?

So let’s look at pie:

pecan-pie-2087626_1920

Sweet, sweet, pecan pie.

Let’s say there is only one pie. It’s cut into eight slices. You get one slice, and someone else gets the other seven. Obviously, with pecan pie, you want a lot, right? So even though you did get one slice, you do feel the sting of unfairness when someone else gets 87.5% of the pie.

OK, but now the pecan pie economy has grown, and there is now twenty pecan pies. You now get two whole pies. Two pies! You now have sixteen times more pie than you did before! Sure, the other guy now gets eighteen pies, which means he has 90% of the pie available, but what does that really matter to you? As a percentage, yes, you now have only 10% of the pie, as compared to before, when you had 12.5%. But you have sixteen slices now, instead of one. If you had to choose between these two options, would you really choose the scenario where you only get one piece of pie, instead of two whole pies, simply because it’s 2.5% fairer? I hope not, and quite frankly, if you would choose the smaller amount simply because it’s slightly fairer, the problem lies with you, not with the world.

So that’s that: you don’t need to worry about income inequality, and trying to get a bigger slice of *a* pie. Instead, make more pies!