Egalitarians often point to wealth inequality as a sign that society is not doing enough to improve the conditions of the poorest. But inequality and standard of living are completely different and should be treated as two separate issues.

I remember in my AP political science class we were told that psychology tests proved that people – despite what they believed – were more concerned about relative wealth than absolute wealth. In other words, picture these two situations: I get $40 and you get $70 in situation A. In situation B, I get $30 and you get $45. In Situation A, we both have more money. We are both wealthier in absolute terms. In situation B, the inequality of our respective wealths is less, but our absolute wealth is lower; on the other hand, my relative wealth is better in B than in situation A.

I think – or at least I hope – that we all can agree that situation A is a preferred outcome, since both of us have more money which means a better standard of living (in the material sense).

One of the biggest fallacies about economics is that it is a zero-sum game. What I mean by this is that if I become ten dollars richer, I have taken it away from someone else. In other words, Bill Gates having X billions of dollars means that we are X billions of dollars poorer. Au contraire!

Market economies thrive on quite the opposite; the total amount of wealth in society is never a fixed amount. The idea is, at least in theory, that instead of artificially redistributing the “slices of pie,” making “the pie” bigger is a better way to help the worst-off in society (as Rawls himself even admitted). History, I believe, is on my side when comparing capitalism with extreme socialism or communism: the poor in the Soviet Union, East Germany, North Korea, or any African socialist utopia are much worse off than in America. In the last few decades, China and India have lifted hundreds of millions of people out of poverty by embracing market reforms. At the same time, wealth inequality has increased. Shouldn’t that be considered a necessary evil instead of something to combat, at the possible expense of further growth?

In my internship this summer for an education think tank, I remember reading a great piece (though I can’t find it now) arguing that achievement gaps shouldn’t be considered as much as proficiency gaps between races/income groups. In other words, instead of caring about the difference in test scores between rich kids and poor kids, we should just be making sure that every child is proficient in all the necessary areas. Caring about the achievement gap can create a false sense of progress, as Carson noted in a previous post, because if the best-off people actually decrease their well-being the inequality has gone down without actually improving the standard of living for the worst-off.

Ok, so that’s my first point: absolute wealth should be considered over relative wealth. But the measurements by which we look at inequality also need to be reconsidered. Will Wilkinson recently wrote an excellent paper questioning the often-reported rise inequality in the United States, saying that, among other things:

  1. The level of real economic inequality is lower than popular treatments of the issue have led many of us to think.
  2. The level of economic inequality is an unreliable indicator of a society’s justice or injustice.
  3. Inequality distracts us from real injustices that are given too little attention.

Check it out if you’ve got time.

An example of a pie that can represent wealth distribution

An example of a pie that can represent wealth distribution

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