Inequality is a Mathematically Certain, Natural Outcome
At least in the sense that if we want progress, we have to accept inequality in the process.
Inequality is always among us. And when it is not, we still will find it as any parent of young children can attest. Yet “that’s not fair” is not just in the eye of the beholder. It is actually forever stitched into the world we occupy.
What’s more, attempts to "correct" it come at higher and higher costs. Hence, it is beneficial and desirable as a cost worth bearing. Let me explain.
I. Improvement and superficial inequality go hand in hand
Perhaps the best way to see this is by watching the beautiful dynamic graphs at Gapminder.
Notice that the x-axis is logarithmic (each marker is a doubling of the prior) while the y-axis is linear. The x-axis is wealth measured by adjusted income per person. The y-axis is a proxy for health measured by life expectancy.
The "gap" between those in the upper right and lower left is always widening when we just look at those places on the graph--the actual countries occupying those spaces change. However, every country basically improves upon itself over time--the worst is eventually better than the prior best.
Now, some would say the graph itself doesn't strictly show this. And that would be both a correct reading as well as a naïve one. For one thing it is putting too much emphasis on income and too little on life expectancy. For another it is ignoring how much more a dollar of income buys today than it did in the past--this is kind of quality over quantity even though quality and quantities are better and better over this history. To get a fully measure for wealth we would need to adjust the income figures for not just inflation and PPP1 as done in the analysis shown. We would also want to adjust for the quality and diversity of available consumption.
II. We unintentionally choose to intentionally choose inequality
Robin Hanson explains this well:
The median adult income worldwide is ~$1000 ($3000 per household), and median wealth is $7500. If you make/have more than those amounts, and if you are trying to increase your personal income and wealth, then if successful your efforts will increase inequality in those distributions. The same applies for any distribution where you are above the median; your efforts to increase your personal value are efforts to increase inequality.
Let’s generalize this even more.
While specialization rises with the extent of the market à la Adam Smith, so too does inequality as scale and network effects stretch the distribution rightward. To be sure the distribution grows and shifts with a rising mean, but the growth is not normal (in the statistical sense)—the relative distance between best and worst is ever larger even though the “worst” eventually eclipses the original best. Here is a stylized representation:
Even in a normal distribution world growth leads pretty naturally to inequality.2 The non-normal distribution world we actually have makes this significantly more the case. Fortunately, though, the non-normal world gives us a rightward shift in the mean—an improvement generally! without and before considering the entire distribution moves rightward as well over time (the lesson from Gapminder above).
Inequality has risen quite naturally as a result of improvement for all.
III. Economics as a discipline should stop deriding inequality
One of the central tenets of good economics is that all decisions are tradeoffs. However, some tradeoffs are false if not outright false gods.
Pursuit of equality is a central tenet of socialism, but this pursuit is a mistake both in definition since extinguishing inequality is not actually possible and in execution since attempts to do so will sacrifice progress at higher and higher opportunity cost. These are not small concerns. Mistakes like these can prove disastrous.
While the intentions of those who would reduce inequality start from a good heart, I must stop short of even granting that they are noble. A noble pursuit would take into account its theoretical and actual consequences. The pursuit of “equality” fails in both regards.
A dollar in a poor country might and usually does actually buy more than in a rich country. This can be seen within countries too. Think how much more expensive dinner and a movie is in a place like Manhattan, NY than Manhattan, KS.
Some might confusingly argue that negative wealth/health is possible thinking that a very bad existence is this outcome. But that is a mistake between absolute and relative measurements. You cannot be more dead than simply dead. We might be able to create a living misery that is worse than anything has been up to this point, but this simply redefines what the left limit is. This would exacerbate the measure of inequality without changing the non-normal nature of growth and progress.