The End of Inequality

December 30, 2007

As I wrote in a recent article (Capitalism and Democracy), despite decreases in global inequality because of economic growth in South East Asia, in-country income inequality has been rising. However, this analysis of inequality is misleading as income inequality is less relevant to well being than real consumption inequality.

Interestingly, inequality in life satisfaction has been shrinking in OECD countries suggesting that the quality of life across the income scale is becoming more similar. Inequality has narrowed dramatically in height, life expectancy and leisure. As William Robert Fogel, a Nobel Prize winning economist put it: “In every measure that we have bearing on the standard of living … the gains of the lower classes have been far greater than those experienced by the population as a whole.

Differences in material goods have also declined dramatically. For instance, despite huge differences in prices for various types of cars, air travel or refrigerators, the difference in the actual services rendered is rather small – and nothing relative to the difference between having the good or service and not having it. Today 70% of Americans below the poverty line have at least one car!

Over time the consumption pattern of the less fortunate has become very similar to that of the wealthy. This compression is the predictable result of innovation in production and distribution that push new technologies down the price scale incredibly fast.

As entrepreneurs we sometimes make vast fortunes and widen the income gap but in so doing, we produce ever higher quality goods at ever lower prices reducing inequality where it matters most!

In other words, income inequality no longer matters!

Facebook Comments


Share this post