Why is income inequality, a pervasive feature of human history since there have been humans to have history, a persistent matter of public concern? And if income inequality is an important public concern, why does it persist?
Sometimes tough questions have surprisingly easy answers.
In its mildest forms, excessive income inequality makes people unhappy, and that is no small thing when it comes to public policy or anything else. Happiness is an important part of social well-being. What makes us unhappy is the alternative: a feeling of powerlessness, of inability to succeed and to share in the life we see around us. This situation may breed envy, a sin, and can make us despair, a condition from which it is difficult for humans to recover.
Taken to an extreme, income inequality and its routine companion, wealth or asset inequality, lead not just to unhappiness but to lack of faith and trust in the world around us, and what follows from that is disillusionment with the public institutions that govern us. This has been the lot of several countries in Central America in the past century or two, and so it is of several in Africa today.
It does not stop with lack of trust. From 1789 at least, populist uprisings have arisen from a lack of faith in public institutions and the restraints that governments have placed on citizens' abilities to pursue their dreams and fulfill their individual capacities. While governments may sometimes find such restraints necessary to retain power for a time, they routinely have led to revolution, with governments violently overthrown and replaced by superficially egalitarian regimes.
We know there is a point where excessive inequality and individual disempowerment lead to upheaval--a line which, once crossed, may lead to human disaster. Yet there are no numbers that political scientists or economists can assign to a tipping point that defines "excessive" inequality, of the degree that triggers revolution, nor is there any assurance that revolution will bring something better.
Revolutions, though sometimes necessary, do produce dystopias. There are many dystopian products of revolution around us, among which North Korea of course stands out. Equality of extreme poverty is the norm, wealth and power are reserved to the politically privileged few, and hopelessness defines the life most citizens endure. In such dystoplan states, most starkly the one ruled from Pyongyang, the social harm is no longer inequality but the relentless poverty generated by the state's relentless determination to snuff it out.
In a relatively modern democracy like Canada's, what drives inequality? Why do we see it in a society like ours, where we try to make opportunity available to everyone, and the state taxes the well-to-do and provides money and support to the less fortunate?
To see why inequality arises, consider a world where everyone starts out equal. Let's say we all finish school at age 20 and get jobs paying $25,000 a year, to pick a number that is at once modest and one that many 19-to-29-year-olds might be happy to have. Not only that: we all have the same opportunities and the same ability and willingness to seize them, and we do equally well in work and in life.
In this egalitarian dream world, we all start out equal and, because we all have the same skills, drive, opportunity and luck, after 40 years, say, we are still equal. The lowest-earning 20 per cent of the population earns 20 per cent of all income, so does the middle 20 per cent, and so does the top 20 per cent, and the top 1 per cent gets 1 per cent of all income; see the leftmost column in figure 1, labelled "Harrison Bergeron."
"Harrison Bergeron" is a 1961 story by Kurt Vonnegut describing equal starting places and equal outcomes, even after a lifetime of work and no matter what one's effort. Vonnegut knew what it would take to deliver complete equality. The athletic and graceful would need weights to burden them, to slow them to the pace of the graceless; the keen-eyed would be fitted with glasses that blurred their vision: and the bright would wear noise-making headphones that stopped them from thinking clearly. …