There’s a lot you can do with statistics, not all of them are useful. For example, I could average all of the address numbers in a zip code. I would come up with a number, but it wouldn’t mean anything and no one would care. In a similar vein, I can compare what the wealthiest people make and compare it to what the rest make. Once again, we’d come up with a number, but it doesn’t actually tell you anything useful. Unfortunately, a lot of people do care about it…
The only reason why income inequality might actually be useful is if you think that making a lot of money is just a bad thing. In that case, you could point at those people and say, “Look, look at all the bad stuff they’re doing!” I’ve already covered some of this ground before, but I’ll recap. There are four ways you can make money. You can a) take money from someone else, b) buy low and sell high, c) offer a service that people find valuable or d) come up with a new idea or insight that lots of people like. “A” is generally called theft, and if you do it on a big enough scale you can get incredibly rich. See Hugo Chavez and Kim Jong Il for examples. “B” is your typical businessman and financial wizard. “C” has various sports and entertainment superstars as examples. “D” is made up of folks like Steve Jobs and JK Rowling, . Type “a” folks are unquestionably bad, we need to have as few of those people as possible. There are quite a few people that assume that type B’s are bad, but c’mon, there’s nothing wrong with buying something and selling it for more than you paid. They perform a valuable service, and they are rewarded for it. C’s and D’s are not controversial, everyone likes them. But somehow when B’s C’s and D’s are grouped together as “the rich,” they get treated like type A’s, as if they did something wrong.
That’s the only basis I can think of as to why people care if people are making more money than others. A friend recently posted a link to a NYT article wondering why economists aren’t saying more about income inequality. The whole piece has at it’s core the idea that income inequality=a bad thing. Here’s a few counterpoints to that.
Imagine that JK Rowling moved next door to me. The income inequality in my neighborhood would shoot through the roof. Would I be worse off? Would anyone in the neighborhood? Even though she is only one person, she would impact the overall income inequality in the country. What if all of the 1000 most wealthy people moved to the US. Would we be worse off? If my next door neighbor become a football superstar, would anyone be worse off? The argument that we are actually worse off because of them only makes sense if those folks are taking money from everyone else. A lot of the arguments about why income inequality matters seem to revolve around jealousy.
The statistic of income inequality is an artifact, it is derived from something, but it has no meaning of its own. It has no descriptive power at all, it doesn’t give us any information. The fact that JK Rowling is worth $1.5 billion is totally irrelevant to me. The world is much better off due to her efforts that made her rich. What’s wrong with that? Is it her fault if other people aren’t doing things that people consider as valuable? Should anything be done to prevent people from making gobs of money just because some people don’t? If you have a burning, powerful hatred of the type B’s of the world and feel that they should be punished (God knows why) for being wealthy, just remember that you can’t hurt them without hurting the Steve Jobs and JK Rowlings of the world.
I’ll talk about the “fact” that the wealthiest 1% have made significant gains over the last 30 years while the average hourly wage has gone down (according to the NYT article) in another post. If you want to read the original article, it is here: