Reducing economic inequality has been at the top of the political agenda in recent years. It is nearly impossible to scroll through a newsreel without fear-inducing articles bombarding you with claims that we are nearing the end of times brought on by ever-expanding inequality. Concern about wealth inequality is warranted and evaluating the equality of opportunity extended to those trapped in generational poverty is important. However, eliminating unequal outcomes is not necessarily the best answer to fighting poverty.
Disparities do not warrant as much fear as they receive. Unequal outcomes are not only natural, but often-times, the can be beneficial for overall economic growth. This is not only true for those in the top income bracket. Over the past few decades, rising wealth inequality has been accompanied by lower absolute poverty levels. Instead of drawing the conclusion that disparate outcomes necessitate a problem calling for immediate remedy, it is important that we understand that not all disparities are inherently bad. Operating under this assumption can lead to detrimental policy choices and hurt the potential economic prosperity of generations to come.
Disparities result from a wide array of factors, not all of which are negative. Success is built upon a sprawling and diverse set of prerequisites that are specifically necessary for each endeavor that an individual undertakes. These factors are complex and nearly impossible to predict or guarantee. For that reason, people should not expect equal outcomes. Disparities are prevalent in both nature and history. At no point in time have multiple nations developed equally. Different geography, culture, resources, and even luck have granted vastly different outcomes. A range of outcomes also occur because individuals have distinct skills and passions that drive their professional interests and priorities in life. It is presumptuous and unfounded to assume that all disparities, an unavoidable phenomenon, are either fully good or fully evil in every scenario.
If society operates under the goal of eradicating disparities, there can be negative consequences. Policies aimed at reducing inequality can harm economic growth because those policies often require the redistribution of wealth rather than the creation of wealth. Instead, societies would be better off focusing on wealth creation because small improvements in the growth rate of labor productivity can cause exponentially higher GDP per capita. Policies aimed at reducing inequalities attempts to reduce the gap between the rich and the poor, instead of focusing on elevating the poor.
Moreover, when politicians talk about the “poor,” it is important to know what the term means. The word “poor” is relative and does not refer to a consistent group of people over time. Instead, “poor” often refers to a fluid bracket of people at a certain time in their life. The bottom percentile of income earners is an ever-changing group of individuals making a certain amount of income in a given year. Inequality focused policy often looks at a single point in time, but most people change income brackets several times throughout their lifetime. A 2014 study on mobility found that “at some point between the ages of 25 and 60, over three-quarters of the population will find themselves in the top 20 percent of the income distribution.” Moreover, a University of Michigan study tracking working Americans from 1975 to 1991 found that only 95 percent of the people that began in the bottom 20 percent were not in that income bracket by the end of their working life. The study found that 29 percent of working individuals made it to the top 20 percent. Income brackets can be very fluid, and for this reason, elevating those who are in generational poverty or trapped in cycles of immobility is a much nobler goal than aiming to eradicate the difference in earnings of the top and bottom earners. These studies show that those earners may be the same person at two different points in their life.
George Sher defines equality as the equal ability to become effective. I believe this definition to be a far more helpful way to approach disparities. Because disparities can occur naturally, the market should empower people to reach the point where they can be the most effective in their jobs and at securing their needs to live a flourishing life, instead of attempting to reduce disparities at a cost to wealth creation.
Promoting equality of opportunity does not diminish the role of governments in actively ensuring that systems empower individuals. If people are not able to provide for their basic needs or attain the pre-requisites required for their optimal participation in the labor market, everyone stands to lose. Instead, equality should be a call for policymakers to value empowerment over equalization. We need to spend less time fearing the difference in each other’s outcomes and spend more time figuring out how to foster a society that empowers individuals to attain higher quality outcomes and human flourishing.