The Great Enrichment and Inequality

I have been reading the third in a trilogy of books by Deidre McCloskey on economic history and economic thought, but each one having a powerful point of application for our economy and our well-being today.  The trilogy is massive, running to about 2,000 pages in three volumes.  This third volume is Bourgeois Equality (University of Chicago, 2016).  As the title implies a big part of the book addresses, directly and indirectly, the issue of inequality or it opposite, equality.  The overall theme is that since 1800 the West, and now the “rest,” have experienced a “Great Enrichment,” caused not be any number of material factors (as important as they were), but by a major ideological shift from anti-commerce, anti-bourgeois, anti-trade, to a new-found respect for those elements and people.  As a result (well documented in the literature), the West and others have gone from $1/day (measured in income—there are other ways) to an average of $30/day, and in some places, to $100/day—that is between 3,000% and 10,000% increase!  Now that is in itself amazing—and, she argues forcefully—caused by this new way of viewing commerce and those who make it happen.

But despite this, and in spite of much evidence, there are those today who are fixated on the “problem” of inequality.  Politicians (Hillary Clinton, Bernie Sanders) and academics (Atkinson, Piketty, and many others) have recently picked up the theme in a big way.  Their argument is standard—it simply is not “fair” that some people can make millions or billions while others slave away at $50,000 per year—or less, much less in some nations, as McCloskey freely acknowledges.  The author laments the fact that not everyone in the world has experienced the Great Enrichment, and she is sympathetic to short-term stop-gap measures for them.  But in the end, she (rightly, in my opinion) argues that these same miserably poor people could experience what most of us in the United States do—but not via socialism or even democratic socialism, but by the same way we got it, via the “system” of markets consisting of free people who desire to better themselves and have the ability to do so freely.

But again, I digress.  My main issue here is inequality.  McCloskey points out with her usual flair for words that this issue has been overblown, mainly because of a huge mistake in defining poverty.  There are two main ways to measure poverty.  One is to divide a population into several “quintiles” or “quartiles” or whatever way is preferred, and then say the bottom group is poor.  One can then adjust this level up with time to account for inflation.  But you can see that using this model, poverty never disappears.  It remains, artificially defined by the limits of the income level chosen.  The second way is to examine how people actually live, how they may actually be better off because of lower priced and better quality goods and services over the years.  We could call this the “Wal-Mart” effect.  Under this model, poverty disappears over time, as various measures (even from the UN) have said it has on the average.

If one adopts the latter model, inequality ceases to be per se crucial.  In and of itself, by itself, inequality of income between the top groups and the bottom groups means little unless we know how the bottom groups actually live.  Hans Rosling, a Norwegian scholar, has vividly mage this evident in his short vidoes “200 Countries in 200 Years” and “The Magic Washing Machine.”  The latter portrays how his mother was relieved of an incredible amount of drudgery when her family obtained a washing machine.  This purchase made time for other, higher, activities, such as reading, which, Rosling says, helped form his habits as a scholar.  But the washing machine was only possible as the cost-price came within the reach of many more people of lower incomes—even when their actual incomes were stagnant.  The Wal-Mart effect: Many poor people today can now afford goods and services they could never have dreamed of 40-50 years ago.  They may be poor income-wise, but their relative ability to afford cheaper and better goods makes them better off.  This in turn negates the inequality argument to a great extent.

Inequality exists to be sure.  I don’t make as much as Bill Gates.  But so what.  I can live a life of relative comfort compared to 200 years ago and to too many in other countries today.  I want to make it possible for them too to live a better life.  But that will not come with irresponsible proposals to level incomes or wealth.  That will not come as long as dictators and petty rulers continue to ignore these lessons for their own gain.  We need to spread the word on the value of markets for everyone.

But one final caveat.  Material well-being is not the be all to end all.  In the end , spiritual well-being is the highest good (the summum bonum).  That can only be achieved through Christ, and for each individual, their faith in that risen Christ.  But even so, we all also should care about the welfare of those who have not experienced the Great Enrichment.  In at least some cases, God can use the relative well-being to allow those individuals to take time from their toil and actually consider the question: “What is your life?”

3 thoughts on “The Great Enrichment and Inequality”

  1. I’ve always been in favor of attacking income inequality from two directions, the first is equality of opportunity (something we are lacking even in the USA) some possibilities here would be better education in the inner city or even outside of the inner city have good schools available to those that aren’t rich enough to afford private schools (there are many ways to handle that). The second is about a bare minimum standard of living available to everyone, healthcare, a roof over your head, nutritious food, water. A fairly old estimate says that for just $10b a year everyone in the world could have clean drinking water. Think about how little that would hurt the us government to bankroll that.

    I think it seems wrong that there are people making such insane quantities of money. But heck that’s only such a problem in light of people suffering. As you said, you don’t need that money, about half of the country wouldn’t be any happier with that money, but lives could be saved with that money and that’s the tragedy.

  2. Indeed, if the lowest group of people are always considered to be within the clutches of poverty, then the constant reshuffling of resources to their aid is not only pointless, but down right dishonest. If the lowest group receives aid then they will rise upward within the list. However, the economic cost is a burden to all the other people, this includes the new group who find themselves at poverty level because they are now the lowest income households in the nation.

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