Why Income Inequality is not Directly Important - 2021-07-07

Originally I had planned to make the title of this post "Why Income Inequality is not Important", but I realized that this could be misleading as to what I'm actually trying to express. Although I'm unsure that the title I have chosen will be much different.

When talking about economics in a country, income inequality seems to come up quite often, especially among those who are more left-leaning on economic issues. It's generally hard to argue the position that it is good for a country to have more income inequality - which is not to say there aren't people who may try to defend this position - and in fact it's quite normally described as being a bad thing, being representative of an unjust society. However, this is not the focus of this post. Instead, I'd like to focus on whether income inequality is a useful form of measuring the well-being of the people in a country.

According to the OECD, income inequality is "an indicator of how material resources are distributed across a society."^[1] As such, we can say it is an indication of the difference of access to material resources from the most to the least wealthy. However this definition has a flaw in it if what we're trying to look for is well-being, and not simply difference in income.

With this I'm not trying to deny that there is indeed a correlation between income inequality and median income. In the following graph I plot out over a dozen countries according to their median disposable income and the Gini Coefficient.

Income Inequality vs. Median Income Graph — Sources: "List of Countries by Income Equality" and "Disposable Household and per Capita Income" from Wikipedia^[2]^[3]

From this graph, there is a clear correlation between income inequality and median income. Although there may be a few outliers, that is the general trend. Yet if we're caring about the well-being of human persons, then why would we use an indicator that does not directly measure this? If we care about the well-being of all people in a country then we shouldn't be looking at income inequality, or even median income, we should be looking at the lowest income household in every country. Reason being, we care about the human person, and while income inequality may be correlated to the median income, it is better to have a society with a large income inequality but where the poorest household can afford to live a dignified life, than a small income inequality but where the poorest household (and likely most households) are unable to live dignified lives. In other words, we should be looking at a more direct measurement of the well-being of the members of a society who are worst off, and assure their dignified living.

The problem with focusing too much on income inequality is it can end up turning into envy: we envy what the rich have and wish to either bring them down, or for everyone to have what they have - regardless of how unsustainable that may be. It leads to a lack of contentment with what God has given us, and rather than focusing on the poorest members of society, we turn ourselves into victims and believe the solution is by bringing down those who are more well-off. Which is not to say that some assets will not require redistribution, but the intention of that redistribution should not be a sense of envy or hatred towards those who have, but rather to simply provide the poorest members of our society with a means to sustain themselves and live dignified lives.

To put this in a different manner, would it really matter if there were a few really rich people, but every man still had a dignified job such that he could sustain himself and his family? The anger and unhappiness that manifests itself in this hatred of the rich seems to simply be out of envy. But rather than advocating, like many of the Libertarian persuasion would, that everyone should find their own way to being rich, my line of arguing is to look at what we already have and be content with it. Why do we need riches? Ultimately they will not bring us joy, and may even risk our eternal happiness if we get too attached. Our Lord Himself said that "It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God" (Matt. 19:24). But to envy the rich is perhaps worse, as it stimulates a hatred of others, which is sinful by nature.

Therefore, let's take care as to use the data that best represents what we're actually trying to argue, and make sure that we're trying to fix the right thing.

Last updated: 2021-07-07