This article is part 1 of a three-part series.
Over the past two and a half centuries, the world has Significant progressPeople live longer, are wealthier, better educated, and enjoy greater political freedom (I’ve explored this role before). The City as an Engine (Some of that progress for the Liberty Fund’s AdamSmithWorks project) But has that progress been enjoyed only by a few? Has the improvement in living conditions gone largely to an elite few, leaving much of the world behind?
What many people don’t realize is that these improvements were actually shared widely. globalization And market liberalization has raised absolute standards of living to unprecedented levels, a power recognized by Adam Smith two centuries ago. and Overall inequality has declined. The world has become not only richer but also more equal.
In this series, we will discuss what inequality is, how to measure it, and how to understand why inequality is decreasing.
Part 1: Understanding Inequality
There is a popular saying that “the rich get richer and the poor get poorer.” This encapsulates the view that progress is enjoyed only by some. In a frequently quoted phrase that is open to many interpretations, Smith wrote“Where there is great wealth, there is great inequality. For every very rich man there must be at least five hundred poor, and the wealth of a few means the poverty of many.” How readers understand Smith’s words about inequality often depends on whether and to what extent they think inequality is a problem.
Smith was not the first to focus on the topic of inequality; some research suggests that concerns about inequality may be evolutionarily hardwired. Human psychology has evolved It was a time when people lived in small bands of hunter-gatherers who tended to share meat equally. Society has changed considerably, but moral intuitions have not changed much. The very unequal distribution of resources often seems unfair to people.
Of course, we shouldn’t put too much weight on our genetic predisposition to think in a certain way. Human impulses can be good or bad. Smith calls. “The loathsome and detestable passion of envy” is sometimes used in the following sense: The desire to reduce inequality And for a long time it has been negatively characterized by sources such as: Bible Proverbs (This means “jealousy rots the bones”) Playwright William Shakespeare (Who wrote, “Envy breeds unkind divisions”). The tendency to focus on relative, rather than absolute, measures of well-being can be detrimental, since absolute, rather than relative, measures of progress are the best criteria for assessing the success of various institutions and policies.
Moreover, most people do not object to inequality achieved by merit, and there is no evidence that inequality causes widespread unhappiness. In developing countries, increasing economic inequality The phenomenon of a portion of the population moving out of poverty is often seen as hopeful, as evidence that upward mobility is possible and may coincide with: greater average happiness. The study similarly found “no effect whatsoever.” Inequality of happiness “The poor of America.”
Of course, inequality seems even more problematic when the rich are protected by a privileged position in the law. Smith acknowledged that incumbents sometimes receive unfair privileges from government, for example in the form of regulations that stifle competition.
But the interest of the dealers in any particular trade or manufacture is always in some way different from, and even opposite to, that of the public. It is always the interest of the dealers to enlarge the market and narrow the competition… Proposals for new laws or regulations of trade, which arise out of this order, should always be heard with the greatest caution, and adopted only after a long and careful examination, not only with the most scrupulous caution, but with the most suspicious caution. (The Wealth of Nations, Book 1, Chapter 11)
The growth of government since Smith’s time makes these concerns more relevant. Examples of such laws are unnecessarily expansive. Occupational Licensing System Excessive regulatory barriers that prevent individual competitors from entering the field, prevent new companies from entering the industry, and even bailouts, mandates and subsidies that artificially increase sales and support the entire industry. Inequities that arise from these. friendly political government policy This is concerning, and reforms to stop governments exacerbating inequality in this way are a sound idea and have wide support.
Of course, there are other possible causes of inequality, especially in wealthy countries. Consider income inequality. As a country develops economically, income inequality becomes less and less useful as a measure of well-being. In a subsistence economy, everyone is engaged in the same struggle for survival. In wealthy societies, on the other hand, people engage in different pursuits, because such societies offer different paths to achievement.
Some individuals seek to maximize their income, while others may choose lower-paying jobs that they find enjoyable or meaningful or that offer prestige or greater flexibility. Individuals may prefer jobs that allow more time for leisure or childcare. Smith suggests that each individual Pursue egoistic mind—“a concern for one’s own well-being, for one’s family, for one’s friends, for one’s country”—but, as Lauren Hall previously noted at AdamSmithWorks, “Smith never claims that concise “Interest is, or should be, the sum total of all human activity.” (emphasis added)
If income inequality is the result of personal decisions that some people make to pursue something other than material prosperity, it is not a good measure of well-being. Income inequality in such societies reflects personal choices, not overall well-being. In other words, advanced economies offer numerous paths to happiness, which undermines the importance of income inequality. Fortunately, there are more meaningful ways to measure inequality, and in the second part of this series, I will focus on the Human Progress Index (IHPI), which Vincent Geloso and I created.
Want more?
Vincent Geloso of the Great Antidote podcast talks about global inequality From AdamSmithWorks
Chelsea Follett’s Cities as hubs of innovation: Lessons from Edinburgh and Paris From AdamSmithWorks
Pedro Schwartz, Poverty and Inequality, Econlib.
Chelsea Pollett is the editor-in-chief of HumanProgress.org, a project of the Cato Institute that aims to educate the public about improving global well-being by providing free empirical data on long-term progress.
