Inequality gets tossed around a lot these days. You might hear people say that we need to reduce inequality, or that it’s one of the biggest problems facing our society today. But what does it actually mean? And why should we care?
As described in Rising Inequality, the difference between the wealth of those who have the most compared to those who have less is a big problem across the world and is only getting worse. That blog post looks at the phenomenon of inequality rising.
This post is about inequality more generally. I’ll define inequality, look at ways to measure and understand it, why it matters, look at ways to measure and understand inequality, types of inequality, and cover some of the most popular books about inequality and the wealth gap.
Inequality is everywhere in our society and it touches every aspect of our lives, whether we realize it or not.
Financial Inequality
When people talk about inequality, “financial inequality” is what most people think about. Sometimes called “wealth inequality,” it refers to the unequal distribution of income and resources. Putting it simply, it means that some people have a lot of money while others have very little.
Financial inequality makes it so some people have a lot of opportunities and security while others don’t. It creates an unfairness in our society and can lead to all sorts of other problems.
In and of itself, inequality isn’t necessarily a problem. We all understand that in a world of limited resources, some are going to have more of those resources than others.
Inequity and Inequality
It’s important to note that there is a difference between inequality and inequity. Inequality is the disparity in resources between different groups, while inequity is the unfairness or injustice of this disparity.
So while inequality is a fact, inequity is a value judgment. Not all inequalities are unfair or unjust, but some are. And when we talk about the problems with inequality, what we mean is the inequity of it.
The Have and Have Nots
“The have and have nots” is a saying that refers to people who have money and power and those who don’t. Surprisingly, there doesn’t seem to be an agreed-upon origin of the phrase. Google (and Bing) searches for the origin and first use of the expression “the have and have nots” turn up surprisingly little.
But the phrase “The have and have nots” is often used to describe the divide between rich and poor. It can also be used to describe the division between any two groups of people who have different levels of money or power.
The haves and have-nots are often at odds with each other, as the haves usually want to keep their money and power, while the have-nots want to get their hands on it.
Why Does Inequality Matter?
So why does inequality matter? Why is it a problem?
Inequality has been the cause of many (all?) violent clashes in history. People struggle to see others living in luxury, many just because of who their parents were, and the less well-off justifiably get angry. They organize and fight for a greater share of wealth. Normally, lots of people die.
Inequality has led to some of the most violent revolutions in history.
When too much wealth is concentrated in the hands of a few, it can have several negative effects on the economy and democracy. When opportunities are limited it can prevent upward mobility and result in fewer people reaching their full potential, harming the economy as a whole.
As the gap between the rich and the poor grows, so does the sense of powerlessness and frustration by those who are struggling to make ends meet. This often leads to the development of an elite class that wields a disproportionate amount of power and influence. At the same time, those who are economically disadvantaged are ignored by the political process.
Unequal access to opportunity often erodes faith in democracy and creates mistrust between different social groups, causing social unrest.
The Most Violent Revolutions in History Have Been Rooted in Inequality
In and of itself inequality is just a description of the allocation of wealth, but it can become a problem when than distribution is extreme. Extreme inequality has historically been a predictor of social and economic instability. When some people live in affluence unimaginable to those struggling at the opposite end of wealth distribution, people get angry. Revolutions happen. People’s heads get chopped off. Wars break out. Many people die. It sucks.
Inequality led to the French Revolution in 1789 and the so-called “Reign of Terror.” The revolutionaries were angry about the wealth of the rich, and they wanted to see change. “Between the two summers of 1793 and 1794… the victims of the Terror number may be closer to 250,000,” according to Alpha History. That’s a lot of dead people.
In 1917, the Russian Revolution saw the Bolsheviks eventually overthrow the government. That led to the creation of the USSR under a communist system, which over decades resulted not only in the deaths of millions of Russians but also led to the Cold War and many of the wars of the second half of the 20th Century.
In more recent times, inequality was one of the driving factors behind the Arab Spring, a series of protests and uprisings that took place in countries across the Middle East and North Africa. Protesters wanted to see their governments do something about it their plight. The anger culminated in 2010 when a Tunisian man named Mohamed Bouazizi set himself on fire in protest, sparking a revolution in Tunisia, which eventually led to the overthrow of the government and spread throughout the Arab world.
The Occupy Wall Street protest following the Great Financial Collapse was another example of anger about inequality. Not only because many people didn’t have enough money to pay their bills, but also because of the inequality of outcomes in terms of repercussions. The wealthy caused the financial collapse because of their hunger for greater returns, irresponsibility, and lack of understanding. We all paid the price because banker-types wanted as much money as they could get, long-term repercussions be dammed. Deliberate or accidental, the crash was caused by Wall Street bankers who didn’t know or care about the impact of their actions.
I’d argue (not originally) that the popularity of both Trump and Bernie Sanders is a result of perceived inequality on the part of many.
While avoiding violent revolutions is a good reason to reduce inequality, it’s not the only reason inequality matters. There are many reasons why inequality is important.
- Injustice and unfairness: Many of us think it’s simply not fair that some people have so much while others have so little due to circumstances beyond their control. Everyone deserves a chance to live a good life, regardless of who their parents are or how much money they have. Luck, hard work and circumstance play a role, but when the deck is “stacked against” those with fewer resources, questions of fairness are sure to follow.
- Social and economic problems: Economic inequality can lead to social problems like crime, violence, and poverty. Destructive protests and riots are not uncommon.
- Threatens democracy: When the people with the money have more influence over the government than the rest of us it usually results in policies that help the rich get richer and make it harder for everyone else to get ahead.
- Bad for our health: Inequality can also have an impact on our health. Studies have shown that people who live in more unequal societies are more likely to suffer from mental and physical health problems.
Inequality As An Ethical Issue
If you agree with The Declaration of Independence, everyone has equal access to life, liberty, and the pursuit of happiness.
The bill of Rights and the constitution were created to ensure these rights. You can’t reasonably argue that everyone in America has equal access to any of these. This is insanely obvious to me and doesn’t need elaboration.
But to put it simply, someone born to a rich family has access to more stable home life, better education, safer streets, better health care, etc., than someone born to a poor household.
That is not to say a poor person can’t become wealthy or be happier (and one doesn’t guarantee the other), but it is harder.
In America today, wealth gives you a much better chance to live happily. It’s not about who works hard, it’s about access to money itself being the primary determinant of finding happiness and meaning.
It’s hard to be happy when you are starving, or when you can’t be home for your kids because you have to work two jobs to afford a home, food, etc.
If you believe that everyone is equal, it stands to reason that you also believe we should all have equal access to life, liberty, and the pursuit of happiness. Ensuring that access is an ethical issue.
Measuring Inequality
To fully understand anything, one of the first steps is to try to quantify it. Economists have found a few ways to measure inequality.
One way to measure income inequality is to look at the distribution of income; how much people earn and how it is distributed among different groups of people.
What people earn in their paycheck affects measurements of inequality, but it’s usually not the best way. Often, the very rich aren’t really “earning” a paycheck, their wealth just generates more wealth without really “working” for it in the traditional, 9-5 manner.
Another way to measure inequality is to look at the distribution of wealth instead of income. Wealth is the total value of a person’s assets (minus debts).
One of the issues that make measuring wealth more difficult than income is that wealth can fluctuate based on the economy. The wealthy often have their money invested in assets like businesses, real estate, stocks, bonds, etc. Because the value of those assets fluctuates, getting a useful reading can be difficult.
Inequality Metrics
Two of the most useful metrics to measure inequality are The Gini Coefficient and the Lorenz Curve:
The Gini Coefficient
The Gini coefficient measures how close a country is to having all the income in the hands of one person and was developed by Italian statistician Corrado Gini in 1912.
The Gini Coefficient is a number between 0 and 100. A score of 0 means that everyone in the country has the same income. A score of 1 means that one person has all the income and everyone else has zero income. A country with a Gini coefficient of 0 would have perfect income equality, while a country with a Gini coefficient of 100 would have perfect income inequality.
The Gini Coefficient In America
In the United States, the Gini coefficient was 45.0 in 2017, which means that there is a significant degree of income inequality in the country. The OECD average Gini coefficient was 32.0 in 2017, so the United States is significantly more unequal than the average OECD country.
The Lorenz Curve
Named after economist Max Lorenz, the Lorenz curve shows what percentage of people have what percentage of income and measures how unequal a country’s income distribution is.
Pareto’s Law and the Distribution of Wealth
The Pareto distribution is also known as the Pareto principle or Pareto’s law. This principle states that most of the wealth in a society is held by a small percentage of the population. Pareto’s law is named after Vilfredo Pareto, an Italian economist who first proposed this principle in his book The Mind and Society.
Growing Wealth Inequality in the US
Wealth inequality in the United States has been on the rise for decades. The wealthiest 1% of households now hold nearly 40% of the country’s wealth, while the bottom 90% holds just 22%. This trend is even more pronounced when looking at just wealth (rather than wealth and income combined). The top 1% of households now own more wealth than the bottom 90% combined.
And it’s not just the US. The Organisation for Economic Co-operation and Development (OECD) has found that income inequality has increased in 34 out of 36 OECD countries since the mid-1980s.
This trend is driven largely by increases in asset values, such as stocks and real estate. The wealthiest Americans have seen their assets soar in value while the incomes of most Americans have stagnated. This has led to a massive increase in wealth inequality.
Organizations Attempting to Reduce Inequality
There are many organizations fighting inequality around the world. Some of these organizations focus specifically on income inequality, while others address other types of inequality.
The World Health Organization (WHO)
The World Health Organization (WHO) is one of the most important organizations dealing with healthcare and public health around the world. One of the ways they affect inequality is by publishing the WHO Inequality Index, which measures health inequality in the world. The report looks at factors like life expectancy, child mortality, and access to healthcare. It is used by policymakers and healthcare professionals to track inequality and make decisions about where to allocate resources.
World Inequality Lab
The World Inequality Lab is a research center that was founded in December 2016 to study and understand income inequality around the world. It is based in Paris, France, and is led by economist Thomas Piketty. Some of their recent research includes a study on the distribution of wealth in America and a study on the causes of inequality in China.
Organization for Economic Co-operation and Development (OECD)
The OECD is a group of 34 countries that work together to promote economic growth and financial stability. The OECD has developed a tool called the Income inequality calculator, which allows users to compare income inequality levels in different countries.
Other Groups Dealing With Inequality
The above are some of the biggest, but not the only such organizations.
- The Equality Trust is a UK-based organization.
- The Center for American Progress is a US-based think tank.
- The Canadian Centre for Policy Alternatives is a Canadian think tank.
- Oxfam is an international organization.
- UNICEF is a United Nations organization that works to reduce worldwide poverty.
- The World Bank Group is an international organization.
If we want to reduce inequality, it’s essential honest groups working on the root causes should be supported.
Books About Inequality
There are many books about inequality that provide a comprehensive history and discuss the various factors that have led to it. They also offer potential solutions for reducing inequality.
If you’re interested in learning more about inequality, these books are a great place to start.
Karl Marx – The Communist Manifesto
Perhaps the most influential book on economic inequality is The Communist Manifesto by Karl Marx. This book was written in 1848 and many hold it as one of the most important political documents ever written. In it, Marx discusses the history of inequality and how it has led to the exploitation of workers by capitalists. He also outlines his vision for a society in which all people are equal.
The Communist Manifesto has had a huge impact on the way that people think about inequality. It was one of the first books to argue that inequality is not natural or necessary, but rather is the result of historical factors. In the book, Marx argued that it is possible to have a society in which all people are equal. This vision inspired many people and helped to create the modern socialist and communist movements.
While The Communist Manifesto is a highly influential historical document, it has also been criticized for its utopian vision. Some people argue that Marx’s vision for a society without inequality is not realistic and that it is not possible to create a completely equal society.
Thomas Piketty – Capital in the Twenty-First Century
Another important study of long-term economic inequalities is Capital in the Twenty-First Century by Thomas Piketty. This book was published in 2014 and quickly became a bestseller. In it, Piketty argues that inequality is not just a problem but is built into our economic system. He proposes several policies to reduce inequality, including a global tax on wealth.
The Spirit Level
The Spirit Level authors argue that inequality has several negative effects on society, including increased levels of crime and violence, mental illness, and drug abuse. They also argue that inequality is bad for the economy, as it leads to lower levels of economic growth. The book has been praised by many people, including Nobel Prize-winning economist Joseph Stiglitz. However, it has also been criticized for its focus on Western societies and its lack of solutions to the problem of inequality.
Robert Reich – Inequality for All
American economist Robert Reich published Inequality for All in 2013, offering a comprehensive history of inequality.
Where is Inequality Seen?
Inequality can manifest in several ways, including access to education, which can limit opportunities later in life. Unequal access to healthcare and housing are also forms of inequality. Another way inequality manifests is through pay disparities, whereby women and minorities earn less than their white, male counterparts.
Systemic Inequality
Systemic or structural inequality is when certain groups in society have unequal access to resources and opportunities due to their race, ethnicity, gender, or socioeconomic status.
Adherents argue there are fundamental processes in place that perpetuate inequality, often without any deliberate actions. It is difficult to address because it is rooted in the structures of society. There are many causes, but some of the most important include discrimination, segregation, and economic inequality itself, not things that can change overnight.
Some call systemic inequality a “wicked problem,” meaning that it is complex and difficult to solve.
Additional Types of Inequality
While we’ve been mostly talking about wealth inequality, there are many different types, including economic, gender, racial, social, food, health, and more. They share many similarities, and the results are equality deleterious to society.
The “Wealth Gap” – Uneven Distribution of Money
The most common way people think about inequality is in terms of money. When we talk about the “wealth gap” or the “income gap,” we’re referring to the uneven distribution of money and resources in our society.
You might be familiar with statistics like these:
- The top 1% of Americans own 40% of the country’s wealth.
- The bottom 50% of Americans own just 1%.
- In the US, the top 20% of earners make more than eight times as much money as the bottom 20%.
- The median net worth for white households is 10 times that of black households.
- CEO pay is 296 times the average worker’s salary.
Numbers like these, while difficult to verify, describe a huge discrepancy in the amount of money and resources that different groups of people have. And this discrepancy is only getting bigger.
Generational Wealth Gap
The generational wealth gap refers to the difference in wealth between people of different ages. In general, older people have more money than younger people because they’ve been able to work and save for longer. A recent study by the Federal Reserve found that the median net worth of families headed by someone born in the early 1980s was 34% lower than those born in the late 1940s. This disparity is exacerbated by things like increasing student debt, inflation, and stagnant wages.
The generational wealth gap has far-reaching implications for our economy and society. For one, it could lead to decreased intergenerational mobility, as those with less wealth are less likely to be able to pass down their assets to their children. This will likely exacerbate income inequality and further entrench families in poverty.
Gender Inequality
Gender inequality can include things like the gender pay gap, where women earn less than men for doing the same job. It can also include discrimination in the workplace or glass ceilings that prevent women from reaching the top levels of an organization.
Gender inequality is most prevalent in developing countries, where women often have fewer rights and opportunities than men. In some countries, women are not allowed to own property, work, or even leave the house without the permission of a male relative. Women who live in societies where they are not treated equally often have lower levels of education and fewer employment opportunities.
Workplace gender inequality can lead to lower quality of work, lower morale, decreased productivity and creativity, and an increase in stress and conflict.
Gender inequality in education includes discrimination in admissions, hiring, promotion, and tenure decisions, course offerings, assignments, pay, and benefits.
One way to measure gender inequality is through the gender inequality index (GII). This index takes into account factors such as reproductive health, empowerment, and labor force participation. Countries with a high GII score are those where gender inequality is more prevalent.
Countries and Gender Equality
According to the Global Gender Gap Report, there are a few countries that stand out from the rest for having made significant progress toward greater equality between genders.
The countries with gender equality at the highest are :
- Iceland
- Norway
- Sweden
- Finland
- Rwanda
- Nicaragua
- Ireland
Countries ranked by gender equality have closed at least 79% of their inequality gaps between women and men in four key categories: education, health and survival, economy, and politics.
Racial Inequality
Racial inequality can include segregation and discrimination as well as the unequal distribution of resources like education, housing, and jobs.
For example, black families have just 10% of the wealth of white families. In 2013, the average wealth of white households was $131,000 while the average wealth of black households was just $11,000. This racial wealth gap is one of the many legacies of slavery and is largely due to centuries of discrimination and oppression.
There are many ways to address the racial wealth gap, but as American Progress states, Eliminating the Black-White Wealth Gap Is a Generational Challenge.
Median Wealth by Race
The median wealth according to AI by all the different races in the United States is as follows:
- White: $131,000
- Black: $11,000
- Hispanic or Latino: $13,000
- Asian: $64,000
- Native American or Alaska Native: $7,000
As you can see, the AI says white households have a median wealth that is ten times higher than black households. Black wealth and white wealth are not even close. The wealth gap between white and black households has to be reduced if we want a more equal society.
Political Inequality
Political inequality is the unequal distribution of political power and representation in a given country or region. Political inequality can exist at the level of individuals (such as through unequal access to voting), groups (such as through unequal representation in parliament or other decision-making bodies), or entire societies (such as through the concentration of wealth and resources).
Political inequality can be the result of natural disparities (such as differences in ability or location), or it can be the product of historical inequalities (such as those created by slavery or colonialism). Political inequality can also be caused by deliberate discrimination or exclusion, such as when certain groups are denied the right to vote or hold office.
Health Inequality
Health inequality persists because of the social, economic, and political conditions in which people live their lives. The difference in health outcomes between different groups is preventable.
Educational Inequality
Educational inequality happens when some groups have better access to education. In the United States, some children have access to great schools with experienced teachers and lots of resources, while other children attend schools that are underfunded and have inexperienced teachers, which leads to unequal outcomes later.
One way to address educational inequality is to provide more resources to schools that serve low-income students. This could include things like after-school programs, tutoring, and summer school. Another way to address educational inequality is to increase access to higher education for low-income students by increasing financial aid and making college more affordable.
Food Inequality
Food inequality is a problem that exists all over the world because not all people have access to the same healthy food options due to factors like poverty and location. People in poverty often don’t have access to healthy food options because they can’t afford it and this is a problem in both developed and developing countries.
Ensuring everyone has access to a healthy diet is not just important for the individuals, but it could also help lead to a healthier society and lower healthcare costs overall.
Spatial Inequality
Spatial inequality means that there are vast differences in quality of life and opportunity depending on where someone lives. For example, someone who lives in a wealthy neighborhood will have access to much better schools, healthcare, and job opportunities than someone who lives in a poor neighborhood.
Global Inequality
Global inequality refers to the disparity between different countries in terms of their levels of economic development and living standards. It is a result of the fact that some countries are much richer than others.
Global wealth inequality in the world has been on the rise in recent years. According to the World Bank, the Gini index for global income inequality was 0.63 in 2016. This means that the distribution of income across different countries was quite uneven.
Several factors contribute to global inequality. One of the most important is the uneven distribution of resources around the world. Another important factor is trade. Countries that can export their goods and services to other countries tend to be more prosperous than those that cannot.
Global Wealth Distribution Statistics
A recent report by Oxfam International revealed that the richest 1% of the world’s population owns more wealth than the rest of the planet combined.
- The richest 1% of the world’s population owns more than half of the world’s wealth.
- That means that the other 99% share the remaining 50%.
- The top 10% of the world’s population owns 85% of the world’s wealth.
- The richest 62 people in the world have as much wealth as the poorest 3.6 billion.
- The top 10% of earners in the world make up 48% of the world’s total income, while the bottom 10% make just 2%.
- This gap has been growing in recent years, with the top 1% of earners making 22% of the world’s total income in 2016, up from 12% in 1980.
The world income distribution is even more unequal when looking at it by region.
- The top 10% of earners in North America make 70% of the region’s total income, while the bottom 10% make just 3%.
- In Europe, the top 10% make 60% of the total income, while the bottom 10% make 5%.
Inequality by country
Inequality is not only a global issue, it is also a very regional issue. Inequality varies greatly by country, with some countries having a great deal of inequality and others having much less.
One of the most unequal countries in the world is South Africa. The richest 1% of the population there owns more than 50% of the country’s wealth. This inequality is due in part to the legacy of apartheid, as well as to continued racial disparities in wealth and income.
In contrast, Japan is one of the most equal countries in the world. The top 20% of earners there make only 3.5 times what the bottom 20% make. This low level of inequality is due in part to the country’s strong social safety net and its high levels of education and workplace participation for women.
American Income Inequality
The United States has the highest inequality of any developed country.
- The richest 1% of Americans earn nearly a quarter of the country’s income, while the bottom 50% earn just 12%.
- The wealthiest one percent of Americans now control more than a third of the country’s wealth, and the poorest half control just 2.5 percent.
- This inequality has been increasing for decades, and it is now at its highest level since the 1920s.
A large body of economic research shows that inequality reduces economic mobility and slows down the rate at which people move up the income ladder.
But the income gap in America is not only a problem for those at the bottom. It is also a drag on economic growth overall. When inequality rises, it creates a drag on economic growth.
A recent study found that inequality has reduced US economic growth by an average of 0.5% per year since 1980.
Inequality also leads to political polarization and gridlock because it becomes harder for people to find common ground and work together for the common good.
Reducing inequality will require policies that boost the incomes of those at the bottom, such as raising the minimum wage and expanding access to education.
Chinese Income Inequality
China has also seen a rise in inequality in recent years. The richest 1% of Chinese now earn more than 15% of the country’s total income, while the bottom 50% earn just 9%. This inequality is due in part to the country’s rapid economic growth, which has benefited those at the top while leaving those at the bottom behind. The Economist notes in Just how Dickensian is China?
“over 28% of China’s 286m migrant workers lack a toilet of their own. And in parts of rural China, 16-27% of pupils suffer from anaemia, according to a 2016 study, because they lack vitamins and iron.”
Like most of the world, Inequality is a problem in China as well.
Fixing Inequality
There are many ways to address inequality, but it is often a slow and difficult process. Systemic inequality is entrenched in society, requiring the effort of many people working together over a long period.
Some ways to reduce inequality include:
- Providing resources and opportunities to disadvantaged groups
- Educating people about inequality and its root causes
- Making sure workers earn enough money to live a decent life and save
- Working to change policies and laws that perpetuate inequality
- Challenging discrimination and bigotry in all forms
- Building coalitions and alliances with common goals
- Robots and Artificial Intelligence
It will take the effort of many people to address inequality, but it is important to work if we want to create a more just and equal world.
Systems Theory and Inequality
Systems theory can help us understand systemic inequality and how it works. Systems theory is the study of how parts of a system interact with each other to produce the behavior of the entire system. It looks at how systems are organized and how they change over time.
In inequality, there are often two different types of systems at play: one that favors the privileged and another that favors the disadvantaged. The privileged system is often more powerful and has more resources, while the disadvantaged system is often weaker and has fewer resources, creating a “vicious cycle” that is difficult to break out of.
Causal loops
Causal or feedback loops are an important part of systems theory. It describes how each element of a system affects the other, and how they together produce the behavior of the system.
These loops can be difficult to break out of, but if we can understand how they work, we can start to find ways to address them.
Progress in Reducing Global Inequality
While inequality is a problem that needs to be addressed, it’s important to remember that the world has made progress in reducing poverty. The percentage of people living in extreme poverty (defined as living on less than $1.90 a day) has declined from 36% in 1990 to 10% in 2015. This is due in large part to economic growth in countries like China and India.
Robots and Structural Inequality
Robots using Artificial Intelligence can be used help to identify and address structural inequality. For example, a robot might be used to monitor the number of job applications that are sent to people from different social groups. If there is a disparity, the robot can bring this to the attention of the company so that they can take steps to address it.
Robots can also help to provide access to resources and opportunities for groups that are typically excluded. A robot might be used to provide educational resources to children in rural areas who do not have access to a traditional school. The robot can bring the resources to the child’s home and provide instruction.
While some inequality is certainly inevitable, the gigantic difference between the crazy rich and the bulk of humanity is a bad look. It makes people angry and could lead to violent revolutions.
It would be better if the poorest people had a bit more. Enough is enough I say. We gotta find a find ways to reduce inequality in America and the world.
