This is part 1 of a three-part series.
Over the past two and a half centuries, the world has A major breakthroughPeople live longer, are wealthier, are better educated, and enjoy greater political freedom. (I have previously Cities are engines This kind of progress is undesirable for the Liberty Fund’s Adam SmithWorks Project, but has it only benefited a few? Has improved living conditions accrued primarily to a small elite, leaving the majority of the world behind?
What many people don’t realize is that these improvements are actually shared widely. Globalization And market liberalization—its power Adam Smith Raising absolute standards of living to unprecedented heights recognized more than two centuries ago and Overall inequality has been reduced. The world is not only richer, it is more equal.
In this series, we explain what inequality is, how it is measured, and how to understand its reduction.
Part 1: Understanding inequality
The famous adage, “The rich are getting richer and the poor are getting poorer,” encapsulates the idea that progress is only available to a select few. Another oft-quoted line, which has been interpreted in various ways, is: Smith wrote“Where there is great wealth, there is great inequality. For every very rich person, there must be at least five hundred poor people; the abundance of the few presupposes the poverty of the many.” How readers understand Smith’s words about inequality often depends on whether and to what extent they consider inequality to be a problem.
Smith was not the first to draw attention to the issue of inequality. Some research even suggests that concerns about inequality may be evolutionarily hard-wired. Human psychology has evolved When people lived in small hunter-gatherer groups and tended to share meat equally, society has changed a lot, but our moral intuitions have remained largely the same: a highly unequal distribution of resources is often perceived as unfair by people.
Of course, we shouldn’t place too much importance on genetic predispositions to think in certain ways: human impulses can be bad as well as good. Smith calls “The dreaded emotion of jealousy” The desire to reduce inequality And for a long time it has been negatively characterized by sources such as: Bible Proverbs (“Jealousy rots the bones.”) And Playwright William Shakespeare (“Envy breeds unkind divisions,” he wrote.) The tendency to focus on relative rather than absolute measures of well-being can also be harmful, because absolute rather than relative measures of progress are the best criteria for assessing the success of different institutions and policies.
Moreover, the majority of people do not challenge inequalities based on merit, and there is no evidence that the misery they cause is widespread. Widening economic disparity The changes that occur when a segment of the population escapes poverty are often seen as encouraging – evidence that upward mobility is possible. Increased average happinessSimilarly, research has shown that Inequality of Happiness of America’s poor.”
Of course, inequality is much more problematic when the wealthy are protected by privileged status in law. Smith recognized that incumbents can sometimes obtain unfair privileges from governments in the form of regulations that stifle competition. For example,
But the interests of merchants, in any particular line of trade or manufacture, are always in some respect different from, and sometimes opposite to, those of the general public. It is always the interest of the merchant to enlarge the market and narrow the competition…. Any proposals for new laws or regulations relating to commerce arising from this order should always be listened to with the greatest caution, and should never be adopted unless after a long and careful consideration, and not only with the most cautious but also with the most suspicious caution. (The Wealth of Nations, Vol. 1, Ch. 11)
The expansion of government since Smith’s time has made these concerns even more important. Examples of such laws range from unnecessarily expansive laws to: Occupational Licensing System Inequities range from excessive regulatory barriers that prevent individual competitors from entering an industry and discourage new businesses from entering, to artificially inflating sales and coddling entire industries through bailouts, mandates and subsidies. Nepotistic government policies is a worrying situation, and reforms that would prevent governments from widening inequality in this way are a sensible idea that would enjoy broad support.
Of course, there are other possible causes of inequality, especially in wealthy countries. Consider income inequality. As a country becomes economically developed, income inequality becomes less and less useful as a measure of happiness. In a subsistence economy, everyone is engaged in the same struggle for survival. In contrast, in rich societies, people are engaged in different pursuits because such societies provide diverse means of achieving fulfillment.
While some people seek to maximize their income, others choose work that is enjoyable and meaningful, that offers prestige and flexibility, and still others prefer work that allows them more time for leisure and caring for their children. Smith famously observed that each person is different. pursue egoism— “concern for one’s own happiness, one’s family, one’s friends, and one’s country” — but, as Lauren Hall previously pointed out in Adam Smithworks, “Smith Economic Profit is, or should be, the sum of all human activities” (emphasis added).
Income inequality cannot be a good measure of happiness if it results from personal decisions made by some people to pursue something other than material abundance. Income inequality in such societies reflects individual choices, not overall happiness. In other words, developed countries offer many more paths to happiness, making income inequality less important. Fortunately, there are more meaningful ways to measure inequality, and in the second part of this series, I will focus on the Inequality Index of Human Progress (IHPI), which I created with Vincent Geloso.
Want more?
Vincent Geloso talks about global inequality on the Great Antidote podcast Adam SmithWorks
Chelsea Follett Cities as centres of innovation: lessons from Edinburgh and Paris Adam SmithWorks
Pedro Schwartz Poverty and inequalityin Econlib.
Chelsea Follett is editor-in-chief of HumanProgress.org, a Cato Institute project dedicated to educating the public about the global improvement in happiness by providing free empirical data on long-term development.
