Saturday, 1 February 2014

Income Inequality and Player Pianos

Income (in)equality has been a hot topic of late.  With the US economy emerging from the grips of recession via a largely jobless recovery (its third in a row), the protesting of Google Buses in San Francisco, and the publication of a study by Oxfam stating that the 85 richest people control half of the world's wealth, The Spear is reminded of the prescience of a certain 1952 fiction written by one of his favourite authors, Kurt Vonnegut.

Vonnegut’s first novel, Player Piano, is a fictional tale of a dystopian future whereby the mass adoption of automated systems has led to the development of a bifurcated population: a small elite of wealthy managers and engineers living lives largely inoculated from the far more numerous ‘homesteaders’ – those workers whose jobs have been displaced by mechanisation, and who now live out their meager existence in slums subsisting off welfare and token government employment.

One form of non-human piano player.  Another is a player piano.

Although rapid outsourcing of the First World’s jobs has in reality played an equally, if not a more-significant factor in the shrinking middle-class, you’ve basically got to say the Vonnegut saw the current situation coming 60 years ago.  

Well done KV.

But whereas Player Piano’s lesson is one of the populace losing touch with what it means to be human as their labour becomes worthless, the tone of income-inequality today is beating a far more us-versus-them, redistributive drum.

Ok, for starters let’s accept that income inequality clearly exists, and that it is worsening.  The Spear has three things to ask about this:

1.       Why is this happening?
2.       What does it mean?
3.       Is ‘income’ inequality the right form of inequality we should be measuring?

1.                   Why is this happening?

While there is certainly a case to be argued that a certain amount of this inequality is derived from policies and systems which favour the rich and those with capital to invest over the poor and middle-class, The Spear would counter that the incremental benefit to the individual is at least partially offset by wider gains to society by the investment of perhaps otherwise idle capital (even a billionaire’s lifestyle perhaps only costing tens of millions of expenditure per year to achieve). 

A one billion dollar increase in the wealth of one individual is very noticeable and easy to measure, whereas a one dollar increase in the wealth of a billion people is not.

But who cares about a one dollar increase in wealth, you might say?  You want a billion dollars – any rational person would.  But to somebody living on a dollar a day, another dollar is a not-insignificant amount.

Last year The Economist reported that over 1 Billion people have been lifted out of extreme poverty over the past twenty years.

Now The Spear isn’t saying that the world’s billionaires are personally responsible for lifting these people out of poverty.  But let’s face it – capitalism, and the NGO’s who suckle on its teat - are.  And capitalism only works if people are willing to make an investment to earn a return.

So one could argue, and The Spear most certainly is, that while growing income inequality may be the case, it is at least partially due to a decrease in global inequality in standards of living (and unfortunately partly due to genuinely unfair treatment of the rich/powerful, but can the bathwater be thrown out without the baby, i.e. did communism work?).

2.       What does it mean?

It kind of depends on who you are and where you live.

If you a manufacturing worker in the western world who is facing the prospect of being laid off, things aren’t looking so good.  But if you are a young aircraft maintenance worker in Malaysia, things are looking up.  The former would perceive their company’s CEO as the devil for outsourcing their job, while the latter would be thankful to land a real wage-earning job.  Adam Smith’s Invisible Hand can practice redistribution too, and without the uneconomic interest-laden distortions of central planning.

It would seem that the global inequality in standards of living kicked off by the industrial revolution 300 years ago is slowly rebalancing with the industrialisation of the developing world.

One might even make the case that the return to greater income inequality is just a return to the world’s natural long-term state of affairs prior to the industrial revolution, albeit with the bonus of a higher standard of living for today’s ‘serfs’. 

Could it be that the rise of the middle-class was merely an aberration brought about by temporary widespread superior relative productivity of the western world, which, for a brief period, allowed the ‘common’ man to rival the controllers of capital (and thus creating entire nations of relative global capitalists)? 

With the elimination of relative productivity, and a somewhat fairer distribution of the world’s resources on a global scale, could a standard of living somewhere between extreme poverty and what is left of today’s middle-class become the new norm (i.e lower middle-class, or first-world poor)?  Can the middle-class of the first world deny the poor of the developing world the chance to legitimately earn their way out of poverty?

3.       Is ‘income’ inequality the right form of inequality we should be measuring?

Considering the above, The Spear reckons ‘standard of living’ inequality is a much more worthwhile measure.  While another billion to a billionaire may mean far greater income inequality, the other 990 million or so that they invest does go some way to eradicating the most extreme poverty.  Extreme measures to redistribute such wealth have been shown to do exactly the opposite - eliminate productive capital and lead to long term, widespread impoverishment.


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