Inequality: Deception and Consequences

by George Hatjoullis

The subject of inequality is getting a new lease of life having been neglected by economics for most of my career. It is the subject that attracted me to economics so I was most puzzled by the almost complete absence of the concept from all my degrees. Economics, as taught to my generation, had nothing to say about the subject other than how to measure it. It was treated as a residual and, at best, there might be some consideration on the economic consequences of trying to alter the residual outcome. The implication was that whatever level of inequality emerged, this was in some sense ‘optimal’, and that messing with this outcome would always entail ‘costs’, so best not do it. This conclusion is easily visible in the policies of the ‘right’ of politics.

I have ploughed through Piketty’s Capital in the Twenty-First Century and am about to finish reading Tony Atkinson’s Inequality: what can be done? I still have Joseph Stiglitz’s The Price of Inequality and  Amartya Sen’s Collective Choice and Social Welfare. However, as I read I have a sense of a great deception being perpetrated. The subject is inequality of wealth. Why do we care so much about the inequality of wealth?

Wealth ultimately provides the ability to consume goods and services. Those that have more than they need for consumption can use wealth to exercise power over those that could consume a bit more. It allows intergenerational transfers of consumption. It gives those holding wealth the power to determine what is produced and thus available to consume. Nevertheless, in the last analysis wealth, and the inequality of distribution, only matters because it facilitates consumption in some way and for someone. Surely then we should be concerned with the inequality of consumption, not wealth?

Restating the inequality debate in terms of consumption changes the debate profoundly. Wealth accumulation has no upper limit (see Warren Buffet, Bill Gates etc) but it is possible to be satiated by consumption. Humans do not have an infinite capacity to consume goods and services and ‘excess’ consumption does have moral consequences in many cultures. Implicit in the framing of inequality in terms of wealth is that consumption is ‘good’ and more consumption is always ‘better’ and for everyone. The arguments in favour of inequality of wealth do not carry over to inequality of consumption. Moreover, morality has a direct bearing on inequality of consumption. Morality only enters the wealth inequality debate indirectly because of consumption and is successfully kept out by ‘positive ‘economics’. So let us ask the question what kind of consumption inequality is acceptable?

Proposition 1: Everyone should be guaranteed a minimum standard of consumption.

The ‘everyone’ in the question is best defined as all citizens of a nation-state for the purpose of this blog, though clearly this is inadequate. No one asks to be born and no one asks to be born into a specific society. If the society allows/encourages the birth, it has a duty of care for the offspring of its citizens. This proposition has some odious unintended consequences. The society may, when confronted with this duty of care, decide to legislate on who can propagate. At the moment most societies allow the decision to propagate to sit with the couple (or carers) and leave the responsibility for the consumption of the offspring largely in the hands of the parents. This freedom to propagate is often implicitly used to minimise the consumption safety net provided to couples and children. One can see a Corollary to P1. The higher the minimum standard of consumption guaranteed, the greater the motivation for the society to intrude into family size and fertility. Everything has consequences.