13 June 2018

There’s more to status anxiety than economic inequality


Richard Wilkinson and Kate Pickett are back to tell us that inequality makes us miserable, causes crime and, ultimately, kills. The authors of The Spirit Level, a screed against inequality, have just published a follow up, The Inner Level: How More Equal Societies Reduce Stress, Restore Sanity and Improve Everyone’s Well-being.

The Spirit Level was ably demolished by Chis Snowdon of the IEA. Their latest effort has left even the Observer unconvinced. The biggest problem with Wilkinson and Pickett’s argument is a failure to distinguish between social and economic inequality, and to make unfounded assumptions about the relationship between the two.

One of the interesting points raised there the difficulty of identifying which inequality we are talking about: that of wealth, income or consumption?

On income and consumption, the UK does rather a good job of reducing inequality. Top 10 per cent to bottom 10 per cent household incomes differ by a ratio of 12 to 1 when we look purely at market incomes. When we take into account who pays how much tax, plus what that tax is spent upon, in consumption terms that’s a four to one ratio (the original research was by the TUC, not a group likely to underestimate that final ratio). That is really pretty equal when you come to think about it.

Another problem for Wilkinson and Pickett is that their basic argument appears to be lifted from Richard Layard and his work on happiness. Others having more than we do makes us unhappy, therefore we can view that difference as a form of pollution. We know what to do with pollution, we tax it, as with a carbon tax for climate change, or London’s Congestion Charge. Layard also noted that not having anything very much makes us unhappy as well. That misery of inequality only kicks in, or becomes dominant, above a certain level of prosperity.

The problem in the argument, both Layard’s version and the latest iteration, is the transmission mechanism. All of the measures of inequality are of economic inequality. But the method by which we are made miserable is social inequality. Those are different things. And it is possible to have societies on either side of each inequality scale – as, indeed, we do.

For example, Japan is a country of low levels of economic inequality, for a rich country at least. Anyone describing it as a place of low social inequality would have to be locked up for purblind ignorance. For that’s just not a reasonable description of a place where prospective marriage partners are examined for the possibility of a tanner generations back. Even England is rather more flexible than that.

Similarly, but running in the other direction. The United States is a place of, by rich country standards, quite high economic inequality. Yet Warren Buffett and Bill Gates, two of the richest men in the world, are known to be more than just fond of a Big Mac now and again. A marker of not all that much social inequality in at least one form.

That is, social and economic inequality are not the same thing, they’re measurements of a society on entirely different axes. That means that we cannot, as Layard, Wilkinson and Pickett try to, use the measurement along one axis to prescribe actions upon the other. Our correlations of what creates the problems go haywire because we use the one to make assumptions about the other.

If it is social inequality that causes societal disaster then we must study the correlations, prove the causality, of social inequality and the problems. We cannot assume that economic inequality is proof in itself. And of course we cannot reasonably speculate that reducing economic inequality is going to reduce problems caused by the social kind given that the inequalities are not the same.

It is amusing that it is English people making this mistake. Our own class and social system puts the plumber a number of steps down the pecking order from the schoolteacher, despite the first earning perhaps three times the second. We’ve centuries of disdain for those who make money in trade as opposed to arts or administration. Yet this is the very society in which we’re going to assume that economic and social inequality are the same thing?

For that is what the transmission mechanism being asserted requires. That we measure social position by economic status, and that is the only way in which economic inequality can cause the social inequality which so disturbs us all. That’s a logical chain that just isn’t the case with England, which those making this claim know best. Therefore the claim isn’t true, is it?

Tim Worstall works for the Adam Smith Institute and the Continental Telegraph.