The problem of inequality might have some traction if you go for emotion rather than facts, but people tend to be better off when inequality is greater and less well off when incomes are more equal:
Earlier this year, the Work Foundation published a study of inequality in Britain that threw up some uncomfortable findings for those who believe that income differentials are the root of all evil. The hypothesis put forward in The Spirit Level is that greater income equality fosters health and happiness while inequality is a direct cause of misery and unrest. ‘If you want to live the American dream,’ says Spirit Level co-author Richard Wilkinson, ‘you should move to Finland or Denmark’. But why travel so far? Inequality varies greatly within countries and so, since wealth disparities are most visible at the local level, moving to a more equal city should yield benefits.
The Work Foundation shows us exactly where these pockets of egalitarianism are. The most equal city in Britain turns out to be Sunderland, followed by such places as Bradford, Peterborough and Burnley. The least equal city is London, followed by the likes of Reading, Guildford and Milton Keynes. For the most part, inequality is concentrated in the wealthy south east of England and, as the study notes, ‘cities with high median wages almost always tend to have high inequality.’ The more equal cities, on the other hand, ‘tend not to be very affluent’. This trade-off between wealth and equality will come as no surprise to economists, but it is reassuring to know that the wealth in the less equal places trickles down. As the study notes, ‘more affluent cities are more unequal, but affluence – on average – leads to wage gains for those with low skill levels’. Furthermore, whilst unemployment is higher in more equal cities, people with low skills find it easier to find work in less equal cities. In short, inequality is associated with people across the income spectrum being better off, while equality is associated with people being equally poor.
Being unequally wealthy is better than being equally poor and better is not just about income:
. . . In the mid-1990s, the US government gave thousands of people living on welfare the opportunity to move from poor neighbourhoods to more affluent areas. Their names were picked by lottery, thereby creating a randomised experiment. The Science study measured the subjective well-being of those who moved and those who stayed after a period of 10 to 15 years. Those who moved were significantly happier. Other studies of the same people have found that those who moved were also significantly healthier, had better mental health and were less likely to be obese.
It is important to note that those who moved did not become wealthier than those who stayed. Still living in social housing, they went from having an income that was average by the standards of their community to having an income that was low in absolute and relative terms. They found themselves at the sharp end of inequality and yet they were healthier and happier than those they left behind.
Only a certain sort of social scientist could find it remotely surprising that people prefer living in a nice neighbourhood. It is true that people compare their living standards with those of their friends and neighbours, but there is little evidence that such comparisons dictate their well-being. People who leave the ‘more equal’ towns and cities of Britain to seek a better life are unlikely to regret it.
The focus on inequality tends to lead to redistributive policies which are generally counter-productive to economic growth and low growth hits the poorest hardest.
Rather than worrying about how much people have in relation to others, policy makers should focus on providing the environment and opportunities which help people help themselves.
Hat tip: Lindsay Mitchell