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J P Floru: Income inequality is desirable

J P Floru is the Director of Programmes at the Adam Smith Institute.

In the Pantheon of Socialist Fallacies, income inequality features at par with outraged mutterings about so-called health inequality; the idea that Capitalism is “a system that was invented”; or the belief that “The Rich are always becoming Richer”.

In a study published on Monday, the OECD states that income inequality has grown. And this fact is linked to a call for (gasps of baffled surprise and wonder about the novelty of it)…The Rich having to pay their Fair Share! If you live long enough as a political commentator you can just tape your views and replay the tape every time another idiot comes along and repeats some poppycock that has been told countless time before. What is it with the lefties? Short of ideas? Or do they believe – not wholly unjustified – that if you repeat a fallacy often enough, people will actually believe it?

So here, repeated at nauseam: Income Inequality is Not an Issue At All. And from a general welfare perspective, income inequality is desirable.

Income inequality is first of all a very important market tool to show which behaviour is economically desirable, and which behaviour isn’t. For example: he who stays in bed earns no income; he who gets on his bike to work does. Result: fewer people stay in bed and society as a whole benefits because there is more activity and production. He who uses a hand loom earns less than he who uses a power loom. The income inequality signals to the person with the hand loom that it’s perhaps time to switch to the 21st century.

Secondly, income inequality is a highly improper tool to tell us anything about poverty. If some are outraged because A earns 100 times what B earns, then it follows that they would be terribly pleased if both A and B earned far less in absolute figures, as long as the multiplier is smaller than 100. 

We are then back to Soviet Style economics: let us all be poorer but more equal: it is preferable for A to earn 1,000 and B to earn 1,500; than for A to earn 200,000 and B 2,000. Better all on a bicycle, than you in a Rolls Royce and I in a Tata Nano. This is the economics of the madhouse. Who better to explain it than The Great Lady herself:


Poverty is absolute, not relative. It is entirely desirable for the rich to earn even greater multipliers of income, as compared to those with a small income – as long as the small income goes up and allows to buy food, a shelter, and a bit of savings, where previously there was starvation, homelessness, and hand-to-mouth existence.

I am not interested in reducing everybody to equal begging status. I am interested in making sure nobody has to beg, irrespective of how rich the rich become.


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