Economists, politicians and the media love to moan about inequality. Blazing headlines scream that the rich are getting richer and richer – all at the expense of the poor! This is simply untrue. The rich are getting richer, but the poor are too. Income inequality has, if anything, decreased over the past decade. Average incomes are on the rise. They’re at an all time high and they keep going up.
The super rich are an easy target for politicians. They point their fingers at a cluster of people who take increasing portions of the income pie, blaming this for many of the country’s economic woes, without mentioning that the pie is growing too. As long as all income groups see an increase in the absolute size of their slice, does it really matter that some slices are growing faster than others?
The location of the greatest growth isn’t actually where we are led to believe it is at all. Despite the constant attacks on “the 1%” from all directions, those responsible for rapid income growth at the top actually represent a very small number of individuals in the top 1%. There are hundreds of thousands of people in the top 1%; most of them are not seeing incomes anywhere near the millions. Even when just the small group of individuals experiencing speedy income growth are considered, it is wrong to blame them for the country’s economic troubles. The OECD found no evidence that the super rich pulling away from the rest of the population harms growth.
In many cases, the people who are often blamed for a whole host of economic problems are those who actually act to create jobs and increase the range of products available to everyone. Our obsession with the super rich is frequently fuelled by politicians seeking to shift the public perception of fault away from themselves. This exercise is a massive waste of time; it helps noone and must stop.
When the population is split into income quintiles, it is actually those towards the middle who have seen the largest increases in real term incomes. Despite the constant rhetoric about the dying middle class, many towards the centre of the income distribution have seen their fortunes improve alongside the economy in the wake of the financial crisis. Rising incomes in the middle have been partially driven by “growth in both employment rates and employment income”. Whilst it is true that many in the middle felt the squeeze during the crisis years, many stories written about their struggles nowadays are based on untruths spawned by politicians in a bid to capture the popular vote. This misplaced focus diverts attention and resources away from those that need it the most: the poor.
Whilst there have been notable decreases in absolute low income levels, there are still many people struggling to get by. Large numbers rely on food banks to see them through the week. Many can’t afford the “basics” that most people take for granted. The heavy focus on rising incomes at the very top often means that those suffering at the bottom are overlooked.
This effect is compounded by the love of “relative poverty” as a means of determining who the poor in society are. Relative poverty is a very weak measure of the amount of real need in a society; a wealthy country in which the poor enjoy a decent standard of living may find that is had a high number of citizens in relative poverty if its income is unevenly distributed across a population. On the other hand, a poorer, albeit more equal, country may find that it has very low levels of relative poverty even if the majority of its citizens struggle to afford enough food to see them through the day. There is a massive disparity of needs across the population defined as being in “relative poverty”, a population whose size actually swells as average incomes rise.
To focus on relative poverty rather than absolute measures, as is so often done by both politicians and the media, makes the inadvertent error of assuming that the spread of incomes in a population is more important than their actual levels. This directs policy focus away from those most in need of help.
Instead of bemoaning some imagined increase in overall income inequality, we should celebrate average incomes that are currently at historic highs. Rather than seeking to stem the flows of money heading to the top (often at the cost of those at the bottom), we should strive to ensure that even the poorest members of society continue to enjoy incomes which are heading up and up. This means ending our obsession with the very rich; our focus on their earnings helps no-one.
We will never help the genuinely poor by demonising the rich.