Five Myths of Inequality
Inequality has become one of America’s greatest political and economic concerns. By conventional measures, it has been rising for decades. The Gini coefficient for income inequality assesses household income, where perfect equality would be zero and perfect inequality (one household making all the money) would be 1. The coefficient for the United States rose from 0.43 in 1990 to 0.49 in 2020, and the inequality of wealth has grown even more; by some estimates, the richest 0.1% of families now own as much as the bottom 90%.
Critics fear that the gap between the affluent and workers, or between rich people and everyone else, has grown so great that America is no longer the land of opportunity. They say that the former can use their resources to entrench their advantages and avoid meritocratic competition. But inequality is a complex subject that’s hard to reduce to a few statistics. By other measures, the country is actually becoming more, not less equal.
The Myths
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For good reason, we tend to focus on the inequalities of wealth and income – they’re easy to measure. But there’s also social and political inequality, and throughout American history, people have worried about these markers the most. Before we gained independence, Britain and other societies grouped people into royalty, nobility, landholders, merchants and skilled workers, and peasants. They also made strong distinctions on race (with “Anglo-Saxons” or “Aryans” as the superior group) and on gender. People in the lesser groups were expected to acknowledge and be subservient to their “betters,” who would condescend to recognize them as needed.
Wealth and income was certainly a factor, but mostly in a secondary way. A rich merchant was still a nobody compared to a penniless nobleman. Well into the 20th century, American industrialists married their daughters off to impoverished European nobility. Jump ahead to the Cold War, when the Soviet Union was more egalitarian in monetary terms, but it had a ruthless social hierarchy set by ties to the government. Even today, many European countries have lower Gini coefficients than the United States, but they make it much harder for upstarts to open a business or run for office.
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The Declaration of Independence declared that “all men are created equal,” but even the Founding Fathers didn’t fully subscribe to that radical statement. Setting aside race and gender, they thought only “virtuous,” educated men, freed from ordinary labors, should have political power. They were appalled when voters elected undistinguished farmers and other workers to state assemblies. One impetus for the federal constitution was to prevent these populist state governments from ruining the republic with excessive democracy. Even so, several founders went to their graves believing their noble experiment had fallen into political and social chaos.
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Not on social and political measures. In these areas, America has become remarkably egalitarian. States dropped property qualifications on voting, while women gained rights that had been held by fathers or husbands. We ended slavery and eventually, imperfectly, Black people won civil rights. Literacy and other kinds of education have spread to nearly all of the population. Racial notions that privileged only certain ethnicities gradually faded, though bias against people of color remains a persistent problem. Rates of violence also fell dramatically, which made people more willing to trust fellow citizens who looked or acted differently.
Even on wealth and income, inequality may be no worse than it was in the 1920s. Those gaps on wealth and income fell with the Great Depression and postwar prosperity, rising again only with the entrepreneurial revival after 1970. We don’t see this historical progress because our expectations for inequality have risen faster than our reality.
On a global scale, inequality on all measures has fallen dramatically in the past century, mostly because the world has largely eliminated extreme poverty. Politically, the empires that dominated much of the world until the 1940s have faded away, freeing up a majority of the planet to (mostly) determine their own fates.
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A high level of inequality certainly does weaken social bonds, partly because it reduces trust, and partly because it makes people on the outs feel hopeless. A classic study of British civil servants found that those at higher ranks lived longer and healthier than did their subordinates. Yet some inequality is good for society, because it creates an openness to success that inspires people to follow their ambitions. Money-based inequality has risen in recent decades partly because deregulation encouraged a new wave of lucrative innovation – including from immigrants who often arrived with little more than the clothes on their backs. Gaps in income and wealth increased, but consumers benefitted most of all.
In order to promote egalitarian outcomes, societies often limit entrepreneurship and expand the power of government – which can bring cronyism that creates its own inequality. It’s possible that inequalities of income and wealth have now reached dangerous levels in the United States, but we need to be careful that the solutions don’t foster social and political inequality – along with weakening innovation.
How much inequality damages society also depends on the underlying dynamism. As an entrepreneurially-driven country, with a large national market, the United States enables high inequality. But it also has high churn rates – we don’t see as many entrenched fortunes as in other countries. People can become extraordinarily wealthy here, but they have had a harder time maintaining great wealth across generations, and translating that wealth into social superiority. In worrying about inequality, we need to watch all of these markers to get the full picture.
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We like simple narratives, so we pick one statistic and think it represents the sum of the world. But inequalities can often move in opposite directions. By wealth and income, China used to be a highly egalitarian country, but then it opened up to entrepreneurship. Social and political inequality fell, but monetary inequality rose as aggressive innovators amassed large fortunes and helped to build a large middle class. Now the national government is trying to reduce inequalities of wealth and income, but to do so it is limiting entrepreneurship. The result may be revived cronyism that creates new social and political inequalities.