ANTONY DAVIES: Myths about inequality. Myth number one. Profit and plunder are the same thing. Imagine a person who provides services to
society. Maybe he mows lawns, or fixes cars, or paints
houses, and in return for these services he provides to others, he asks for something
in return, maybe some food, clothing and shelter. Now, suppose it’s the case that the society
values what this person provides tremendously, maybe because these are things that society
really needs, or maybe because there are very few people who are able to do these things. But, for whatever reason, society places a
great value on the things this person contributes. And let’s suppose, also, that society places
a relatively low value on the things that he asks for in return. Perhaps it’s because these things are easy
to produce. There’s lots of them laying around. For whatever reason, imagine that society
places a low value on the resources this person asks for in exchange. We would look at this person and say, “This
is a person who we would like to have. He contributes more to society than he asks
for in return.” But, now take this person and superimpose
on top of him a monetary system, where instead of exchanging the things he does for society’s
resources, he exchanges the things he does for money and uses the money to buy resources
from others. This is what this would look like. The person provides value to society and society
gives him dollars in return, and the dollars are commensurate with the value that society
places on these things he offers. Society highly values the services, and so
people are willing to pay him a lot of money for these services. And then in return, the person takes some
of this money that he’s earned, and he buys resources from society. And because society does not place a large
value on the things he’s asking for in return, they don’t ask for much money for these. And so if you look at the system, what’s happening
is that the person is accumulating dollars. He will have more dollars coming in than there
are dollars going out. We call this profit. Now, many people look at profit and say that
profit is, in some sense, a bad thing because it represents something that someone is taking
from society, but if you look at it in this context, profit is actually an indication
that this person has done something good, that he has provided more value to others
than he has asked for in exchange. And so as he provides this value and asks
for things in exchange, he accumulates these dollar bills. We call them profit. Steve Jobs with $80 billion in the bank, and
he’s an example of this person. Where did Jobs come up with this $80 billion? He came up with the $80 billion because these
people liked the things he was offering better than they liked the dollars in their pocket,
and so they gave dollars to Steve Jobs and Steve Jobs gave iPhones to the people. This was the transaction. At the end, Steve Jobs dies with lots of money
in the bank, but the world ends up with lots of iPhones as the other half of the exchange. Profit is not a sign that people need to give
back to society. In fact, it’s the reverse. Profit, when attained in a free market environment,
is a sign that society actually owes the person more goods and services than he has already
consumed. Now suppose, conversely, the person accumulates
dollars not by offering goods and services to society, but instead by co-opting the government
and using the force of government to take money from others and putting it in his own
pocket. Then, in that case we have this kind of situation
where the person just simply is using the force of government to take money from the
people. The person then uses some of this money to
buy goods and services, and maybe he has some leftover. But this, although it looks like the same
pile of dollar bills, we no longer call it profit. We now call it plunder, because although it’s
the same pile of dollar bills, how the person came about those dollar bills is very different. He did not come about them by offering someone
something in free exchange for something else. Instead, he came about them by co-opting the
power of government to take money from others. We have plenty of examples of this. The agricultural lobby lobbies government
for things like ethanol requirements, despite the fact that there are many studies showing
that ethanol is not necessarily good for the environment. It does not give you better gas mileage. It doesn’t reduce our dependence on foreign
oil, and yet big industries will lobby the government for ethanol requirements because
these industries make their money from growing corn. And so what happens is, these large industries
collect lots of money in exchange for providing people with nothing in return. This is the difference between profit and
plunder, so myth number one, profit and plunder are the same thing. The fact is, profit is good. It indicates someone is providing something
for society. Plunder is not. It indicates that someone has actually taken
something from society. Myth number two. One can be for equality. These three kids face equal opportunities,
although unequal outcomes. Each one stands on a box. They have equality of opportunity, but because
they are different heights, one can see the game. One can’t. They have inequality of outcomes. These three kids face equality of outcome,
but inequality of opportunity. One has two boxes. One has no boxes. Their opportunities are unequal. Despite the fact that all three can see the
game, their outcome is equal. The moral of the story is, you cannot be for
or against equality. You can only be for or against a particular
combination of equality and inequality. If you are for equality of opportunity, then
by definition, you are also against equality of outcome. And if you are for equality of outcome, then
by definition, you are also against equality of opportunity. And the reason for this is because people
are different. Some people are born smarter than others. Some people are born luckier than others. Some people are born faster or stronger than
others. And because people are born into different
circumstances, when we leave them alone, we give them equality of opportunity. Some will naturally rise higher than others
and we will have inequality of outcomes. In fact, because people are different, the
only way to achieve equality of outcome is to impose an inequality of opportunity to
boost the people who are less smart, less skilled, less educated and hold back the people
who are more. So, myth number two, one can be for equality. The fact is that equality and inequality are
actually inseparable. We can only be for a combination. Myth number three. We understand what equality means. These children are suffering, but they’re
not suffering because they’re unequal. They’re suffering because they’re poor, and
to the extent that we focus myopically on equality. We run a real risk of missing a real problem. The real problem being poverty. Look at these people. Let’s suppose that the people on the left
earn $30,000. These people earn $40,000. Those earn $60,000. And the people on the far right earn $70,000. We can look at this and we see that there’s
lots of inequality here. But, imagine that these people are in different
stages of their careers. The people on the left have just started their
jobs. The people in the middle are mid level career
people. These are people, on the right, who have spent
lots of time in the workforce. They’ve achieved lots of education, lots of
experience, and commensurately high incomes. To the left of these people are students who
are learning skills and preparing to enter the workforce. We have inequality here. And if I move time forward, you will see that
this inequality persists. Always we have inequality. People on the left earning less. People on the right earning more. However, over time each person has moved through
each circle, and so each person has earned, over the course of his or her career, a total
of $200,000. That is in this example. We have persistent inequality, and yet everyone
is completely equal. That’s not to say that there is no such thing
as inequality in outcome. But, it is to say that when we talk about
inequality, we tend to take a snapshot. We look at the world and we see some people
who are poor, some people who are middle class, and some people who are rich. And we say, “Look at the inequality,” when
the right way to do this is to look over time and watch over time how people move. Some from the poor to the rich, some of the
rich move down to the poor. And if we look over time, we will still see
inequality, but we will see markedly less than we see when we just take a snapshot. Steve Jobs, as we said, died with $8 billion
in the bank and he got his money from people like clip art woman, who handed it over to
him in exchange for I things. Now, when we talk about inequality, we focus
on the flow of the dollars. We completely ignore the flow of the goods
and services. Next time you’re in a crowd of people, ask
for a show of hands. How many people here have at least $50,000
in the bank? And you’ll find very few hands going up. Then ask. How many people here have a smartphone? And you’ll see every hand go up. Notice the difference. When we look at dollars, we will tend to see
inequality, but if we look at the goods and services that arise in response to those dollars,
we’ll actually see tremendous equality. Economists measure inequality on the Gini
Index. Zero means everybody’s equal. One means one person is incredibly rich and
everybody else is destitute. The two most equal countries in the world
are Sweden and Afghanistan. On the Gini index, they rank .25 and .28. In terms of planet Earth, this is as equal
in income as countries can get. And yet, if you look at these two countries,
what you will find is that the average income in Sweden is $54,000, while the average income
in Afghanistan is $600. That is, equality doesn’t necessarily mean
that we’re all well off. We can be equally miserable. So, problems with inequality. First, inequality diverts our attention from
a real problem. The real problem being poverty. Second, people can be unequal persistently,
and yet perfectly equal if we look at them over time. Third, inequality ignores completely half
of the economy by focusing on dollars, not goods and services. And then finally, when we’re done, equality
isn’t necessarily good anyway. So, myth number three is, we understand inequality,
and the fact is, most of us actually don’t. We confuse it for, equality exists at one
point and time for equality that actually is much less over time. And at the end, we actually end up thinking
equality is necessarily good, when in fact, it may not be. Myth number four. The middle class is disappearing. This is the distribution of households in
the United States in 1970. All the numbers here are adjusted for inflation. The height of the bar is not income. It’s the fraction of households that exist
in the income level, so here we have what today we would call less than $15,000. And in 1970, about 15% of US households had
incomes that would be the equivalent of what today we would call less than $15,000. And in 1970, about 10% has $15,000 to $25,000
of income. The largest percentage of households were
in the $50,000 to $75,000 range. And then, what you see is, way over here very
few households, about 1% in 1970, earned what today we would call more than $200,000. That’s the United States in 1970. Now, let’s move forward 10 years. Here’s 1980 and you see slightly fewer households
in this poorest category. A little bit more here. A little bit more here. A lot less here. A lot less here. And we have more in the rich categories. This is 1980. Here’s 1990, 2000, 2010, and the last year
the data is currently available, 2013. Notice a pattern here. As we look at the fraction of households in
each income category, amongst these poorest categories, we see far fewer households in
this lowest category, about the same in this category, and a little bit less here. So, in total amongst the low income categories,
we have fewer American households here today than we did in 1970. In the middle income households, we have less,
fewer households in this category, fewer households in this category, about the same here. Amongst middle income Americans, there are
fewer households than there were in 1970. The middle class is indeed disappearing. In fact, so are the poor classes. And where are all these Americans going? They’re going here. From 1970 to the present, of course there
are exceptions. But, here we see a trend. The trend is, over time and adjusting for
inflation, Americans are leaving the poor categories. They’re leaving the middle income categories,
and they’re showing up over here in the rich categories. So, myth number four, the middle class is
disappearing. The fact is, it is. It’s joining the upper class. And the poor classes are disappearing, as
well. Myth number five. People are becoming worse off. In 1798, Thomas Malthus published a treatise
claiming that over the next few years, we were going to see massive starvation as the
population grows and grows, and we are now unable to feed ourselves. And Thomas Malthus wrote in response to looking
at the data you see here. This is the world population going back to
10,000 years B.C. up to the time of Thomas Malthus, and you can see what happened. The number of people on the planet was rising
exponentially by 1798, so at this point, Thomas Malthus looks at this and says, “If this trend
continues, we will never be able to afford people. We’re going to have mass starvation throughout
the globe.” Well, let’s move forwards. This is the point in which your grandparents
were born, and population between Thomas Malthus and the time your parents were born had grown
by two billion people. This is the point at which your parents were
born. We added another one billion people between
the time your grandparents were born to the time your parents were born. This is the time most college students were
born. And between the time your parents were born
and college students were born, we’ve added about two billion people. And from the time today’s college students
were born until the present, we’ve added another 1.5 billion. Thomas Malthus was back here looking at this,
saying, “How can we possibly feed this many people?” At the time of Thomas Malthus, 98% of the
world lived in abject poverty. Since Thomas Malthus, this is what’s happened
to population. And yet, what’s happened to world poverty? In Thomas Malthus’ day, over 95% of the world
lived in poverty. By the time today’s college students’ grandparents
were born, world poverty had dropped to 65%. By the time their parents were born, world
poverty had dropped to just over 40%. By the time today’s college students were
born, world poverty had dropped to 30%. And today, world poverty is less than 10%. At the same time that we have seen exponential,
astronomical growth in the number of human beings, world poverty has declined from north
of 95% down to just 10%. If you want to look at specifics, you could
see here. This is data for the United States, comparing
2011 to 1992 or 1998, what we see here is the number of households who have washing
machines, about the same. More households have clothes dryers. More households have dishwashers. About the same number of households today
as in the past have refrigerators. Fewer have freezers. More have televisions. More have … About the same have electric
stoves. More have microwaves. In almost every category, more American households
today have appliances like these, versus American households a generation ago. This is housing conditions. Fewer households have leaking roofs. Fewer households have problems with pests. Fewer households have plumbing problems. In all sorts of ways, not only does the average
American household have more appliances, it also has better housing conditions. The neighborhoods and communities are also
better. People’s basic needs are better. In all these various ways, what we see worldwide,
we also see in the United States, that on average, people have access to better qualities
of life today than they did a generation ago. Over the past one or two generations, the
rate of firearm deaths are down 50%. The rate of nonfatal firearm crimes are down
75%. The rate of deaths due to war are down 95%. Child labor rates worldwide are down 50%. Global income inequality is down 3%. Global gender inequality is down 15%. Global longevity and education are up 20%. And finally, global income is up 40%. All of this stuff over the past one or two
generations. So, myth number five is, people are becoming
worse off, and the fact is, it’s the exact opposite. The reason this myth persists is because what
we see in the news repeatedly are pictures of people starving, pictures of people shooting
other people, of wars globally. The reason we see these things is precisely
because they’re uncommon. What we don’t see on the evening news are
things that happen every day, because they’re uninteresting. In this way, oddly, the evening news has become
a litany of all the things that aren’t true about your life. Conclusion, the fact is, profit is good. Plunder is not. Equality and inequality are actually two sides
of the same coin. They’re inseparable. Most of us don’t understand what inequality
is. The poor and the middle class are becoming
increasingly rich. And finally, the world is actually becoming
a much better place to life in than it ever was before.