New blog post on income inequality.
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filename = 2021-07-07-why-income-inequality-is-not-directly-important.html
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title = Why Income Inequality is not Directly Important
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description = When speaking about the topic of poverty in economics, it is very common nowadays to speak of income inequality. Yet this is not a very helpful metric, as it doesn't measure what we're trying to know: the well-being of people in a country.
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created = 2021-07-07
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updated = 2021-07-07
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<p>Originally I had planned to make the title of this post "Why Income
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Inequality is not Important", but I realized that this could be
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misleading as to what I'm actually trying to express. Although I'm
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unsure that the title I have chosen will be much different.</p>
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<p>When talking about economics in a country, income inequality seems to
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come up quite often, especially among those who are more left-leaning on
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economic issues. It's generally hard to argue the position that it is
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good for a country to have more income inequality - which is not to say
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there aren't people who may try to defend this position - and in fact
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it's quite normally described as being a bad thing, being representative
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of an unjust society. However, this is not the focus of this post.
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Instead, I'd like to focus on whether income inequality is a useful form
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of measuring the <em>well-being</em> of the people in a country.</p>
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<p>According to the OECD, income inequality is "an indicator of how
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material resources are distributed across a
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society."<sup><a href="#r1" >[1]</a></sup> As such, we can say it is an
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indication of the difference of access to material resources from the
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most to the least wealthy. However this definition has a flaw in it if
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what we're trying to look for is well-being, and not simply difference
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in income.</p>
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<p>With this I'm not trying to deny that there is indeed a correlation
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between income inequality and median income. In the following graph I
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plot out over a dozen countries according to their median disposable
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income and the Gini Coefficient.</p>
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<figure>
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<img
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src="https://media.themusicinnoise.net/imgs/blog/income-inequality-vs-median-income.png"
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title="Income Inequality vs. Median Income"
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alt="Income Inequality vs. Median Income Graph" />
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<figcaption>
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Sources: "List of Countries by Income Equality" and
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"Disposable Household and per Capita Income" from
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Wikipedia<sup><a href="#r2" >[2]</a></sup><sup><a href="#r3" >[3]</a></sup>
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</figcaption>
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</figure>
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<p>From this graph, there is a clear correlation between income
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inequality and median income. Although there may be a few outliers, that
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is the general trend. Yet if we're caring about the well-being of human
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persons, then why would we use an indicator that does not directly
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measure this? If we care about the well-being of all people in a country
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then we shouldn't be looking at income inequality, or even median
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income, we should be looking at the lowest income household in every
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country. Reason being, we care about the human person, and while income
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inequality may be correlated to the median income, it is better to have
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a society with a large income inequality but where the poorest household
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can afford to live a dignified life, than a small income inequality but
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where the poorest household (and likely most households) are unable to
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live dignified lives. In other words, we should be looking at a more
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direct measurement of the well-being of the members of a society who are
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worst off, and assure their dignified living.</p>
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<p>The problem with focusing too much on income inequality is it can end
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up turning into envy: we envy what the rich have and wish to either
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bring them down, or for everyone to have what they have - regardless of
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how unsustainable that may be. It leads to a lack of contentment with
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what God has given us, and rather than focusing on the poorest members
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of society, we turn ourselves into victims and believe the solution is
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by bringing down those who are more well-off. Which is not to say that
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some assets will not require redistribution, but the intention of that
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redistribution should not be a sense of envy or hatred towards those who
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have, but rather to simply provide the poorest members of our society
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with a means to sustain themselves and live dignified lives.</p>
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<p>To put this in a different manner, would it really matter if there
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were a few really rich people, but every man still had a dignified job
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such that he could sustain himself and his family? The anger and
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unhappiness that manifests itself in this hatred of the rich seems to
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simply be out of envy. But rather than advocating, like many of the
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Libertarian persuasion would, that everyone should find their own way to
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being rich, my line of arguing is to look at what we already have and be
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content with it. Why do we need riches? Ultimately they will not bring
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us joy, and may even risk our eternal happiness if we get too attached.
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Our Lord Himself said that "It is easier for a camel to go through the
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eye of a needle, than for a rich man to enter into the kingdom of God"
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(Matt. 19:24). But to envy the rich is perhaps worse, as it stimulates a
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hatred of others, which is sinful by nature.</p>
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<p>Therefore, let's take care as to use the data that best represents
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what we're actually trying to argue, and make sure that we're trying to
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fix the right thing.</p>
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<ol class="refs" >
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<li id="r1" >
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<a href="https://www.oecd.org/berlin/47570121.pdf"
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target="_blank" >
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Society at a Glance 2011: OECD Social Indicators
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</a>
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</li>
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<li id="r2" >
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<a href="https://en.wikipedia.org/wiki/List_of_countries_by_income_equality"
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target="_blank" >
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List of Countries by Income Equality - Wikipedia
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</a>
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</li>
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<li id="r3" >
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<a href="https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income#Median"
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target="_blank" >
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Disposable household and per capita income - Wikipedia
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</a>
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</li>
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</ol>
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