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The gap between rich and poor matters less than the prospects for growth

growth-graph

The aftermath of the financial crisis has produced much talk of the income gap between rich and poor.  This is essentially about equality, although some try to define poverty in terms of the gap, describing as ‘poor’ those who earn less than 50 percent (sometimes 60) of the average wage.  Absolute poverty is about not having enough resources to secure a decent standard of living in terms of food, clothing, shelter and services, rather than about how rich some other people are.  People at the bottom end of income distribution tend to care more about whether than can get by, rather than about how far above them the rich might be.  One commenter on my recent Daily Politics appearance wrote:

“I’ve worked in around 60 countries, often among the poorest people, and not one of them has ever complained about income-disparities between poor and rich, only giving hope that they might earn a little more in the year ahead; only guilty elites, in poor countries and rich ones, fret about the income gap.”

Some have produced carefully selected statistics to argue that people are happier when income disparities are low.  But other research has indicated that people are happier when they see opportunities for advancement, regardless of how rich or how unequal the society is.  On the whole I side with the latter view, even while recognizing that a desire to emulate others can be a powerful motivating force.  To reduce the income gap you have to take money from high earners and use it to increase the income of low earners.  This prompts the obvious question: “If you are entitled to some of my money, how much of it do you have the right to?” And the further question: “What is it that gives you that right?”

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