Does inequality actually matter?

Speaker A: 00:00:00

Hello and welcome to the Cognitive Engineering Podcast produced by me, Fraser McGruer, for Aleph Insights. In this series of podcasts, we take a look at interesting topics and discuss what we think they tell us about analysis and decision making. I'm here with Nick Hare and Peter Coghill of Aleph Insights, and this week we're discussing the question, does inequality actually matter?

Speaker B: 00:00:26

ion and things. It's all very: 1970

Speaker A: 00:01:54

we care? We don't want to talk about what, sorry? We don't want to talk about what? Whether it's true,

Speaker B: 00:01:57

this narrative about, you know, inequality's got worse. Suffice to say, look, the evidence is mixed. And, you know, it's not, I think this narrative that I think a lot of people have, that inequality has got a lot worse, that, you know, I mean, it just doesn't, just talking about income inequality, it's probably, it does depend on various things like what measure you use. But the point is that that's not a very strong, whatever trend has occurred is not very strong. It's not, inequality might piss you off, but it's not the case. You can't make a very strong argument for saying it's now somehow significantly worse than it used to be. A lot of people will intuitively just think that can't be true because we've heard so much about it. But when you look

Speaker C: 00:02:40

at the numbers. I think it depends greatly if you concentrate on income versus wealth. Yeah. I mean,

Speaker B: 00:02:45

I mean, so there's a lot of things we can talk about. Wealth being much harder to measure. Well, exactly. And wealth also consisting of a lot of intangible types of inequality, like social capital and, you know, your, yeah. So, so yeah, all that kind of thing. But I think a more interesting question for me is why do we care? Why is it a problem? Why should the fact that there's someone who's a thousand times richer than you make you any worse off? Like if we just eliminated that person, you'd be no better off. So why does that person existing suddenly make you a problem?

Speaker A: 00:03:19

means that that person who's: 1000

Speaker B: 00:03:36

rich person has can buy more things than a poor person. But why is that necessarily a bad? Yeah,

Speaker A: 00:03:41

that is by definition the case. Yeah. But for example, let's say you're super rich, and you need to have some super expensive cancer treatment. And you can access that. But someone who needs the same cancer treatment can't access it because they don't have the money. Isn't that the rich person

Speaker B: 00:03:58

not being there wouldn't magically make the cancer treatment affordable. The fact that that rich

Speaker C: 00:04:04

person can afford it doesn't stop it being and indeed, it might make it might might prevent trickle down that we would do otherwise have benefited from Yeah, hold on. Look, I can easily

Speaker B: 00:04:15

sort of, you know, I'm not I'm not I don't, I don't want to I don't want to hear the word trickle down again. Yeah. Let's say a very contentious issue, which we won't worry too much about. Let's but yes, I mean, it is a question of, obviously, rich people do support jobs. I mean, there's no doubt about that you if that money disappeared that they had, we would be worse off. There's no doubt about that. But it's the question of what about transferring? I think that's that's what that's the question. Should we do things to lessen that inequality? I don't know, Peter? Well,

Speaker C: 00:04:50

yeah, even though it might not necessarily, you know, help anybody, if you got rid of all the rich people. There is quite a lot of evidence suggests that nations and regions with particularly high inequality have they score poorly on various other social economic metrics. So just by the very nature, by the very virtue of the fact that there is some sort of correlation between goodness in terms of things like happiness and trust and health, things like obesity and the level of inequality in a region or a nation suggests that there is some bad thing

Speaker B: 00:05:29

going on. Well, hold up, though, because that's poverty, which isn't necessarily the same thing as inequality. Like if I suddenly know if I met now, listen, because if I'm magicked up a bunch of poor people right now, we would have more inequality because there'd be more people at bottom and the same number of people at the top. Right. That would. But but, you know, the problem there isn't the inequality. It's the fact that there's people in poverty, which is not the

Speaker C: 00:05:59

same thing. They separate the studies I've been looking at from UNICEF and other things account for the fact account for the general they normalize for the increase in the bottom wages. So overall poverty has gone down. Life is generally better for everybody. But the gap between the poorest people who are earning more than they were to 10 years ago and the very richest people has increased. Yeah. So the rich people are running away with literally with all the money. But you just said poor people are better off. They are better off. But they but they they they're better off than they were 10 years ago. But there's still a trend of the of those regions and nations with higher inequality and low scoring on metrics such as child well well-being, homicide rate,

Speaker B: 00:06:50

maths and math and literacy. I'm saying is that you would expect to find that let's say you randomly distributed poor people and rich people around, you would find that the highest that the highest inequality areas were where there were more poor people, like by definition. That's all I'm saying is like you can increase the inequality by increasing poverty. It's it doesn't necessarily it's a mathematic. It's just a mathematical thing. That correlation will exist. But they're given that the inequality is driven by various analysis. I've got no idea. I'm pulling

Speaker C: 00:07:23

this out of my bum, but I don't trust it. The inequality is driven more so by the small number of very rich people than it is by the large number of very, very poor people. So you've got a population that's got a level of inequality, right? Pick a metric doesn't matter. Yeah. So you've got like 100,000 poor people and then 10 very rich people. If you add one more poor person, equality barely changes. But add another very rich person, inequality will jump quite a significant amount.

Speaker B: 00:07:51

Hmm. But isn't the issue rather... But given that we're saying what we're saying is that we think the inequality drives, causes, right? Adding what you're saying is adding that rich person

Speaker C: 00:08:02

is somehow going to cause social problems. I'm saying I can't see how it would. I'm not saying

Speaker B: 00:08:08

there is a causation. I'm saying there is a correlation. Right. So I'm saying I think that could just be purely mathematical. But look, I think you're coming at this in a rather elitist

Speaker A: 00:08:19

fashion as sitting in your ivory tower. Because it's all very well that you can look at this and say, look, these are the facts. Just because we do this, it's you're looking at a very top down. But the difference is about perception. Because if you're one of those people who's one of the poor people, and let's say that the media is reporting about all this inequality, and you're going to and you start to see as that person, the difference between your life and the people you're seeing on Celebrity, you know, Love Island or something, then that's what's going to make you feel bad about, you're going to go, yeah, there is inequality around. So that is a

Speaker B: 00:08:59

problem of perception. This is important. But that doesn't legitimise that, that feeling, right? It doesn't legit, the fact that people do sense that they're the victims, let's say of inequality, doesn't legitimise that if the facts do not support that. So how are you going to re-educate these people? I'm not saying the facts don't support it. What I'm saying is that the facts don't strongly refute it either. I mean, it's not, you know, the evidence is not very clear that there's been an increase in inequality, or that it's particularly bad in terms of the consequences, right? So that's what I'm saying is there's no empirical evidence that strongly suggests, oh, inequality somehow causes poor people to be worse off. Well, there are some

Speaker C: 00:09:43

quite intuitive mechanisms which do sound plausible. Go on, fire away. So they're referencing Simon Telford, who's, I think he used to be Deputy Director at the Centre for Economic Reform. So he said there are three major drivers for inequality, which themselves cause a degradation of opportunity for the poor. And inequality is a sort of self-reinforcing phenomenon. So a lack of skills in poorer regions, and that leads to poorer achievement at school, less achievement and attainment at university, which then further increases inequality in that region. The second is lack of infrastructure and affordable housing in poorer areas, which again is self-reinforcing because businesses will move to better areas, increasing inequality. Fewer people can afford their own houses, so they cannot get on the housing ladder and they cannot start accumulating wealth through property. They have to pay rent to somebody every month. And finally, centralisation of power. So this is both government power, but also commercial power. So London, for example, in the southeast, most of the big businesses in the UK, financial etc, are living on, which drains talent and drains resources from other parts of the UK, further exacerbating inequality regionally, and also sort of steals the people who would otherwise start businesses in other places. Well when you say it steals them, I mean those people are upping

Speaker B: 00:11:34

sticks and coming here, to London that is, because they can create more wealth here, right? I mean that's the, it's not like London is sucking them in against their will, I mean they're queuing up to come here. But it's worsening inequality simply by removing rich people, or highly skilled people.

Speaker C: 00:11:57

Had they stayed where they were, they may have started a business and employed three or four people, so there'd have been externalities that improved, that helped other people in that area. But because they moved to London to suit themselves in a sort of more selfish way, they may earn more here, but they're not having a sort of external benefit to those people, to their

Speaker A: 00:12:19

neighbours from where they came. These seem like pretty persuasive arguments to me, Nick. Well

Speaker B: 00:12:23

actually, well I think we're beginning to touch on this whole issue of the extent to which we should care about, or the extent to which, I mean some of these, obviously the mechanisms are kind of disputed here, and I mean if it's the case that moving that person, that you know when they come to London they're going to employ poor people in London, right? So you know, but possibly because you know there is some efficiency gain through coming here, they'll create, let's say create more wealth than they would have done if they'd stayed, you know, north. Yeah but it's fairly regionally biased. I know but why should we care? I mean the point is that the same number of people are benefiting, who cares where they are? Like it's completely arbitrary whether they're up north or whether they're in London. Like the point is that the same number, the same wealth is going to be created, the same number of people are going to enjoy that wealth. But not in the same

Speaker A: 00:13:15

location. Who cares? Well if you're living in a ghost town where everyone's, okay, if you live in a ghost town where everyone's sort of gone off to live in London, there's no

Speaker C: 00:13:24

opportunities locally and that makes it pretty depressing. I think the point is that fewer people are benefiting. It's reinforcing the sort of centralisation of wealth. It is lowering inequality though up north. Yeah because if people stayed in, if this sort of runaway situation of inequality didn't exist and people could get a well-paid job from somewhere a bit down a hill up north somewhere perhaps, stayed there, perhaps earned slightly less but they'd be pouring their disposable income back into the local economy. But some people down here wouldn't be benefiting. No the point is that the people down here are already quite okay because they are. But yeah

Speaker B: 00:14:02

but then we're, so this isn't about inequality, this is again, it comes back to saying that or you're presupposing that it's better that you know someone who's got almost nothing gets £10 than that someone who's already got £20 gets £10 and that's what's the issue.

Speaker C: 00:14:21

I think you're oversimplifying. No you are. If we could employ people and keep them where they were and stop them from migrating to London then more money would be going into local economy and local taxes which would improve infrastructure which improve it for everybody and make it more likely that other people would then be able to start businesses and employ other people and it would

Speaker B: 00:14:43

spread it. It was a more even distribution. Yeah I mean I don't know, I just feel like the story that we're talking about here isn't inequality making these areas worse, it's these areas having poor infrastructure and skills etc causing the inequality or it's not even causing inequality because it's causing rich people to leave, it's lowering inequality, it's probably flattening the income distribution at the bottom end. This has got nothing to do with inequality is what I'm saying. Inequality is just a side effect of a story that you're telling. The question is does inequality have some association with growth and wealth and there is some suggestion I think on average the studies suggest that inequality is associated with higher growth. So to some extent we've got to make a choice between a more even distribution of the pie and a bigger pie and the why are you shaking your head it's just a fact. I say one thing you agree with and then you disagree

Speaker A: 00:15:51

with a direct comment. Because you've rephrased your own question because the question that we are asking is does inequality matter and what you've just said to me or to us and to our listeners is actually what we're asking here does inequality matter for growth which is a different

Speaker B: 00:16:04

thing. No no no no listen what it is I'm not I'm saying that to some extent we are facing a choice between having a more even distribution of the pie yeah by intervening to try and do something about inequality whatever level or a bigger pie right that is that that's more or less the choice you face and that is just that's about one of one of the most iron laws in economics you can have the more intervention the more redistribution you have the lower you're going to get growth right so so you're there is some trade-off well isn't the question then why don't yeah why do we yeah lesser growth then could be an option right because you're already presupposing that we should care about inequality and what I'm saying is like let's say you cared about the plight of poor people well in dynamic free economies poor people are richer than poor people in heavily statist economies where they attempt to to flatten the distribution of the pie right so so what I'm saying is that if you care about the the actual level of income of poor people you should stop caring about inequality and and actually try and promote sort of economic freedom and and accept that inequality is going to be a side effect of that and there is very strong evidence that economic freedom is associated with inequality right so when you get freedom inequality the natural inequalities of you know talent you know innovation intelligence looks blah blah blah will have a greater chance to express themselves in the form of inequalities of income but that

Speaker A: 00:17:35

sort of approach and that sort of system can can endanger itself itself right so for example let's say if we say worried about riots basically yeah well let's say if you say well look it doesn't matter if from these other areas if there's a drain and hey actually logically there's actually a lessening of inequality because of that okay but the stuff that happens in the regions also affects what happens at the centre on a national level and a great way of that happening is general elections for example okay but this is where it gets a little bit messy because it goes back to the original question of if I was saying oh there's a a greater perception amongst people that there are other people who are better off than me and I'm not happy about that but then you have a party that's saying hey we're going to improve your situation and as you were saying the central message of the Labour Party was we're going to improve levels of inequality and yet

Speaker B: 00:18:27

still they don't get voted for yes because I think it's a bit of a myth that people are highly motivated by kind of this sense of like envy but it is something I want to talk about because I think we're getting on to a different issue but which is really important which is now normally economists talk about wealth as is very much not a kind of zero-sum game you know that is not the case and this is you know demonstrated in any number of studies or places you want to look at it's not the case that someone else getting richer makes somebody else poorer it's the opposite if anything right the more freedom you have with trade the more people will you know will be able to find wealth creating opportunities and share that wealth with one another and but it is nevertheless the case that there is a zero-sum element to sort of status you know you cannot we can't all be high status someone has to be at the bottom of the heap now and I think this is what you mentioned sort of the love island effect the Instagram problem you know of actually the more visit the more exposed you are to people who are very much above you on the social scale the more socially and status anxious that you will be and so I think that is a problem but that's more of an inherent fundamental problem I mean that is we're hierarchical we care about status you look at you know some of the most heavily and ideologically communist countries that ever existed where wealth might have been much flatter but status the need to find status hierarchies expressed itself in other forms yeah yeah you know you're right if you're a senior party member brilliant but you know you still have inequality but it's inequality of power in that situation

Speaker A: 00:20:11

you know I think you're too much of an economist and not enough of a political scientist Nick but also there's something else to do with that to do with the election as well you're too you're too rational sometimes Nick there's there is something I want to get onto a little bit later about what's just happened in the in the election and inequality but Peter anything to

Speaker C: 00:20:33

add at this point well just just to add that you know I'm not sold on the idea that inequality is is a is the driver for problems it's a strong it's strongly correlated with with various social economic measured problems but let's just bear in mind the UK is one of the worst in the world so we're we're saying worse that already presupposes it's bad okay we're one of the highest levels of inequality because we have so many rich people we're seventh it turns out and ahead of us are Mexico is the is the highest then United States Israel Estonia Spain and Greece and in Europe we're obviously with it with with the safe Greece and Spain we're right up there we have we for example we have nine of the ten poorest areas in Europe hooray and top of the list and and only and one and one of the richest do you know what the outlier is what's the other

Speaker B: 00:21:38

what's the region that's poorer than that's in the it's somewhere in the Netherlands oh really well I mean you know there you go because look you you know these all this awful inequality we have in the UK and and the US does not stop people literally risking their life to come and come here with penniless because you know economic freedom is is valued by people so I mean to go back to the election I think that this this whole issue of we think about the distinction between right and left and and and sort of what they prescribe and what they care about I think it's fair to say that the right cares more about the rules by which we you know run society and the left cares more about the outcomes in society so in other words the left is much more concerned by actual inequalities that exist the right is much more concerned about things like inequality of sort of opportunity and making sure that you know that resources are efficiently used but as long as activity is voluntary it doesn't really matter like the whatever however the however we arrive at the ends and this is where some of the sort of the very libertarian arguments against well which which say well inequality is fine come from which is that actually unless you can prove that the inequality was driven by some kind of malicious behavior like fraud or theft what's the problem and you know the famous sort of Nozick example of Wilt Chamberlain the this is I mean it's a thought experiment but that you know let's say that Labour Party gets elected and immediately redistributes all the wealth according to how it thinks it ought to be redistributed the very next day Wilt Chamberlain a famous basketball player I'm given to understand from the 80s plays a basketball game and and you know a hundred thousand people all pay a pound to watch him substitute someone like Wayne Rooney if you like and he now has a hundred thousand pounds they're all one pound less well off suddenly we're now quite a way away from that even distribution of wealth but who's to why is that wrong like where's the wrongness in what just happened the only way you could prevent that from happening is by literally making it illegal for for someone to sell their services here's a question we need

Speaker A: 00:23:56

nvented um the results of the: 2016

Speaker B: 00:24:23

in global economies discuss Peter I mean I've got I can I can come back to you ASAP

Speaker C: 00:24:28

I think it would may be a new contributor I think there's a lot of uh people who who who see perceive inequality and they perceive that as being a direct cause uh for their uh for their lack of thought lack of lack of fortune lack of opportunity so it may well have been a contributing factor and there's a there's a strong correlation between the areas which are the richest and those which are the poorest and that how they voted I mean um so yeah I think that was a sound hypothesis Nick I think this is the I think this is what

Speaker B: 00:25:11

the Labour Party bet on they bet on the fact that you know people in those areas they didn't bet

Speaker A: 00:25:17

on it because if they did they would have pushed for Brexit in the election but sorry I rudely

Speaker B: 00:25:23

interrupted you the point is they bet that they bet on the fact that inequality was what was motivating this sort of schism between you know Leavers and Remainers essentially and it's not true it isn't what motivates people we've seen that why would why would they why would you know people go in droves up up in sort of poor you know ex-mining towns or go and vote for an Oxbridge educated you know Etonian like Boris over you know a supposed man of the people like Jeremy Corbyn people are not motivated by and large right in them in the round by concerns about inequality per se maybe lack of opportunity maybe lack of development you know um and but but I mean you know it just isn't the case that people that inequality and inequality isn't why people voted for Brexit you know uh it's a whole host of things but you ask people and they what they talk about is things like you know immigration being disruptive and um yeah no but you're saying but you know you're

Speaker A: 00:26:24

getting it the wrong way around people don't go to the polls going uh to the voting booth going oh I'm unequal and so therefore I'm going to vote for the party that's going to give me greater equality um I would say that they go there with um a set of beliefs that uh uh that have come out of their

Speaker B: 00:26:41

inequality yeah I think like a lot of um like a lot of people sort of Labour strategists you're the assumption that poor people can't really think for themselves and don't really understand what's motivating them whereas I I would at least start with the hypothesis that you can take their their concerns at face value you know and and that explains that I think that hypothesis better explains the behavior you've seen over the last few years yeah and I and and if the I think if the I'm concerned because I kind of want the Labour Party to be much more effective than it is um if they continue down this route of you know well um all these stupid people up north don't know what's good for them so we just need to keep telling them how stupid they are and then and how racist they are and how what they should really care about is this other set of things they are not going to get into power again and that concerns me yeah I mean you're

Speaker A: 00:27:31

right the way I put it it's quite condescending and patrician right um I think people have had enough of that enough of the experts um I just feel that we could keep going here I do want

Speaker B: 00:27:41

to say though I've come over as quite I think provocatively like I don't really care about inequality or anything I mean I do want to say it's much it is it is a really complex issue and there are lots of things there are good arguments for why why you know why you it's something you need to take account of I think I'm just a bit annoyed by the source of narrative you get a lot which is it's it's it's a really terrible problem and it's something we should specifically

Speaker A: 00:28:06

focus on I'm I'm not persuaded by that yeah and we've run out of time anything anyone wants to

Speaker B: 00:28:12

sign off on well you know you look at the who's been talking I've done all the talking poor old Peter he's as he often complains hasn't had got a word in edgeways but he's happy but right but I mean the point is that maybe he didn't want to how do we know you know as long as he had the equality of opportunity then you know we're fine yeah um well look let's stop there uh thank you

Speaker A: 00:28:33

as always for listening to the Cognitive Engineering Podcast I'm Fraser McGruer we've been here with Peter Coghill, Nick Hare of Aleph Insights. Until next time, goodbye!