Tuesday, 13 September 2016

Oh, Not This Again!

Today Oxfam has released another one of its 'UK inequality is one of the terrible things that urgently needs addressing' publications. They are singing from a popular hymn sheet, as people so often complain about the UK's income gap between the rich and poor. Perhaps this isn't true of Oxfam, but generally from what I can make out, this behaviour must be primarily driven by envy - for it has no rational basis at all.

It's certainly true that a small percentage of people in the UK have incomes that have generated astronomically more wealth than the rest of the country - but so what? The people suffering from envy of the rich need to be apprised of a few facts. The very rich may have lots of wealth, but:

1) They pay an awful lot in tax - which is a great deal of money that goes towards the UK's schools, NHS, defence, roads, police force, social services, and so forth

2) They create an awful lot of jobs by employing the staff they need to hire and by the personal spending they do.

3) They create a value in society by the money they make, because the people whose money made them rich must have been provided with goods and services that they value more than the money they spent.

4) They leave a lot of money in banks, which helps banks make money, which consequently helps banks' customers get loans for mortgages and small businesses. 

5) They usually pay for private health care, send their kids to private school, travel 1st class, and buy expensive things - all of which means they are rarely competing for the goods and services for which the rest of us compete.

6) They made their money by doing things that the vast majority of the UK population either didn't do or couldn't do. They are wealth creators, not wealth grabbers - and if they didn't have their wealth it does not mean that you suddenly would have. Wealth is earned by innovation and acumen - and to be resentful of wealth is to be resentful of those good human qualities.

Given the foregoing analysis, there is absolutely no justification for people's complaints about the income inequality in the UK - it must, as far as I can see, simply be a case of envy and of dissatisfaction by those who haven't the same skills set or shown the same levels of innovation and acumen.

When the CEO of Sainsbury's makes 15 times what you make he is not benefiting at your expense, just as when China increases its wealth it is not doing so at the expense of the USA. As Milton Friedman famously said:

“Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”

The fixed pie fallacy involves the mistaken assumption that wealth is like a pie, where if I have a slice of it, it leaves less for you. Wages and wealth are not pie-like - there isn't a fixed or static amount of them like there is pastry and filling on a plate.

Take a step back and consider non-economic examples, like say intelligence, life expectancy and knowledge. These are not pie-like, because they are not zero-sum. Jack can increase his intelligence, life expectancy and knowledge without decreasing Jill's. The same is true of wealth - it can keep expanding - and has done so as history has shown. There are no rational or empirical grounds for being upset with the rich.