No, No, No! A Top Economist Would Never Say This!!

A top economist would never say that inequality is the biggest danger to global growth, because it is flatly untrue. In fact, quite the opposite, global growth and the great enrichment of humanity in the past 200 years has been so astounding that it has rendered 'equality' a largely insignificant goal. In other words, humanity is doing so well compared to any other time in the last 200,000 years that the only reason people talk so much about inequality is because humans have so much prosperity in terms of consumption and standard of living.

For a long time I have challenged anyone to come forward and give a reason why inequality is actually a problem, and nobody has ever been able to provide anything substantive. When they posit a problem with inequality they never actually mean inequality, they mean poverty - which, of course, we all agree is a problem wherever it occurs - but that is to do with absolute well-being, not inequality - which remains one of the most bizarre human obsessions in the world.

In terms of human consumption, the world has never been so equal. It is equal in ways that people of a few hundred years ago wouldn't have thought possible. Those preoccupied with the Hegelian dialectic and the materialist conception of history will be keen to bang on about how much capital is in the hands of those that control the means of production, and that there is too much of a wage gap between the rich and the poor. But that interpretation misunderstands what wages are and why this isn't a problem that needs artificially fixing.

Wages are determined by the skill level of the job in terms of how easy it would be for the next person in line to come in and do the job, and they are also determined by the other job opportunities the worker has. This is why if you went to your boss and asked her to add 20% to your salary you wouldn't find yourself beaten down by her egregious attitudes to your needs, you'd be beaten down by the information signals of supply and demand. And don't forget, bound up in the cost of labour for employers are all the start-up costs, future forecasting and other concomitant risks that require business owners to be prudent.

It is not capitalism conspiring against the poor - it is the operation of markets tending towards parsimony in ensuring resources (goods, services and labour) are allocated most efficiently for the mutual benefit of buyer and seller. That's why in a more globalised economy Britain and America have lost the firm grip on some industries they used to hold pretty tightly.

Information signals tell us that it is no longer so efficient to manufacture those resources in this part of world (this is a natural selection-type filter that in economics is called Schumpeter's gale of creative destruction, after the economist Joseph Schumpeter) - to use the proper economic terms, we no longer have the absolute advantage or the comparative advantage.

If the poor are becoming better off by capitalism to the extent that inequality of capital actually drives progression rather than stifles it, it's alarmingly obvious that the attack on inequality is a case of choosing the wrong battle. Top economists would know better.