Economic inequality is bad, even for the rich

[2011-11-11] society, life, business
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The TED talk “How economic inequality harms societies” by Richard Wilkinson explains an interesting fact: Beyond certain basic wealth, the well-being of a society depends much more on income differences being small than on incomes being high on average.

The difference in average income between countries has no influence on life expectancy. However, the difference in income within a country has a direct influence on life expectancy. Other things are influenced, as well: The more there is inequality, the more the following phenomena increase.

  • Illiteracy – language and math
  • Infant mortality
  • Homicides
  • Imprisonment [partially due to harsher sentencing]
  • Teenage births
  • Level of distrust [do you, in general, trust the people around you?]
  • Obesity
  • Mental illness – including drug and alcohol addiction
  • Social immobility [how much does your own wealth depend on your parents’ wealth?]
Thus: In developed countries, what matters is not the growth of the average income, but that incomes don’t drift apart too much. It doesn’t matter how you get to more income equality:
  • Japan: incomes are not that far apart before taxes, small wellfare state.
  • Sweden: incomes differ widely, taxes are used to redistribute the income, large wellfare state.
Surprisingly, even the top of the society profits from an increased income equality, for example, with regard to health. The causality is as follows: The more inequality there is, the more status insecurity prevails. You worry more about how you are seen and judged and there is more status competition. Typical copying mechanisms are consumerism and superiority complexes (which are alway accompanied by inferiority complexes). Obviously, that’s not healthy. A study in social psychology provides supporting evidence: Tasks with a social evaluative threat greatly increase stress.

What can be done?

  • Decrease income differences before tax:
    • Increase company democracy – employee ownership etc.
    • Promote more directors from within companies.
  • Use taxes and benefits:
    • Stop tax avoidance.
    • End tax havens.
    • Make taxation progressive again.
I am surprised how well Japan does in the statistics, I always expected it to be a place where work is comparatively stressful (long hours, high status consciousness) [I’m writing this out of almost complete ignorance – facts and/or anecdotes contradicting or supporting my hypothesis are highly welcome]. But maybe that does not contradict the high life expectancy and income equality.