That’s why inequality has replaced poverty as the great political theme of the moment. Once upon a time, we might have believed the two were related – but it turns out, as leaders from Beijing to Berlin to Bogota are discovering, they’re very different problems...
Yet, as much as we use the word “inequality” to describe this problem, we really don’t understand it. Politicians on both ends of the spectrum abuse the term, and suggest unrealistic solutions...
When those on the left discuss inequality, they too often fall for a “lump-of-money fallacy” – the belief there’s a fixed pile of cash, too much of it in the hands of the rich, that needs to be spread around more evenly.
But wealth doesn’t work that way: What the non-rich lack is not a share of the pot but a productive economic situation in which to generate wealth. The problem isn’t the 1 per cent. It’s the 60 per cent whose world of productivity and security is increasingly denied to the lower 40 per cent.
When politicians on the right discuss it, they too often fall for the “zero-sum fallacy”: the belief that fixing inequality through government action will kill wealth creation and, by extension, make everyone poorer. It’s true that less poverty usually equals more inequality – the policies that get people out of poverty (by creating growth) usually benefit the rich even more. When the rich get richer, the poor usually get poorer. But the converse isn’t true:
Countries with strong redistributive systems and free economies are usually both wealthy and equal.
Saunders has nailed our imprecision when using the term "inequality". And that contributes to the difficulty in trying to deal with it.