Inequality can sometimes be a reflection of some social ills. But it can be a reflection of social progress too, and some purported cures for it are much worse than the disease.
Ryan Bourne —
When the Pope tweeted in 2014 that “Inequality is the root of social evil,” his stock rose with egalitarians. Former US president Barack Obama had described inequality as “the defining challenge of our time”. Jeremy Corbyn has since risen, demanding an economic policy to tackle Britain’s “grotesque inequality”. The assumption underpinning these views is that a concentrated distribution of income or wealth has negative economic and social consequences.
The idea that more inequality is a bad thing and less inequality a good thing permeates public debate. It is the moral foundation of Corbyn’s call for extensive government redistribution of income and wealth.
But according to Nobel Prize-winning economist Angus Deaton, worrying about whether inequality causes problems, such as slower growth or impaired democracies, looks at things through the wrong end of the telescope. “Inequality is not so much a cause of economic, political, and social processes as a consequence,” he concludes.
Inequality can sometimes be a reflection of some social ills. But it can be a reflection of social progress too, and some purported cures for it are much worse than the disease.
This makes sense. A given distribution of income or wealth does not fall manna from heaven, nor is it pre-determined by government. It is a reflection of millions of interactions, trades, decisions, inheritances and policies. A Gini coefficient, or a statistic of the income or wealth share for the top 1pc, is aggregate information, but tells us nothing about how it has arisen. Whether we consider the overall result “fair” or “unfair” depends, as Deaton acknowledges, on its causes.
High levels of inequality, as seen in countries such as South Africa, can be indicative of historical injustices. They can result from prejudice and oppression, past and present. They can arise from government capture by special interest groups, cronyism and corruption. Poor education, family breakdown, racial discrimination, long-term unemployment and social immobility might all lead to a concentration of income at the top.
On the other hand, there are some causes of inequality that are benign, such as lotteries, and others which are positively beneficial, such as technological advances, entrepreneurialism and free trade. Bill Gates and Steve Jobs got rich by providing services that enhanced our lives. In South Africa again, income inequality actually rose further post apartheid, because talented black people had opportunities opened to them for the first time. Few would suggest this was undesirable.
The Chinese Gini coefficient has risen from 0.16 in 1980 to 0.55 in 2014 — a sign of rising inequality — but this has gone hand in hand with huge poverty reduction as the country liberalized markets. In contrast, Britain saw a modest fall in inequality after a catastrophic financial crash in 2008. In Britain, greater equality was a symptom of a problem. In China, greater inequality was a symptom of success. It would take an extreme relativist to argue that Britain had become better and China had become worse.
Low levels of inequality can result from other undesirable trends too. In a magisterial work, Walter Scheidel’s book The Great Leveller shows that large reductions in economic inequality have only been achieved through pandemics, mass mobilization war, violent revolution and state failure. The Black Death in Europe wiped out a quarter of the population, leading to a shortage of labor relative to land, and a compression of incomes between laborers and landowners.
The Soviet Union, after the nationalization of banks, forcible redistribution of land, the gulags et al, had a Gini coefficient of just 0.26 by the Eighties — an egalitarian’s dream. In Japan, the top 1pc’s income share fell from 9.2pc to 1.9pc between 1938 and 1945, while the wealth of the largest 1pc of estates fell by 90pc. It should seem obvious that the price of lower inequality in all these cases — whether death, destruction or severe restrictions on freedom — were intolerably high.
The point here is not to say more inequality is a “good thing,” but that it cannot be generalized that less inequality is better. Corbyn’s position, that implies “reducing inequality” is desirable, seemingly countenances policies that by other metrics might be extremely harmful. We should bear this in mind when talking about the government “curbing inequality”. Affecting a distribution inevitably means interfering with human action. We could lower inequality (at least temporarily) by deporting or exterminating rich people. But would this benefit those who remained? It is difficult to see how.
Deaton is right to say then that current political trends are not so much a reflection of inequality, but perceived unfairness. He concludes: “Some of the processes that generate inequality are widely seen as fair. But others are deeply and obviously unfair, and have become a legitimate source of anger and disaffection.” No doubt there are steps the Government could take to make the economy fairer, which might also lower inequality. Liberalizing planning laws to allow more houses to be built, for example, would almost certainly narrow the wealth distribution but would improve the efficiency of the economy too.
Yet what Deaton’s argument really shows is that we should not care about inequality at all. Once one starts thinking about the need to eliminate “bad” causes of inequality, while leaving “good” causes alone, you are not really acting on inequality, but the justness or otherwise of other things that affect it. We should eliminate crony capitalism, prevent taxpayer bank bailouts, and ensure competitive markets that the public want for efficiency and fairness reasons, irrespective of their effect on inequality measures such as the Gini coefficient.
At best, inequality serves as an indicator of potential problems. At worst, obsessing about it distorts our priorities from what truly matters, such as the living standards of the least well-off. Inequality can sometimes be a reflection of some social ills. But it can be a reflection of social progress too, and some purported cures for it are much worse than the disease.
Summary: Trade tends to reduce prejudice by fostering cooperation, competition, and repeated interaction across groups. Economic theory and empirical research show that economic freedom and globalization are consistently associated with lower levels of nationalism, ethnocentrism, and discrimination. By enabling mutually beneficial exchange and expanding social contact, markets help cultivate tolerance and weaken “us versus them” thinking.
In earlier essays, I argued that trade makes us richer, more trusting, more honest, and more fair. Yet over the past decade or so, we have witnessed a growing populist backlash against globalization and international trade. Many critics portray international trade as an example of “foreign intrusions on national sovereignty.” At first glance, the backlash might seem to suggest that trade with outsiders breeds resentment, cultural tension, and ultimately prejudice. In this essay, however, I argue that trade mitigates discrimination and prejudice, paving the way for greater tolerance.
In Capitalism and Freedom, the late Nobel Prize–winning economist Milton Friedman dedicated a chapter to the market’s relation to discrimination. Drawing on Nobel Prize–winning economist Gary Becker’s groundbreaking work, Friedman wrote, “The preserves of discrimination in any society are the areas that are most monopolistic in character, whereas discrimination against groups of particular color or religion is least in those areas where there is the greatest freedom of competition.” He continued:
The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy some things more cheaply as a result.
Survey data can shed light on the relationship between trade and attitudes toward others. A study of international survey data published by the Brookings Institution found that feelings of national superiority and chauvinism were positively associated with opposition to global trade across multiple countries. On the flip side, pro-trade attitudes and greater exposure to global markets are negatively associated with nationalism, ethnocentrism, and prejudice.
For example, negative attitudes among Americans toward outsourcing appear to be associated with an “us versus them” mentality. According to a study by political scientists Edward Mansfield and Diana Mutz, switching from the most isolationist to the least isolationist outlooks predicted a fivefold increase in support for outsourcing. Shifting from the least ethnocentric to the most ethnocentric attitudes predicted a 50 percent decrease in support for outsourcing. And changing from the least nationalistic to the most nationalistic views predicted a 25 percent decrease in support for outsourcing (see Figure 1).
Figure 1. Support for Outsourcing by Level of Nationalism
Source: Edward D. Mansfield and Diana C. Mutz, “US Versus Them: Mass Attitudes Toward Offshore Outsourcing,” World Politics 65, no. 4 (2013): 601. Perceived national superiority reduces support for outsourcing when the economic practice is explicitly labeled as “outsourcing.” This is the “Mentioned outsourcing” line. When the same economic practice is described without using that specific term, the same pattern does not occur. This is the “No mention of outsourcing” line.
The evidence compounds. Employing data from the General Social Surveys conducted from 1977 to 2010, Northwestern University’s James Lindgren found that racism, intolerance toward out-groups (e.g., homosexuals, atheists, and others), anti-capitalism, and pro-redistribution go hand-in-hand. Even after controlling for gender, logged income, education, age, and year of the survey, Lindgren showed that racism and intolerance are still strong predictors of socialist pro-redistribution and anti-capitalist attitudes. Lindgren’s analysis led him to conclude, “Those who support capitalism and freer markets and oppose greater income redistribution tend to be . . . less traditionally racist” and “less intolerant of unpopular groups.”
That tracks with the work of the Mercatus Center’s Virgil Henry Storr and Ginny Choi, who compared respondents from market societies to those in nonmarket societies using the World Values Survey. When asked who they would not like to have as neighbors, those in market societies were less prejudiced against those of a different race, language, or religion, as well as foreign workers, homosexuals, and cohabitating couples (see Figure 2). Trade, it seems, is next to good neighborliness.
Several studies by economists Niclas Berggren and Therese Nilsson investigated the relationship between tolerance, economic freedom, and globalization. The evidence they gathered suggests a causal relationship between the level of economic globalization and the willingness of parents to teach their children tolerance. Another analysis found that economic freedom plays a seemingly causal role in parents teaching their children tolerance and fostering tolerance toward homosexuals and people of different races (see Figure 3). Focusing solely on the United States, Berggren and Nilsson found a similar causality: Economic freedom increases tolerance toward homosexuals, atheists, and communists. Another study found that economic freedom increases tolerance toward homosexuals, particularly in societies that are high in trust.
Source: Niclas Berggren and Therese Nilsson, “Economic Freedom as a Driver of Trust and Tolerance,” in Economic Freedom of the World: 2020 Annual Report, eds. James Gwartney et al. (Fraser Institute, 2020), p. 196.
And it’s not just parents teaching children tolerance. The media also plays a role in shaping our outlook. An interesting study by researchers at St. Olaf College, Stanford University, and George Mason University combed through a corpus of New York Times articles written over a 20-year period in search of moral language that Americans used in discussing other countries. They then measured the US market interaction with these countries by looking at bilateral trade flows and immigration statistics. Their results indicated that the more market interaction the United States had with a country through trade and immigration, the more news articles contained humanizing language toward that country. We tend to be cordial toward those we do business with.
Of course, it’s easy to say you’re tolerant in a survey or write nice things in an op-ed. It may even be socially desirable. We all want to look good. But does this translate into action? Several studies suggest that it does.
A clever set of experiments published in the European Economic Review showed that both local (monopsonist) and wholesale (competitive) buyers in the Bangladeshi rice market held prejudicial views of ethnic minorities. Prejudicial attitudes were the same across the board. Yet the wholesale buyers quoted the same price for both ethnic majority and minority farmers, whereas the local buyers did not. Why? The authors concluded, “This suggests that the taste-based discrimination that these buyers have against the ethnic minority group . . . can be eliminated if competition is strong enough.”
Those findings were supported by another set of experiments that demonstrated that market exchange decreases discrimination by increasing participants’ focus on their personal gains and reducing identification with their social in-group. Banking deregulation yielded similar results: As the financial sector was deregulated, competition intensified, leading to reduced discrimination against women and minorities.
Protectionist restrictions can exacerbate prejudicial attitudes. As the late economist Walter Williams explained, anti-competitive regulation “lowers the private cost of discriminating against the racially less-preferred person.” But when there is money to be made, trading only with groups who look or think like you doesn’t seem so important. And the more you trade with different groups, the more you realize that maybe, just maybe, they aren’t as bad as you thought.
But let’s go a step further. Researchers at the University of British Columbia and Bates College have also shown how trade can break down prejudice in practice. The researchers examined areas along the Silk Roads, a network of trade routes throughout Eurasia that has been used for over millennia. It turns out that areas within 50 kilometers of the Silk Roads today have higher economic activity compared to those that are 50–100 kilometers away. No real surprise there. But more importantly for our purposes, the former areas also have higher rates of intergroup marriage. It’s hard to find a better example of tolerance than asking someone of another ethnic group to become family and spend the rest of their lives with you.
You see this in 19th-century America as well. Railroad-driven market integration between 1850 and 1920 helped reshape American social horizons. A new study found that as counties gained better access to this intrastate trade, the likelihood of marrying someone outside the local community increased. That’s what’s called extra-community marriage. Other signs of tolerance and trust became apparent: Newspapers began to adopt language that reflected generalized trust. Parents began to give children nationally popular names rather than locally distinctive ones, implying a social circle that had extended beyond the local community. But one of the strongest findings was the increase in religious diversity: A 1 percent increase in market access raised religious diversity by 0.27 standard deviation, indicating a greater tolerance for religious identity and practice. Perhaps most striking, families who moved to these more market-integrated areas adapted quickly, especially those working in commerce-intensive industries such as agriculture, manufacturing, wholesale, retail, and transportation.
The available evidence suggests that repeated exchange softens suspicion toward outsiders. Sustained commercial contact makes unfamiliar people feel less distant and, consequently, less threatening. Trade provides a mechanism through which tolerance is learned and reinforced. As the 18th-century English theologian and scientist Joseph Priestly noted over 200 years ago,
By commerce we enlarge our acquaintance with the terraqueous globe and its inhabitants, which tends to greatly expand the mind, and to cure us of many hurtful prejudices. . . . No person can taste the sweets of commerce, which absolutely depends upon a free and undisturbed intercourse of different and remote nations, but must grow fond of peace, in which alone the advantages he enjoys can be had.
“After a yearslong trend of elite colleges dropping standardized test requirements from their applications, the tide seems to be turning for the SAT. Long derided as unfair, unnecessary, or even sexist and racist, college entrance exams are gaining new defenders who point out that, contrary to common conception, standardized tests help—not hinder—talented yet disadvantaged students.”
1,000 Bits of Good News You May Have Missed in 2023
A necessary balance to the torrent of negativity.
Malcolm Cochran —
Reading the news can leave you depressed and misinformed. It’s partisan, shallow, and, above all, hopelessly negative. As Steven Pinker from Harvard University quipped, “The news is a nonrandom sample of the worst events happening on the planet on a given day.”
So, why does Human Progress feature so many news items? And why did I compile them in this giant list? Here are a few reasons:
Statistics are vital to a proper understanding of the world, but many find anecdotes more compelling.
Many people acknowledge humanity’s progress compared to the past but remain unreasonably pessimistic about the present—not to mention the future. Positive news can help improve their state of mind.
We have agency to make the world better. It is appropriate to recognize and be grateful for those who do.
Below is a nonrandom sample (n = ~1000) of positive news we collected this year, separated by topic area. Please scroll, skim, and click. Or—to be even more enlightened—read this blog post and then look through our collection of long-term trends and datasets.
Which Students Get Into Advanced Math? Texas Is Using Test Scores to Limit Bias
“A new Texas law calls for every student who performs in the top 40% on a fifth-grade math assessment to be enrolled automatically in advanced math for sixth grade.”
