Ratios, Not People: The Wrong Approach to Inequality

Thomas Piketty, the best-selling author of Capital in the 21st Century, has a new paper on economic inequality with coauthors Emmanuel Saez and Gabriel Zucman. Their approach to the issue is almost exactly opposite to the one Iain Murray and I take in our recent paper, “People, Not Ratios” (see also a podcast interview I did here). Piketty and his coauthors fixate instead on ratios, not people.

A text search of their paper, which just exceeds 30 pages of text, finds 130 uses of the word “distribution” and its variants. Since income is not actually distributed by anybody, their fixation is more than mildly troubling. As Don Boudreaux puts it,

Income in market economies is not a pie that is first produced and then distributed… the ‘distribution’ of income is merely a summary statistic of one among gazillions of unintended consequences springing from a hugely complex and ongoing decision-making process involving hundreds of millions of consumers and producers.

So there’s that.

There is more. Piketty, Saez, and Zucman’s monomaniacal focus on ratios makes them forget to ask questions about people. These include:

• How are the poor actually doing?

• Is their economic situation improving over time?

• What policies can make the world’s poor better off over time?

If one’s goal is to make poor people better off, these are the questions to ask. Again: people, not ratios. Flesh, not fractions. As Deirdre McCloskey writes in her essay in the compilation The Morality of Capitalism on page 29:

By now, in the numerous places that have adopted middle-class liberty and dignity, the average person makes and consumes over $100 a day. Remember: two centuries ago it was $3 a day, in the same prices. And that doesn’t take account of the great improvement in the quality of many things, from electric lights to antibiotics.

Her point matters, at least to the poor. Other scholars such as Julian Simon, Johan Norberg, Marian Tupy, and Hans Rosling have also pored over reams of data, and can only conclude that poor people today are living longer, healthier, and more prosperous lives than previous generations. Moreover, the trend is worldwide. As Norberg writes on page 78 of his recent book Progress, “If it takes you twenty minutes to read this chapter, almost another 2,000 people will have risen out of poverty.”

That is incredible. In fact, the current rate of human betterment for the poor is unprecedented in all of human history, from the invention of fire to the Agricultural Revolution to the Industrial Revolution to the present day.

Piketty, Saez, Zucman, and other conventional scholars focus instead on the top one percent’s income ratio compared the middle and bottom percentiles of income distribution—which, again, isn’t actually distributed by anybody. Why not focus instead on how to make the worst off better off?

They should answer that question.

A second question is why income redistribution, their preferred poverty remedy, overwhelmingly goes to politically powerful groups such as the elderly and the middle class, and not the poor, who need it most. A free primer on public choice theory can help.