First of all, take a look at the following graph …
Of course it will all mean a great deal more if I tell you about it. It’s a graph from the Wikipedia article on the GINI coefficient of income equality. For some reason, the scales are missing on the graph (at least on the browser I’m using) but as I often find myself saying, the numbers themselves don’t matter as much as the trends over time. The GINI coefficient is a measure of how equally income is distributed – how much higher the income of the wealthiest is over that of the poorest. It is a a simple measure of inequality that ranges between 0 (perfectly equal where everyone earns the same) to 1 (perfectly unequal where one person earns everything and everyone else earns nothing), but it only measures income inequality – there are many other aspects to income that can be interesting. However it is a very good metric for income inequality.
If you look at the lines, there looks to be around 5 countries that have made a dramatic change to income distribution since World War II – France, and Mexico have become much more equal; the US, UK, and China have decided to become much less equal. China is perhaps a special case, but interestingly both the US and the UK have made this change since around about 1980 when the disciples of that poisonous messiah Ayn Rand, Reagan and Thatcher took power.
Not only that but it does not appear to be a one off adjustment but a continuing process – both the UK and the US are getting less and less equal as time goes by. Of course the US is a lot less equal than the UK … and most other places too except for banana republics and the like; it may well be that if we were to look back in time to the period between the two world wars, we would see that the US is a more equal place than the UK.
But I doubt it – the American Dream has always been a bit of a myth (I’ve cheated by linking to an article which claims that the American Dream is now a myth) in the same way that the idea that the old class-based society in the UK prevented upward mobility was a fallacy; whilst class barriers existed, there was still the possibility of upwards mobility with the acquisition of wealth and the willingness to compromise on your roots (i.e. aping the behaviour of the class you aspired to).
The American Dream is such a well-sold myth that a large segment of the American population will defend lower taxes for the wealthy because they feel they might one day with hard work become one of the wealthy. Despite evidence that the overwhelming majority of them will never be rich.
The question is, how did this increase in inequality come about ? Was it a deliberate decision by governments ? Or a natural tendency on the part of a capitalist society to concentrate income and wealth in the hands of the few ? Or more likely a bit of both ?
In the UK it has certainly been the case over the last 30 years that taxation has been moved away from income tax towards direct taxation (such as VAT) – politicians compete on who will bring in the lowest income tax whilst keeping silent about increasing direct taxation. The public laps this up – who likes paying tax – without being aware of the long-term consequences.
Whilst we like paying less income tax, it is also true that the rich benefit most from income tax cuts – they may only pay the basic rate of tax on the first part of their income, but they still gain the most when that basic rate is cut because they pay the most possible at the basic rate.
Of course there is also the issue of different parts of the population being awarded different pay rises. We have all heard of the company directors getting 49% pay rises during the middle of the recession, but that is just one year. If that sort of thing is repeated year after year over a period of 30 years, is it any wonder the rich are getting richer whilst the poor don’t ?
This might all sound like sour grapes – always a problem when you start criticising the excesses of the wealthy, but actually I’m relatively well off in comparison to many. Any big change in income equality is unlikely to make that big a difference to me, and if I end up paying a little more in income tax (and less in direct taxation), then it’s no big deal – indeed making a bigger financial contribution to society is something to be proud of and not shirked!