I am much more worried about poverty and inequality of opportunity. Obsessing over income differentials, on the other hand, is a potentially dysfunctional development. What alternative reality are these advocates striving for? Income equality? Nobody serious today would support that. Maybe ‘greater income equality’? I don’t really think so. And, if you are gunning for the latter, who should be entitled to determine what the appropriate benchmark for greater income equality is? I know of nobody suited to the task. It is not hard to work out that pushing equality is a very slippery ideological slope.
In his academic research, Dr Leigh struggles to find any compelling evidence that rising inequality is associated with higher crime rates or deteriorations in health and life expectancy. In fact, he concludes that increases in income inequality are – as I would expect – correlated with higher economic growth. Simply put, the more opportunities that you give to people to fulfil their potential, rather than coercing them to revert back to the financial mean, the more dynamic an economy you are likely to end up with.
Leigh concludes that “those who believe in the ideal of a more equal Australia will be disappointed to learn that the ‘instrumental’ case against inequality is so weak.” Instead, he argues that “policymakers ought to worry about inequality if it offends the typical person’s sense of justice. We all have different feelings about how much inequality is tolerable, but most people have a visceral sense that at a certain point, the income gap can grow too wide.”
This strikes me as weak stuff: we should not be setting economic and social policy by appealing to the law of averages, or some visceral gut feeling about right and wrong. This does not come remotely close to satisfying the hard, evidenced-based policymaking tests that Dr Leigh himself has been such a strong advocate of.
Update: MattC has a reply here.
Christopher Joye doesn’t “think there is anything wrong at all with a rise in income inequality if one assumes that we have equality of opportunity; we are committed to combating extreme poverty; and we are vigilant in protecting those members of the community who are fundamentally and irreversibly damaged through, say, mental or physical disabilities”.
This is a common position among small-l liberals of the centre-right, and I see this as a key ideological dividing line between liberals and social democrats.