I recently watched a YouTube video, featuring Ben Shapiro and Dave Rubin. In this video, a key tenant of the argument from Ben - who seems on the face of it to be a free market fundamentalist - was that inequality is merely a side effect of a fully functioning free market. This essay seems to contradict many of the statements he had within that video.

There's no such thing as a truly free market

Firstly, it should be clear to most that there really is no such thing as a truly free market. A market without any regulation would be one without trade tarrifs, import/export regulations, and one without Copyright, Intellectual Property or Patents. They'd be no minimum wage, no minimum working age, no limitations on working hours or standards of working conditions.

When people talk about excessive and budensome regulations, they are virtually always talking about regulations put in place to protect consumers - such as the minimum wage, environmental protection, and health and safety. There is rarely (if every) any talk about excessive IP protection, or other regulations which protect businesses.

Regulations are required for the market to function effectively - they're the "rules of the game". You can't have a game without any rules.

So a truley free market would not work very well (if at all), and would be hell for those who participate in the workforce

Is inequality bad? And if so, what does it actually mean to live in an unequal society? And what would an "equal" society look like anyway?

What is income inequality?

For the most part, when people talk about income inequality they're are talking about the disparity of compensation between those at the bottom of the wage scale, and those at the top. A McDonalds worker, and the CEO of McDonalds, for example. Perhaps more importantly, they're also talking about the growing difference between those in the middle and those at the top.

When General Motors was America's biggest employer in the 1950s, the average worker earned the equivilent of $50/hour in today's wages (adjusted for inflation). Today, America's largest employer is WalMart, and they their workers receive on average $8.81/hour.

In contrast, the average CEO earned $1.5m a year forty years ago, and today the average CEO earns $16.3m - a 997% increase.

So the fact that income inequality has increased over the last 50 years is indisputable. The questions therefore, are 1.) Is inequality bad? 2.) why has inequality increased? and 3.) what would a society with less inequality look like?

Is Inequality Bad?

So, is inequality actually a bad thing? If so, why? Isn't it just a natural aspect of a functioning free market?

The simple answer is yes, inequality is bad. But let's back up a little, and see what happens when you compare societies with high levels of inequality with more equal societies, and compare life in unequal States within the US to States where wage distribution is more equal. What effect does a more unequal society have on the population and workforce?

Inequality breeds a lack of trust

In a European and World Values Survey¹, when asked whether they agreed with the statement "Most people can be trusted", the respondents were far more likely to answer "yes" when they lived in more equal societies. The same can be seen when comparing data between US states². In New Hampshire, one of the most equal states in the US, 63% of people agreed that "most people can be trusted". In Mississippi, one of the most unequal states in the US, only 17% answered yes to the same question.

During the 1960s, trust was around 60% on average, and that number has fallen to less than 40% today.

Eric Uslaner shows in "The Moral Foundations of Trust"³ that inequality affects trust, but there is ‘no direct effect of trust on inequality; rather, the causal direction starts with inequality’.

So as inequality has risen over the last 50 years, a lack of trust has risen with it.

What does this mean? Well, people who trust others are more likely to donate time and money into the local community, and are more likely to help other people. They believe in a common culture, a sense of shared values, and are more likely to respect the law. Higher levels of trust means that people feel more secure.

So a greater level of trust between people generally leads to more wellbeing, and stronger and more cohesive communities.

Inequality deliveres worst Education outcomes

In more unequal societies (and more unequal states within the US), Math and literacy scores of 15 year olds and lower are higher in more equal societies⁴ and more equal US States. Math and literacy scores of eight-graders are lower in more unequal US States. In addition, high school dropout rates are higher in more unequal US States than those that are more equal.

The educational effects of inequality double down to create a vicious cirlce. Kids who perform worse at school will find it harder to lift themselves up and see social mobility - moving up in the world and seeing good paying jobs. So it won't come as any surprise to learn that social mobility in unequal societies is far less than it is in more equal societies.

The well educated and better off, are far more likely to have kids that are better educated and better off when they grow into adults. Now, this has always been the case, but until the 1980s, the opportunities for those in lower-income families were far greater. In the US today it is much harder to move out of poverty than it has ever been in the past 100 years.

Inequality decreases physical & mental health, and increases drugs and crime

In more unequal societies there is more crime, more drug use, more mental health issues, more obesity, and shorter life expectancies. Wow, that doesn't sound good does it?

References:

1. European Values Study Group and World Values Survey Association, European and World Values Survey Integrated Data File, 1999–2001, Release 1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research, 2005.
2. National Opinion Research Center, General Social Survey. Chicago: NORC, 1999–2004.
3. E. Uslaner, The Moral Foundations of Trust. Cambridge: Cambridge University Press, 2002.
4. OECD and Statistics Canada, Literacy in the Information Age: Final report of the International Adult Literacy Survey. Paris: Organization for Economic Co-Operation and Development, 2000.