...Try this thought experiment. Suppose each of us lived on our own desert island, like Robinson Crusoe, with identical resources and skills – so we're all perfectly equal - and get our food in the form of fish from the teeming oceans (there is no scarcity of fish). Then suppose one of us works out a way to fish better, so inequality increases. Is everyone else somehow worse off? Clearly the answer is that everyone else is not worse off unless the better fisherman makes fish scarcer for them. The one person's riches do not come at others' expense.
Obviously this is a rather abstract thought experiment, but it points at something simple and important: almost all inequality in developed economies does not arise by the wealth of almost anyone else declining. (That does happen in less socially and politically developed societies, in which wealth arises from political control of resources or access to corruption.) In modern developed economies inequality arises when someone – a Gates or Zuckerberg or Cowell or Ronaldo or Rowling or just an ordinary businessman or professional – finds some way (some skill or invention or investment) that adds considerable value, and that value is not then shared equally.
In our modern globalised economy, the gains from a new idea or skill can now be leveraged over enormously more people. Instead of your new and better mousetrap being sold just to the fair folk of Wolverhampton, the whole world beats a path to your door. In such a world, improved added value creates large inequalities. But that is precisely because the added value of a Windows or Facebook or awesome evening's football skill benefits so enormously many people – even if each only benefits a little compared with the huge aggregate benefits benefits taken by the value-creator.
Many of those preaching the evils of inequality will at this point start to deny that this is actually how high inequality arises. They might claim that remuneration of executives or in the financial sector do not come from added value but, rather, from market failure. I would probably disagree, but at least they would then be talking about something interesting – the alleged market failure – rather than something of no intrinsic policy concern (the fact that some folk are rich).
Others will start telling you of the terrible social problems associated with inequality – the depression, violence, low life expectancy and so on. Well, insofar as these arise from poverty, we can debate how much to alleviate poverty. But then poverty is the issue, not inequality.
"Ah," say the evils-of-inequality purists, "but you miss the point that some of these social problems are psychologically connected to the fact that there are very rich people, not simply the result of the poverty itself." If that is the case offered, then my response is that you are either talking of aspiration or of envy. Aspiration – being discontent in your current circumstances and hoping to improve your lot and that of those you love – is a driver of progress. Obviously some will fail in their aspiration, and may suffer psychological consequences. But are we really saying it would be better if no-one aspired at all, than for some to aspire and not succeed? Others may not simply aspire, but may instead envy the success of those that have done better or who were luckier to begin with. It's hardly controversial that envy exists or that it may have negative consequences – that is, after all, presumably why it's one of the Seven Deadly Sins?
If someone said: "Women with beautiful eyes should cover them up to avoid inciting lust in others" we would say that's silly or oppressive. It's the luster's problem, not the person lusted after. Yet in the case of envy, somehow we're supposed to believe it's the envied person that's the bad one, not the envier? No. Envy may be harmful, but to the very limited extent it's a policy concern the correct response is to teach people not to envy...
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