Is inequality inevitable?

Here is a short section of a recent Freakonomics podcast (http://freakonomics.com/podcast/earth-2-0-income-inequality/) on income inequality:

Rosabeth Moss Kanter of the Harvard Business School. She trained as a sociologist but is best known today as a management sage.

KANTER: One of the striking things about sports teams on losing streaks is that losing teams often had stars, just like third-world countries have rich people, even though most people are poor. Losing teams have stars, even though the team isn’t winning. The difference is that the stars look out for themselves. They feel no obligation to lift up the other players, to teach them, to include them. They only care about their own record. Rich people in an African country can take their money and go park it in Switzerland or the Cayman Islands, and not care about lifting up their country. Whereas [with] winning streaks in countries, as well as sports teams and companies, generally those at the top feel some obligation toward the education, the training, the development of people below them. To make things work well, inequality doesn’t help. If you have a lot of people who feel left out of the system, well, they do get angry, and they sometimes surprise you with their feelings. But also, they often go passive. They think nothing could be done to change anything. And because of that, they’re not very motivated, and nothing does change.

Bryan Caplan is an economist at George Mason University.

CAPLAN: The main predictor of living standards of not just most people but the poorest people in the country is productivity in that country. Countries that produce a lot of stuff aren’t just good places to be rich or middle class; they’re good places to be poor. So when people complain about people being left behind … China’s got 1.3 billion people. Sure, someone’s going to be left behind in there. But is it better to be poor now in China than it was 20 or 30 or 50 years ago, when people were starving to death? There is no question. It is only by going and forgetting history, forgetting comparisons, and then searching through a vast number of people to find a sad story that we can forget the big picture. What is the big picture? Not that we can find something that happened that is bad in the world so vast we can’t even imagine it, but seeing what is happening overall. What is the general trend, and how can we keep the general trend good?

Again, it’s a reminder that overall, the prosperity curve is still rising. But still, as some countries, and people, become incredibly rich, isn’t it natural to try to close the gap beneath them? A few months back, I had a chance to put this question to Sir Angus Deaton, an emeritus professor of economics at Princeton. Deaton won a Nobel Prize in 2015 for his analysis of consumption, poverty and welfare.

DUBNER: I’d love to talk for a moment about inequality: the degree to which it is inevitable, perhaps the degree to which it is desirable, and the parts of it we should worry about, and those we shouldn’t. 

DEATON: That’s a great question. I spent last week in Davos being asked nonsensical questions like, “How do we kill inequality or remove inequality?” And I’m not sure the inequality is the right concept. It has so many sides to it and so many causes and so many effect, that focusing exactly there doesn’t seem to be the right thing. In fact, I just got something from some social organization today, which said, “We define inequality as stagnant wages.” Which is a very odd definition of inequality. Inequality is about, to some extent, the dispersion. Taking it from there, there’s always going to be some inequality, at least in the world in which we live. There is this interesting fact that for most of human history, in which we were all living in hunter-gatherer bands, there appears to be no almost no inequality. Yet from farming onward, from the Neolithic revolution, there’s been a lot of inequality. Even in the perfect Rawlsian world — where you’re trying to maximize the welfare of the worst off — you would need some inequality because otherwise the worst person, like everybody else, would have nothing. That’s a simple economic story as to why there ought to be some inequality. If you go all the way back to the Athenians, there was the question as to whether extreme income distribution wealth disparities were not compatible with a functioning democracy. And if they were, what sort of democracies could you have? Could you design constitutions that would somehow contain that? That’s a separate question which economists don’t typically think about very much. 

(If you are interested in listening to the rest of the podcast, it is on the link above)
Who do you most agree with? Do you think income inequality is inevitable?