The Income Equality Mirage

Executive Summary

Rectifying the causes of poverty is very important, but focusing on income inequality is counterproductive and misleading.  Income inequality’s importance is due to its political power to motivate the masses, not it intellectual accuracy. 

Income inequality is real, but it is the result of many factors, including natural differences in ability.  But it can also be the result of manipulation of government power by special interests that pervert the free market for their personal gain.  Consequently, it can be the just result of makers who create wealth or the unjust result of takers who steal it. 

Various studies comparing income inequality to different measures of prosperity and people’s standard of living demonstrate no relation between how well off people are in a country and the level of measured income inequality there.  This is because measures of income inequality, such as the Gini coefficient, are based on a number of statistical fallacies described below.  Better measurement tools are needed if we are to understand the real causes and implications of income inequality.

Because income inequality statistics are based on fallacious propositions, all research that uses these statistics is doomed to fail.  The first of law of statistics is, “garbage in, garbage out.”  No research based on standard income inequality measures, such as that by Thomas Piketty in his book, Capital in the Twenty-first Century, can ever lead to a better understanding of the causes and cures for poverty.

Karl Marx believed that an increase in a workers wage and standard of living was evidence of greater exploitation if the business owners’ benefit was greater than the workers, because the worker was relatively worse off compared to his boss.  Corrado Gini, a fascist theorist, created the most commonly used statistical measure of income inequality in full support of this idea.  For both Gini and Marx, elimination of envy was more important than improving prosperity. 

As a result, the “ideal” of income equality, promoted by both Gini and Marx, is a mirage that can only lead its followers into the waterless desert of government paternalism.