Income inequality: Vive la différence!

Dr Bryce Wilkinson
Insights Newsletter
8 July, 2016

Do you feel like hissing at the people at the front of the plane when you walk past them to the cheaper seats at the back? If you are in the first class seats, do you cringe as people walk past you?

Professor Barry Nalebuff, a professor of management at Yale, has those feelings. This is according to an article earlier this year by New York Times journalist Nelson D Schwartz.

He would not be alone. Glaring gaps between privilege and the rest offend our egalitarian instincts. Why else did Chairman Mao and his associates dress in the plainest of military uniforms?

Mr Schwartz’s article lamented the exclusive luxury facilities that a new Norwegian cruise ship will provide for 275 elite guests, but not the other 3,935 passengers. Its title, “In an Age of Privilege, Not Everyone is in the Same Boat”, summarises its theme. Superior facilities for those willing and able to pay more are a bad thing, full stop.

The refrain resonates with fears raised by French economist Thomas Piketty. He fears a return to a world dominated by inherited wealth, that is privilege, rather than by merit or achievement.

Yet egalitarian instincts need not be at odds with exceptional rewards for exceptional achievement. The slogan “equal pay for equal work” permits unequal pay for unequal work. Few begrudge the millions of dollars a year earned by the most successful global sport or pop stars. Many buy Lotto tickets hoping against the odds for similar rewards for no effort.

It is a fact of life that incomes will always be unequal if effort and merit are to be rewarded and chance has a role. Ask any professional athlete about the chance of injury and its effects on performance.

Moreover, preferences differ. Some see cars as a status symbol, for others they are just a means of transport. So car manufacturers provide expensive cars and cheap cars.

Eminent US law and economics scholar Richard Epstein has criticised Mr Schwartz’s article. He points out that cruise liners that charge rich people more can charge steerage passengers less.

In short, we should all decry unjust differences in income or wealth. But it is wrong to condemn commerce for providing customers with price and quality options.

Save the hissing for those that deserve it.

Stay in the loop: Subscribe to updates