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Apr 1, 2024

Equality or Enough for Everyone? A Review of Eamonn Butler’s “An Introduction to Economic Inequality”

[This review was originally published in www.nepallivetoday.com on March 14, 2024]

Our public discourse is dominated by the agenda of economic inequality. The myriad of social and economic challenges plaguing our society are attributed to economic inequality, ostensibly stemming from capitalism and free markets. From poverty to pollution, from disparities in educational outcomes to youth unemployment, prevalent economic inequality is touted as the root cause. If only we had economic equality, we wouldn’t have half these problems, we are told. In Nepal, a country which as per its constitution is a socialism-oriented country, attaining equality in all facets of life is entrenched as our primary societal aim. Moreover, the sacrosanctity and desirability of equality are taken for granted. Equality is not just seen as a desirable state in itself, but also as a means to achieve other desirable goals such as development and happiness.

In such a scenario, it feels borderline immoral to criticize equality or even question the pursuit of it. And that’s precisely what Eamonn Butler has attempted to do in his book “An Introduction to Economic Inequality”. In this short introductory text, Butler lays out the multifaceted nature of economic inequality and manages to question and counter all the major assumptions and arguments made in the current bandwagon for the pursuit of economic equality. He meticulously dissects the major arguments made in favor of economic equality, providing a thorough critique, and offering insightful counterpoints. Butler’s book is an important reminder that if we allow the popularity of an idea to overshadow its merit, we not only have a poor understanding of it but also risk disastrous consequences from our misguided efforts. As the readers reach the end of the book, they will undoubtedly gain a deeper, more nuanced understanding of economic inequality and our endeavours to overcome it.

Butler begins the book by questioning the narrative itself – the veracity of the claims made about the prevalence and severity of economic inequality in the world. The shocking statistics on economic inequality we so frequently hear in the popular media are misleading, to say the least. Butler points out that these claims are based on pre-tax incomes which are taxed much higher than the poor segment of the population and do not include the state-sponsored benefits that are mainly utilized by the poor. What people get to consume ultimately is much more equal, he argues.

A more compelling argument he makes is the fact that people’s economic status changes over their lifetime. People in general get wealthier as they progress through life and accumulate more savings and investments. He argues that inequality statistics usually present a panoramic snapshot and do not represent the full picture. Therefore, it would be unfair to economically compare the people at different stages of life. Furthermore, economic indicators often fail to encompass the multitude of factors that contribute to overall quality of life, nor do they adequately capture the crucial influence of individuals’ preferences on their income levels. It is not uncommon to find people who opt for economically less rewarding jobs in favor of more leisure time or more flexibility. Neither is it rare to find people who sacrifice these other rewards in life in pursuit of higher earnings. Some people prioritize immediate higher earnings, forgoing future opportunities for higher income (e.g. those who forgo college) whereas others would rather sacrifice present earnings to ensure higher future earnings (e.g. individuals who go to college or acquire training). To put it succinctly, people make different choices based on their preferences, which has a bearing on their income level. The equality advocates seldom acknowledge this factor.

Butler then goes on to question the accuracy of income measurements including the Lorenz Curve and Gini Coefficient, noting their high sensitivity to outliers in the data. He also points out that ratios such as the Gini Coefficient and Palma Ratio do not provide a clear understanding of the precise nature of the inequalities within a country. He therefore reminds the readers that economists generally quote Gini Coefficients based on post-tax disposable income and warns them to be wary of activists quoting the pre-tax Gini Coefficients. Additionally, the wealth calculations, especially in the developed economies with welfare states, are distorted because they do not account for the value of state benefits and services, and these constitute a significant component of personal wealth.

Moreover, Butler delves into the question of inter-country inequality, highlighting that capital accumulation is a time-consuming and arduous process. He points out that today’s developed countries took more than two centuries of capital accumulation to reach their current status. Therefore, rather than trying to equalize countries, it is better to help the developing countries accelerate their capital-building process, he suggests. Along the way, Butler also responds to the French economist Thomas Piketty’s claim that economic inequality tends to increase over time, especially when the rate of return on capital exceeds the rate of economic growth, leading to a concentration of wealth among the already wealthy.

This idea, which was central to his widely popular book “Capital in the Twenty-First Century”, garnered significant attention upon its publication in 2013. Piketty argued in his book that it is only because of wars which dissipate the accumulated wealth that the capitalists have not been able to capture the world’s entire wealth. Butler counters this argument by emphasizing that managing and ensuring returns to capital is not an automatic process and the outcome of such an undertaking is far from certain.

The capital has to be carefully created, managed, and invested for it to grow, and the owner of the capital could fail at any stage of the process, potentially leading to its depletion. Similarly, there is also no guarantee that the heirs of an individual who has accumulated certain capital will succeed in maintaining or growing it. Butler refers to the findings of a study by Robert Arnott, the investor and writer, and his team, revealing that only half of inherited family wealth is sustained beyond a decade. In Nepal, too, while there are stories of generational wealth persisting and keeping certain families exceedingly rich, it is also quite common to find examples of family wealth being squandered by the heirs.

These are just a few of the claims that Butler debunks in his book. Besides these, Butler also refutes the assertions that inequality is linked to various other social problems such as lower life expectancy, poor education, mental illness, obesity, and political instability. Additionally, he challenges the notion that wealth accumulation is a zero-sum game, that open economies and free markets necessarily lead to higher economic inequality, that poverty has increased in the past three decades and so on.

Two of his major arguments, however, merit further discussion here. First, should economic inequality be our concern as long as everyone is getting richer or as long as everyone has enough? Butler poses a question that is at the core of his book’s message – what if we could instantly double the wealth of the world’s poor, even if it meant doubling the wealth of the rich people as well? Wouldn’t that be a preferable scenario? Yet from the perspective of current economic equality advocates, a scenario where both of these groups of people are poorer but more equal would be more desirable. Then this begs the question – is our crusade against economic inequality primarily driven by an envy of the rich rather than a concern for the poor? Moving on to the second major argument of the book, most of the solutions proposed by equality advocates are government-oriented i.e., more regulation, expansion of the government’s role in the economy, expansion of the tax regime, expansion of the welfare state, more government control of the economy, etc. However, as Butler points out in many cases, it is the government that is the problem.

Government action is behind many of the inequalities that exist. Examples include regulations that favor the larger businesses, regulations that create hurdles for entry of the new actors in a market, regulations that prevent the increase in the supply of products and services which could lower the cost for the poor, high inflation, corruption, and burdensome regulations that prevent the poor from engaging in entrepreneurial activities. Butler provides the example of housing regulations in the UK that have restricted the supply of new houses, driving up rents and making the lives of people, especially the poor, more difficult. In Nepal’s case, we see the government promoting or aiding corporate monopolies in various sectors of the economy. In such a scenario, asking for government solutions to address inequality is essentially asking to concentrate the power in the hands of a select few politicians and bureaucrats who are likely to be influenced or controlled by the largest corporations. Therefore, Butler argues that as a society we should aspire for economic mobility rather than economic equality. We should be more focused on ensuring that everyone has enough – not that everyone has an equal amount.

In “An Introduction to Economic Inequality”, author Eamonn Butler has attempted to create a short but very comprehensive rebuttal to the major claims made by the economic equality advocates. The book’s strength lies in the author’s ability to address all the major claims in favor of economic equality despite it being a short book. Additionally, the inclusion of some real-life examples has bolstered the arguments presented in the book. However, while Butler adeptly outlines the complexities of economic inequality, some readers may find his analysis lacking depth. The book covers a broad range of topics within a relatively short span, sacrificing depth for breadth. As a result, certain aspects of the issue may feel underexplored, leaving readers craving more detailed analysis and discussion.

Furthermore, some of Butler’s arguments appear superficial and weak. For example, he struggles to present a convincing case against initiatives aimed at ensuring equality of opportunity. His reliance on the anecdote of a few immigrants succeeding against the odds only proves the exception rather than the rule. The overall book lacks comprehensive solutions. While proposed free-market solutions and limited government interventions could be major components of a solution, they may not be sufficient. Critical readers, especially those who have been inundated with the inequality narrative, are unlikely to be persuaded without further elaboration and examples demonstrating how the free market would effectively address the problem.

Nevertheless, Eammon Butler’s “An Introduction to Economic Inequality” serves as a valuable primer for anyone seeking to understand the complexities of this pervasive societal issue. Butler’s accessible writing style and the integration of real-world examples make the book an engaging and informative read. For anyone curious to hear the alternative viewpoints on the prevailing economic equality narrative, this is the perfect starting point.

-Surath Giri