Is there an ideal income inequality?

As a proponent of egalitarianism, I often get worked up by the growing disparity in our world–be it in income, race, gender or otherwise. Let’s talk about income equality today. Movements like Occupy Wall Street (remember “We are the 99%?”) represent the majority’s discontent with inequality. It’s not about any kind of inequality though. It’s about systemic and deeply-rooted societal mechanisms that help the rich get richer and the poor get poorer.

Here’s a thought from my shower: Is there such a thing as an ideal level of inequality? Total absolute equality is realistically impossible, since that would entail, among many other things, everyone (and I mean everyone–like the CEO and the janitor) getting paid equally. I don’t see this happening anytime soon. Besides, total income equality may be kinda boring, isn’t it? Considering that social mobility and money are prime motivators for most workers, absolute equality may turn out to be harmful.

It turns out that I’m far from being the first person to think about this. There is a question posted on Quora entitled What is the ideal gini coefficient if the end goal is a prosperous and thriving society? Gini coefficient is the most common form of measuring income equality in a given country, with 1 representing a single person controlling all the wealth and 0 representing absolute equality.

I found a neat chart from Geo-Mexico.com that shows the Gini coefficients for various OECD countries:

gini-coefficient-change-oecd

Anyway, the Quora question received a brilliant and thoughtful response from a guy named Jacob Jensen. You should check out his full answer, but here’s his first and then the last two paragraphs:

There is no ideal per se. 25, which is roughly Scandinavian countries after redistributive effects of their govt taxing/spending, could suck if it’s because your country just underwent a revolution and all people at the upper end either had their property appropriated or emigrated (or both).

<truncated middle paragraphs>

What all this seems to say to me is that a Gini in mid 30’s to 50’s is compatible with high growth in a developing nation, and therefore generally acceptable, while a gini in the 20’s to low 40’s is typical of developed nations correlating pretty strongly with government efforts to create a safety net. Accidents of history play a role in determining these ranges – perhaps, for instance, Brazil or South Africa will hit 30K GDP per capita with gini’s above 50 (though I doubt it), or perhaps we’lll see a developing nation that pulls of a miracle and sees high growth with a low-30’s GDP, or a developed nation that really commits to laissez faire and edges into the 50s or higher.

On the other hand, misery, instability and stagnation are compatible with any gini as Ukraine (28), Egypt (32), Chad (40), Bulgaria (46), Zimbabwe (50, yes even with Mugabe), and Haiti (60)

At the end, it seems to me like this is a question with no right answer. Ultimately, your notion of an ideal Gini coefficient is informed largely based on your values. For me, a country that I can be proud of is one that doesn’t have its citizens featured in Forbes’ richest people in the world list. I’ll take .25 over .50 any day. Heck, if getting to .15 is possible thenI’ll take this too, but only if equality doesn’t come at the expense of freedom and well-being.

I remain optimistic in observing what the Scandinavian countries will continue to achieve in this regard.

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