I saw a guy in a Tesla today. That’s not so uncommon in Reykjavík, Iceland, a land with clean energy, cheap electricity and a decent about of wealth (though only a single dollar-billionaire, Björgólfur Thor Björgólfsson —or Bjöggi, as they call him). Parked next to the futuristic Harpa concert house, he was scrolling through his top-of-the-line iPhone while occasionally admiring the setting sun.
I don’t see Mr. Tesla’s bank accounts; I don’t have access to information about his employer or how much he earns, where his investments are, how many flashy apartments he has, and how large his balance sheet is. In sum, I can’t observe his wealth.
But I can see his stuff — at least the ones he flaunts in public. I can see him attending expensive concerts and theatres (back when we still attended such things); I can see him through the windows of the fancy restaurants in towns (when they’re not corona-closed, that is); I can see his clothes; and I can see his slick car. But that’s about it.
And it doesn’t take that much income (or wealth) to sustain a lifestyle like that. A few times more than my own paltry living — perhaps a partner with a similarly well-paid job — and Bob’s your uncle.
By just looking at them, seeing their shiny stuff in public, or hearing about their foreign vacations (ha, we don’t do those things anymore either!), I couldn’t really tell the difference between someone OK-well-off, rich, super-rich, or billionaire. (For the last one, perhaps, but then only if I knew anything about designer handbags or suit brands).
Paul Krugman, Nobel Prize-winning economist, New York Times columnist and former Hillary hack, often writes about the ills of inequality — at least when he’s not too busy bashing Republicans for some evil thing they did, or ranting over the state of American health care. (Mind you, none of these fields are his expertise and he rarely knows what he’s talking about).
He has a wonderful column from a few years ago titles “Our Invisible Rich.” He discussed some academic survey that had asked people how rich the richest Americans were and most people — predictably — came up way short. When millions turn into billions, or hundreds of them, the rest of us lose track; differences between those things have no tangible meaning to us. Diligently, Krugman tried to rally the troops:
Most Americans have no idea just how unequal our society has become.
Fair enough, but there are many things your average American has no idea about — and that rarely amounts to anything but a condemnation of its poor state of public schooling or its societal neglect of learning. Krugman continued:
The main answer, I’d suggest, is that the truly rich are so removed from ordinary people’s lives that we never see what they have. We may notice, and feel aggrieved about, college kids driving luxury cars; but we don’t see private equity managers commuting by helicopter to their immense mansions in the Hamptons. The commanding heights of our economy are invisible because they’re lost in the clouds.
He clearly intended it to rally the troops and make us even more upset than we already were about the unfairness that is American wealth and income inequality.
It had the opposite effect.
Clearly, “inequality” itself can’t be so bad for all of us if we literally can’t see it. If we’re never around these high-flying Fat Cats, never observing even their most ostentatious flaunting of wealth — what’s the big deal?! Let them ride their Uber-for-helicopters in peace, what’s that to the rest of us?
Stories abound about how bad and harmful and societally devastating inequality is: growing gini numbers are killing people and ruining our good life!
But how? The standard case is some version of the story presented in The Spirit Level: Why More Equal Societies Almost Always Do Better, by Richard Wilkinson and Kate Pickett (let’s ignore their conveniently-selected and curated data, and poor use of statistics). Charts like these are supposed to convince us that inequality harms in all kinds of cryptic ways:
Most metrics that the researchers cite show a similar scatter plot: bad things correlate with high-inequality (read: bad) countries.
Here Krugman stumbled upon something really cool: If the extent of my interaction with the rich (or the super rich) is silly shows on “MTV cribs,” click-baity articles about gorgeous mansions, or a guy watching Icelandic sunset from his Tesla — how could that ever be spun into a story that harms me?! I have the same access to that life-changing, stunningly beautiful sun that Mr. Tesla does: shimmering, shape-shifting, ever-changing colours of pristine Icelandic nature doesn’t charge for its daily shows and doesn’t care about my bank balances.
What are all those things to me? Nada. Noise. (Maybe you can craft some nefarious story about political lobbying and suppressing wages but thoughtful observers would require a little bit more evidence before entertaining such grand claims bordering on conspiracy). And it sure isn’t enough to cite trends in inequality numbers, top-1% wealth shares, or income shares of the top-10%, when that is not backed by real-life experiences.
When people in different countries guess how large a portion of total household wealth is owned by the richest 1%, their guesses are exaggerated by a lot. People don’t have a clue how rich the rich are, and they routinely overestimate it.
If we don’t know about the inequality, and we can’t see the inequality materialised in real life — how is it supposed to hurt us? How is it supposed to be a causal factor driving all kinds of ills, from teen pregnancies to shorter life expectancies?
If it walks like a duck and quacks like a duck, it probably is a duck. But if it doesn’t walk and it doesn’t quack, and nobody even notices that it’s there — is it really to blame for all the ills in society?