French economist Thomas Piketty sparked a global debate on income inequality last year with the publication of his best-selling book, Capital in the Twenty-First Century. His essential argument was that growth of invested capital would outpace growth of income. As such, people who are able to access the stock market – and with significant funds – have a distinct advantage over people locked out of markets.
We see this most clearly in the value of real estate. House prices alone rose 6.5% last year, according to the Central Statistics Office (CSO). The Economist has dubbed the Irish recovery ‘the Celtic Phoenix’. This robustness is evidenced by a rapid reduction in unemployment from a rate of 15% in 2012 to 8.8% by the end of 2015. The annual volume of retail sales also grew by around 9% last year as consumer confidence picked up. The recovery is perhaps most aptly observed on a shopping trip to Dundrum Town Centre, where consumers are desperate to part with their cash.
At the same time, Oxfam has just published the report An Economy for the 1%, which describes how the concentration of wealth has become increasingly acute . The report states that a mere 62 people now own the same level of wealth as the poorest half of the world’s population. In 2010, 388 individuals owned that much wealth.
More striking – and perhaps validation of Piketty’s prediction – is that the wealth of the richest 62 has risen 44% in five years to $1.76 trillion. The 3.6 billion poorest have seen their wealth eroded by 41%. It would be too simplistic to put this in terms of a direct transfer of wealth, but it does epitomize what economists describe as ‘pareto efficiency’. This is an economic state in which it is impossible to make any individual better off without making another worse off.
What would you do
So in a world which has always been plagued by income inequality, the question is how much are its richer citizens willing to give up in order to improve the balance? After all, economic theory refers to ‘the Paradox of Happiness’ to explain how human satisfaction peaks at a specific income level. Beyond this, the average person will fail to experience a significant increase in happiness despite boosts to their income.
The practicalities of redistributing wealth are also difficult. There would have to be a move away from capitalism in favour of socialism, and it would be impossible to get consensus on the treatment of the unemployed, underpaid, part-time workers, carers and homemakers, for example. Many critics argue the West’s economic model is failing but without offering an alternative.
The answer is a matter of opinion.
In the meantime, it is easy to lay blame for poverty with the rich, the poor, and anyone in-between. But at the very heart of the solution is how willing one individual is to sacrifice a fraction of their prosperity to ease the strain on a less-fortunate peer. To what extent do we truly believe in equality when it is at the expense of our own comfort?