Too Much Inequality

In Aristotle’s theory of the mean, every virtue lies between two vices on either extreme. For example, courage lies between cowardice (a lack of courage) and rashness (an excess of courage). The general idea that there are failure modes in either direction is a useful one to consider, including when discussing inequality.

This was brought to mind when I saw Josh Wolfe’s tweet, making fun of Bernie Sanders for being an 0.1%-er on Twitter with over 9 million followers. This was in the context of Sanders suggesting that billionaires should not exist in support of his argument for a wealth tax.

I then tweeted the following (quoting Josh’s tweet):

What if the right answer is that both systems have strong positive feedback loops giving undue influence to a few?

By both systems here I mean the economy at large and online systems (such as Twitter) generating power law distributions. I have a section in World After Capital about this pervasive shift to power laws and how it is powered by the shift to digital technologies.

Josh then replied with a question: Is society worse off? There is a lot of evidence that the answer is yes. Since I had accidentally linked to a paywalled piece, let me link here to some recent studies:

- OECD Study from 2014
- World Bank paper from 2015
- IMF Blog post from 2017

Now there will almost certainly be issues with the econometrics on each of these (there always are), so I wouldn’t put too much weight into any one, but if you combine them with some logic and other empirical findings, the evidence adds up. Let me give just one example: as inequality rises it may get more difficult for children growing up in poor households to keep up with educational achievement (eg wealthy households pay for private tutors). That’s exactly what we are now seeing. That’s bad for society because it makes it harder for brilliant minds who happen to be born poor to contribute.

So yes. Excessive inequality is bad for society. That’s true for wealth and it also true for social media influence. Right now, that is the failure mode we should be worried about, not that we are somehow anywhere close to the opposite end of excess equality.