Advancing a Free Society

Deserving and Undeserving Inequality

Monday, August 22, 2011

During the past 25 years, inequality in the world has greatly declined mainly because of the rapid growth in incomes in large poorer nations, especially China, India, and Brazil. This led to enormous declines in worldwide poverty as hundreds of millions of families were pulled above poverty thresholds, such as having to live on $1 or $2 dollars a day. At the same time, however, inequality between families grew rapidly within many countries, especially the United States and other Anglo-Saxon countries, China, and India. Although attitudes to inequality differ across cultures and countries (see, for example Alesina, Di Tella, and MacCulloch, “Inequality and Happiness: are Europeans and Americans different?”), in every society these attitudes depend on whether the inequality is considered to improve efficiency and to be deserving – the difference between “good” and “bad” inequality.

The great majority of people in different cultures do not object to someone who has made lots of money when they have superior abilities and talents, and they work hard at producing what are considered useful goods or services. Actors like Tom Hanks or Jennifer Aniston earn millions of dollars per film, yet they are admired as stars rather than condemned for being millionaires because films are a popular form of entertainment. Bill Gates, Steve Jobs, and others who became billionaires by creating innovative companies that provide highly valuable goods and services to millions of individuals are widely admired as the business equivalents of rock stars rather than attacked for their great wealth. Leading transplant and other doctors who become successful and very wealthy through extensive education and superior skills are recognized for their valuable contributions to extending the lives of very sick individuals, and few object to their high earnings.

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