Can We Afford the Superrich?

The opening chapter of Dorling’s Inequality and the 1% poses the question ‘Can We Afford the Superrich?’. The issue of inequality is as pressing today as it was 2000 years ago. In ancient Greece, Plutarch stated “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” One can see the manifestation of this in the 21st century in countries at all stages of development. Dorling shows inequality through the divergence between the incomes (earned and unearned) of the wealthiest 1% in society and the remaining 99%. Dorling outlines why this rising inequality is so detrimental to society inline with the views of Nobel Prize winner Robert Shiller that “the renewed greed of the top 1 per cent has had worse effects than even the financial crash of 2008.” But surely things cant be that bad… Can they?    

The first graph (right) shows the spread of earned incomes in the UK from 2014-2015. It shows how the richest 10% have a net income around 10 times that of the poorest tenth. Dorling shows us that the average net income of the top 1 percentile is £160 000. This wealth gap is only getting wider.

The second graph (left) shows how the richest 10%, between 2000 and 2010, experienced the biggest percentage increase on their earned incomes. Also note that, in contrast, when adjustments for inflation are taken into account the poorest ten percent have actually seen a decrease in their incomes.

For modern preachers of laissez-faire economics there is no worry, because wealth ‘trickles down’! An example of where this case might be justified is the introduction of enterprise investment schemes (EISs) in 1994. Over two decades, these investment opportunities have helped set up 24,500 new companies and brought £14bn of investment into the UK. That is a massive proportion of the £110bn that Dorling claims the top 1% own. Of course we cannot suggest that all of this investment comes entirely from the top 1%, or indeed that EISs are the only way the wealthy can redirect their income. However this does show that allowing the top 1% to get richer helps boost the economy. And a growing economy is good for everyone! Or so we are told…

The first question to ask then would be, who are the EISs directing money towards? The answer, any new business starter that requires it (and complies with the ramifications of the scheme). And while this could be anyone in the bottom income percentiles it isn’t necessarily.... But of course! I nearly forgot! The miracle of the invisible hand! If there is economic growth then we will all be happier! Right? Well, no. Here (top) is a graph from Richard Wilkinson’s 2011 TED talk that shows the correlation between Gross National Product - how rich a country is - and its utility (I use the term utility referring to the function used to measure social problems i.e. negative utility). There is no relation! And below it (bottom) is a graph showing the relationship between Income inequality and utility. The wealth of a country, at least in terms of the more economically developed countries, has no effect on the utility of it’s people. It is instead inequality that shows a strong correlation with happiness, or lack thereof. Allow me to demonstrate this with an example for 2016. This year the World happiness report showed us that the Danish are the happiest people in the world; also this year Denmark  is the country with the lowest inequality within the OEDC.  Coincidence? I think not. 

So Dorling was right, we cannot afford the superrich. However it is not necessarily that we cannot afford the superrich in monetary terms. The question is no longer a matter of whether the superrich benefit our economy, but instead how do we stop their rising wealth? Because we pay for the superrich not with our money, but with our happiness.