For most of my life I was, at 5-foot-10, of exactly average height. But in the span of one day in 1989 I became freakishly tall.
While I hadn’t grown an inch upward, I had moved 6,000 miles eastward to Okinawa, Japan. Since the average height of native Okinawans was only 5-foot-2, I towered over most every native islander by 8 inches. It was the equivalent of being 6-foot-6 in the United States.
Unfortunately, when I would leave the towns of Okinawa and step back onto the military base I instantly shrunk back to average height. My height advantage only lasted as long as I got to choose my point of reference.
Where did the truth lie? Was I truly tall or only of average height? The answer was completely dependent on my point of reference. Height, after all, is just a statistical artifact.
While this example may seem silly and rather obvious, it highlights how we our choice of what is a relevant standard of comparison can shape our thinking on important matters of economic policy. Take, for instance, the issue of poverty and income inequality. As Robert Higgs explains,
Income inequality is a statistical artifact, not a real human condition. As Thomas Szasz might have said, “Show me the lesion.” If you were to conduct autopsies on a random collection of human beings, you would find nothing to show that some of them had lived in societies with a high degree of income inequality and others in societies with a low degree of income inequality. The personal (or family or household) distribution of income is not a human condition. It is only, to repeat, a statistical artifact. It is a measure such as the Gini coefficient for describing the degree of inequality of the values of individual observations in any aggregate of such observations. The aggregate of the measurement is arbitrary: why, for example, should inequality be measured for the entire U.S. population, rather than for population of the city or state in which one lives, the entire North American population (including Mexico), the entire Western Hemisphere population, or indeed the entire world population? The answer is that the measurement is done for certain political units with an eye to “doing something about” the measured inequality, which is always to say, doing something to reduce it, whatever it now happens to be. Thus, this topic is and always has been a hobbyhorse for socialists and others whose ideologies rest on a psychological foundation of envy, of seeking to justify taking from high-income recipients and giving to low-income recipients.
Income inequality has no necessary connection with poverty, the lack of material resources for a decent life, such as adequate food, shelter, and clothing. A society with great income inequality may have no poor people, and a society with no income inequality may have nothing but poor people. Coercively reducing income inequality by fiscal measures may do nothing to reduce the extent of real poverty and may indeed—to tell the truth, almost certainly will—create incentives that increase the extent of real poverty (and many other social ills).
For many people in America forced redistribution of income is a solution in need of a problem. Income inequality therefore becomes a moral issue, an excuse to “do something about” the fact that some people have more money than others.
Yet even if we were to assume that income inequality is inherently immoral, we would still need to ask why national income is the relevant comparison. Imagine if the government decided to apply a “tall tax”, a progressive income tax based on a whether a person is tall. The first thing everyone would ask is “What constitutes tall?”
Would I be taxed because I was taller than Okinawans, or would I be exempt since compared to other U.S. citizens I’m only of “average” height? Whatever the answer, we would expect a rational explanation for why the standard being used was the proper and relevant comparison.
We should expect the same in any discussion of income inequality. By forcing people to justify the relevance of their standard unit of comparison, we just might be able to help them see that income inequality is more about a desire to redistribute wealth than a true means of alleviating poverty.
