From politicians to Youtubers, from the pope to Nobel Prize–winning economists, voices across the spectrum agree on one thing: inequality is rising, AND it’s VERY VERY dangerous.

But, what if the EVIDENCE to back up those statements is actually far weaker than we previously thought?

That would be strange right? World famous economists like Pikkety, Stiglitz and Ha-Joon Chang have given us at least 4 extremely convincing reasons why inequality is not JUST unjust, it’s bad for the economy as well.

The first reason is because the rich don’t spend as much as the poor, reducing demand in the economy, killing local businesses, and thereby economic growth. Second, inequality causes crime, misery, drug overdoses and even suicides as people naturally get miserable seeing their neighbours do well as they struggle. Third, inequality makes it less easy for young motivated kids to move up in the world as only rich parents still have the money to give their kids private tutoring, extracurriculars, and ever increasing college fees. And ultimately, fourth, increased inequality undermines our democracies as the rich use their increasing wealth to capture the government to rig their game further in their favour.

To me, a lot of these stories have always just made sense. When I lived in South Africa, often considered the most unequal country in the world, I was genuinely shocked about how unsafe it was and how living in an unequal society, seeing poverty every day, just feels way worse than in an equal one like the European countries I was used to. And, yes, I too am very worried about increased political polarization, especially in the UK and US, the Western countries that saw inequality increase the fastest.

Yet, the goal of this channel is not to spread stories because they FEEL right, our goal is to look for evidence. So, if inequality is really bad for the economy, crime, social mobility, and democracy there should, after years of rising inequality in the US and UK, now be a lot of evidence. But, after going through mountains of evidence, our conclusion is actually quite optimistic

Inequality is not as bad as we thought!

for two reasons. The first is that, maybe with the exception of the US, where the richest 0.1 of the rich are still getting richer, inequality stopped going up!

That is, if we look at the most comprehensive data we have from anti-inequality researchers like Gabriel Zucman, after rising by a lot between 1980 and 2010, income controlled by the top 1% especially wealth controlled by the top 1%. and also wealth controlled by the top 10% .. have all stopped rising. That is GREAT news!

On top of that, these four negative effects that we expected would happen to economies where inequality went up by a lot, like the US and to a lesser extent UK, we can’t really find them in the data.

For example, we EXPECTED that nations like the US or the UK, where the top 1% of people got way richer in the last 40 years, had far lower economic growth than countries like Austria or the Netherlands, where inequality barely moved. However, as you can see countries that got MORE equal like Austria or where inequality did not change much, like Belgium, the economy grew roughly as fast as countries that got WAY more unequal like the UK and US.

And, as research by the author of this book, professor Lane Kenworthy has shown, the same effect holds for crime. For example, if we compare murders, which are the gold standard for comparing crime across countries because they are almost always reported, we can see that actually countries that got more unequal like the UK saw a reduction in murders similar to Austria. Meanwhile the US, which got the most unequal by far, paradoxically ALSO saw the biggest reduction in murders.

Okay, but then what about other forms of misery, like so-called deaths despair caused by suicides + drug-overdoses and alcohol-induced liver diseases. Yes, here we can see that Austria and Belgium did do a lot better than the UK and US. However, the countries in this graph, they are all over the place, meaning while we can draw a line through them, which shows a clear trend, statistically, this relationship is very weak.

Similarly, for life expectancy, it is now quite well-known that the US is being left behind. But, the effect seems to be pretty weak. This line is not going down very steeply. If we take out the US, the line would be flat. So, again, the evidence for a relationship between inequality and life expectancy is just very weak.

Even if we look at happiness, which really surprised me since, I personally really found living in extreme inequality very uncomfortable, sure the line it trending down, but countries are again all over the place. People in relatively equal Switzerland are quite a bit less happy than they were, just like in the US.

Okay, so no strong evidence for 2 out of the 4 negative effects. Surely, increased inequality reduces social mobility, as the rich spend more on elite private schools and costly extracurricular activities, their children gain an increasing advantage.

Ideally, we would also test this across countries. But, sadly, the data is just not there for most countries. Luckily, the best data comes from the United States, the country where inequality has increased the most. It allows us to ask 2 simple questions: (1) Are rich children pulling further ahead of poor children? And (2) are poor children today less likely to move up than in the past?

On the first question, this graph shows a worrying trend. Since the 2000s, rich kids are increasingly outperforming poor children on tests. However, poor children still perform significantly better than they did in the 1960s and 1970s, when inequality was at its lowest. Moreover, most of the rise in inequality occurred during the 1980s and 1990s, a period when test scores for poorer students were still improving. So again, the evidence that for this theory is not super strong.

On top of that, research produced by left-wing economists such as Raj Chetty and Emmanuel Saez—suggests that intergenerational mobility in the United States has remained remarkably stable over time—even during decades when income inequality rose sharply. In other words. Rich kids have it easier, and poor kids have it tougher, but this was also true in the 1960’s, and things don’t seem to have changed that much after the rapid rise in inequality.

Finally, even when it comes to democracy, we all know the story that the rich rigged the game in their favor in the US, where Superpacs dominate the political system and politically very active broligarchs Elon Musk and Larry Ellison have taken over major social media platforms. But, if the ultra rich are doing this to rig the game FURTHER in their favour, they are not doing such a great job at it.

That is, the two most mentioned ways the rich are rigging the game is (1) by lowering taxes AND (2) by busting unions. But, while it may LOOK like they did a great job at this in the US if we look at the official tax rate, we can actually see here that the EFFECTIVE tax rate for the top 1% has ACTUALLY remained remarkably stable. That is, while official tax rates were extremely high in the 1950s, 60s and 70s, the ultra rich were probably dodging these on an epic scale.

This could explain why countries that did NOT get much more unequal like Japan & Norway also reduced their top tax rates by a lot. It could also explain why countries with even more stable or modest levels of inequality, such as the Netherlands and Austria, went as far as abolishing their wealth taxes.

Similarly, when it comes to US states that became the most unequal

surprisingly, are the most lefty of the American states. It’s states like California and New York and Connecticut and Illinois, where state tax policy tends to be relatively flat or proportional rather than regressive.

California is perhaps the most striking example. Over the past decades, the share of income going to the 1% has skyrocketed.

However, since 1999, California has enacted a wide range of policies that many wealthy interests might be expected to oppose. These include paid sick leave, paid parental leave, a major expansion of Medicaid, a $15-per-hour minimum wage, universal free school breakfast and lunch, and significant increases in funding for K–12 education—financed in part by two tax increases on high-income households. Again, this is not the type of policies that you would expect if the rich were rigging the game in their favour.

So, then what about the destruction of US unions. Surely, the rich have used their increased power to destroy the unions right? Well, Union power did decrease in the US, that is true. But, again this seems to have been part of a global trend that also happened in more equal countries like New Zealand, Australia and, surprisingly, Austria. If we draw a line, we can there a weak trend, but given the countries are all over the place, this is statistically not significant at all.

Crucially though! All of this does NOT SHOW us that money DOES NOT INFLUENCE POLITICS AT ALL in the US. Billionaires spend millions of political donations and buying media platforms. Clearly they have a big influence. In fact, as professor Kenworthy explains in his book, there is plenty of evidence showing that, when the rich want something that the poor or middle classed do not want; they are more likely to get it!

So, yes money buys the rich influence. But, as California and billionaire paradises like Switzerland show us, not all rich people want ultra low taxes and hardcore inequality. Or, if they do want it, then potentially having more money to spend on politics just doesn’t buy more influence after some point.

Which means that we have now gone through each of our four channels. On paper they make sense. But, the evidence to back them up is WEAK at best. Combine this with the fact that inequality is no longer growing in much of the world, except when it comes to the top 0.1%, not the top 1%, in the US, I think it’s clear to see that

Inequality is bad…. But, not as bad as we thought.

That’s great news!

However, when we published our interview with professor Kenworthy, or my previous video on Gary’s economics making a similar point…. well let’s just say that the comment section was pretty spicy

We were:

1. disingenuously focusing on INCOME inequality RATHER than wealth inequality
2. we were cherry picking the data
3. out of touch academics and OF COURSE
4. bought and paid for by the rich

So, for the rest of the video, I want to respond to some of these comments, starting with

Spicy comment 1

By samuelricher- ‘’’This is infuriating. “””It’s a lucrative and cushy job pushing this sort of narrative.“””

Which, just for clarification was aimed at professor Kenworthy, not our channel. And, first of all, I want to say, it makes sense that people are sceptical. It’s well documented that big oil companies have funded anti-climate change research. So, it’s not hard to imagine they would fund research that says inequality is not as bad as we thought. However, in this case, Kenworthy has a long history of advocating for the US to move closer to the social democratic model of the Nordic countries, plus if you read the book or watch our full interview, you will see he is very nuanced, which anti climate change groups really hardly ever are.

Next, when it comes to us, it would be illegal to receive payment for a video such as this without disclosing it clearly and transparently. So, let me be clear, this video is sponsored by Bellroy, which seemed like a perfect fit because of the next spicy comment by:

by user clearly-a-real-user-not-a-sponsor-segway

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Now, having cleared my head with some better organization, let’s get back to

Spicy comment number 2

by jameskelly827: In my opinion, the author’s focus on income inequality rather than wealth inequality is incomplete and disingenuous.

Okay, yes, this is a comment we get a lot. I understand why people make it, because wealth inequality looks quite a bit WORSE than income inequality. But, focussing on income is actually better for 2 reasons.

First, income inequality data is more more reliable for international comparisons because it comes from tax records, while wealth inequality is harder to measure, and some countries use different methods to measure it. You can look at the World Inequality Database Transparency scores to see that income inequality data are usually of higher quality.

Second, income and wealth inequality are still two sides of the same coin. Income builds wealth. And, crucially, if your wealth DOES NOT EARN INCOME, it will disappear over time thanks to inflation.

However, if you are still skeptical, for this video we replicated the analysis of professor Kenworthy using wealth inequality indicators, instead of income, and still found no relationship between wealth inequality and bad outcomes such as low economic growth or lower life expectancy.

This may also help address

Spicy comment 3

By Salaryman1. ‘’’I’m getting light cherry picker vibes here… with a good example about how money influences politics more behind the scenes.’’’

A point that maybe didn’t come across so well in the interview, but is actually in this book. Still, I think cherry picking is always a valid concern, so here are 2 more interesting insights that would have made the main part of the video too long.

1 you may think that good economic growth in the US could be explained by the ultra rich just earning so much. This may be partially true, but even if we look at income growth of the poorest 10% of the population, US citizens did roughly as well as European counterparts.

2 you may say that excluding the POOREST countries, which are often highly unequal was a big mistake. But, as many of these poor economies are growing FASTER, it would not change the analysis there. We were still interested in democracy in emerging markets though. Aren’t most dictatorships highly unequal? To get a sense of this, we decided to extend Kenworthy’s analysis and compare inequality of rich and poor countries to the Economist’s democracy index.

And, as you can see here, it does appear that the MOST democratic countries are the most equal. But, again the relationship is really weak. You have relatively equal countries where democracy is under threat, like Hungary. You have very authoritarian countries like Pakistan where inequality is middle of the road, and you have super super unequal countries like those in Latin America where democracy is NOT the worst, like Chile.

But, of course, if you feel like we missed something specific, let us know in the comments.

But before doing they let’s review, the final, and in my opinion most important

Spicy comment number 4

of which there are a lot. Let’s start with at-charles entertainment cheese who says “if all the graphs look so great, why can I barely afford rent working a full-time job”

Or this comment by okapi john4351: ‘’’Of course, it is easy to write a book about how inequality is not a problem when you are not on the losing side of inequality. This gentleman, prof Kenworthy, needs to go outside and feel the real world of inequality.’’

To me these comments illustrate that life has been getting harder for many many people. And, it is the job of economists like me to find out why. But, just to clarify, when economists collect data, they DO essentially step outside, it’s just that they do it on a massive scale, to see if the experience of people like these commenters are just isolated examples or part of a trend.

And, just to be clear, inequality is still WORSE than it was 40 years ago. Just as I ‘felt’ inequality in the streets of South Africa, of course viewers from the UK and US will feel this as well. On top of that, there are 4 really worrying economic trends that will surely impact many of you, but are not ALL caused by inequality.

First, there’s the housing crisis, which given that there are not many empty houses outside places like London or Toronto, is mostly caused by local people holding back the construction of new houses where they are needed.

Second, the cost-of-living crisis is still not completely solved after the last massive energy shock, and it’s about to get worse thank to the latest energy war. Third, most rich country economies have grown much more slowly than they did before due to having caught up to the frontier, and due to rapid ageing, meaning that fewer and fewer people will actually work. This is also increasingly straining government budgets all over the world, or in simple terms, making taxes higher, but government services worse.

All of these forces put pressure on the economy, which means inequality is only one piece of a much bigger puzzle. And, while I personally think that taxing billionaires is a better way to tax wealth than what we currently have, I would not be too optimistic that this would allow massive economic growth or to solve our budget problems. For example, if the US decided to tax Elon Musk at 100%, yes 100%, they could pay for their military for roughly 1 single year. 1 single year. Similarly, taxing ALL UK billionaires would only cover the UK government deficit… NOT all spending, just what they borrow, for about one and a half years. So, all UK billionaires GONE… and the UK government stopped borrowing for one and a half years.

So, in

Conclusion

inequality is not AS BIG OF A PROBLEM as we thought for two reasons. First, in most major economies inequality stopped rising. Second, a lot of problems that we thought were mostly driven by increased inequality are happening BOTH in highly unequal and less unequal countries.

But, crucially, all the graphs I’ve shown here are NOT PROOF that inequality is NOT to blame for some of the very real problems facing our economies today. The economy is complex. Multiple things are determining growth, crime, social mobility and democracy. But, to me the lack of correlations and the fact that inequality stopped rising for the most part means it IS dropping down my list of concerns, while stuff like increasing global conflicts and the coming demographic crisis are MOVING UP my list of concerns.

But, yeah that is my take, what do you think, I’m sure you will let me know in the comments below, and for those of you looking for a high quality eco friendly product like this bag or passport cover for yourself, a friend, or family member, please go check out Bellroy’s site via the link in the description, since our in-depth research can only be done if sponsors keep supporting us.