Economics 101

How Should Christians Think About Prosperity, Inequality & Justice?

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“Inequality” is one of the buzziest of buzzwords in the Western world today, and not without good reason.

Income and wealth inequality are currently as high as they were in the Gilded Age of the Roaring Twenties when the average man performed grueling manual labor for little pay while men like John Rockefeller and Andrew Carnegie swam in oceans of personal wealth the world had never before seen. Today’s inequality, with billionaires like Jeff Bezos and Bill Gates claiming vast swathes of the world’s wealth, rivals only the year 1929, just before the terrible stock market crash that precipitated the Great Depression.

And the inequality is not limited to the United States. According to Oxfam, the world’s richest one percent claimed 82 percent of the wealth created in 2017 while the poorest half of the world saw no net increase in wealth at all. In fact, the 42 richest people in the world hold the same wealth as the poorest half of the world combined (some 3.7 billion people). The wealth of billionaires has grown six times faster than the wages of average workers since 2010. According to Oxfam’s report, it takes just four days for the CEO of a top fashion company to earn what a Bangladeshi garment factory worker will earn in a lifetime. US-specific inequality is a bit more mild: it takes a little over a day for American CEOs to make what it takes their average employee a year to make.

Some, however, object to the way Oxfam calculates net wealth—subtracting liabilities from assets. “By Oxfam’s measure, the poorest people in the world are recent Harvard graduates with student debt piles,” says Ben Southwood of the Adam Smith Institute. “Having negative wealth may actually be a sign of prosperity, since only people with prospects can secure a loan.”

Others suggest that measuring wealth inequality by any one snapshot in time is misleading. More important is to look at patterns of income and wealth over time and whether individuals experience increases or decreases in their economic wellbeing. This is called “income mobility” in economics.

Dr. Anne Bradley of IFWE uses data from a 2008 US Treasury Department report about income mobility, showing that “roughly half who started in the lowest quintile in 1996 moved into a higher quintile by 2005, in only nine years.” What about the ultra-rich 1 percent of income earners? According to the data, they are more likely to slip downward in income from year to year than remain at that elevated level. Of those in the top 1 percent in 1996, 58 percent moved into a lower group by 2005. Forty-five percent of the top 5 percent moved lower in the same time period, and 39 percent of the top 10 percent likewise moved lower.

It’s also important to note that, as researchers from the Bank of England and the International Monetary Fund have shown, global wealth inequality has actually fallen in recent decades as the incomes of those in developing countries rise, even if wealth disparities in certain countries continue to rise.

What Caused the Rise in Inequality?

Before moving on to a moral and biblical discussion of inequality, it will be useful to cover some of the most commonly cited potential causes of the recent rise in income and wealth inequality.

A wide variety of plausible contributing factors have been suggested. Take, for example, assortative mating—the phenomenon that marriages tend to be between those in the same socioeconomic class and cultural background. The theory holds that if children of successful parents grow up and choose a spouse with similarly successful parents, and the same thing occurs with children of unsuccessful parents, over generations the successful will continue to get more successful, and the unsuccessful will remain unsuccessful.

The decline of union membership has also been suggested as a contributing factor in inequality. This is certainly a plausible suggestion for those who belong to some of the more effective unions, though an argument can be made that those workers would have been successful without organized collective bargaining.

The decline in well-paid manufacturing jobs for the relatively low-skilled is another plausible culprit, as the disappearance of those jobs has pushed down the labor force participation rate in certain parts of America. Those who kept working often transitioned to lower-paying service jobs. Many of those that did not continue working transitioned to welfare dependence.

Considering the correlation between single motherhood and crime, lower labor force participation, and other negative life outcomes, the disintegration of the family plausibly deserves some of the blame.

Dr. Anne Bradley suggests a few additional contributing factors, in For the Least of These: A Biblical Answer to Poverty, citing previous work by author Frank Levy. Family structure is one. In households where both parents and sometimes a teenager or young adult work, the number of wage-earning workers might be multiples larger than households with only one worker. More workers living under the same roof means greater income and less expenses.

The evolution of technology is another factor. Robotics, automation, and artificial intelligence have replaced countless jobs and prevented many more from being created in the first place. The jobs that this evolution in technology have created are disproportionately high-skilled and high-paying jobs, thus widening inequality.

Growing markets have also paved the way for increased inequality. Globalization has opened markets across the world for the mature companies of developed countries to sell their products. This makes an increasing amount of revenue flow upward to the owners and executives of those companies. Globalized markets have also created competition among low-skilled laborers of different countries who previously did not compete with one another. For instance, as the cost of living is cheaper in countries like China, India, Indonesia, and Mexico, workers command lower wages than American workers whose cost of living is much higher. Many manufacturing jobs have been outsourced in order to lower the cost of production and ultimately lower the prices of consumer products. The loss of jobs obviously promotes inequality, offset only somewhat by lower consumer prices.

But there is one contributing factor in rising income inequality in the last few decades that has only recently been validated by substantial research. I’ll explain what that is in my next article.

Editor’s Note: This article is adapted from the new book The Third Temptation: Rethinking the Role of the Church in Politics by Austin Rogers, available now on Amazon.

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Learn more about economics from a Christian worldview by suscribing to IFWE!