Imagine a bus with 10 people in it. All of them make $75,000 a year, and they all live comfortably. Now someone who makes $900,000 per year enters the bus. Suddenly, the average income has increased from $75,000 to $150,000. While everybody is still living comfortably, poverty statistics will sound the alarm. The European Union, for example, defines anyone who makes less than 60 percent of the national average income as threatened by poverty. According to this standard, the 10 people in our bus who make $75,000 – only 50 percent of the average income – would now be poor. But has their life changed? No. Just because someone else has become richer, they have not become poorer.
Now imagine a different example. We still have the same 10 people on the bus, but now an economic crisis destroys their jobs and they have to make due with a much less paying job, let’s say for $25,000 a year. While their actual poverty has increased significantly, according to poverty statistics, there would be no problem. They would all make exactly the average income and none of them would be considered poor.
This example shows how inequality can contradict our intuitions: When a society as a whole gets poorer, inequality can be reduced or increased, depending on the cause of the development. Accordingly, the countries with the lowest statistical level of inequality are the same central-African countries that are the poorest countries in the world. When a society as a whole gets richer, however, inequality mostly increases because some people get richer quicker than others. This isn’t necessarily a bad thing. There can be a number of acceptable reasons for this development:
- We all value wealth differently. While some people spend almost their entire energy on making money, others prioritize other things. Stay at home parents, dropouts, or people who are content with a low paying job consciously decide to make less money. In wealthy countries, these different values increase statistical inequality more than in poor countries, but they do not decrease the quality of life of the people who live by these values.
- In a rich society, everybody has more money to spend on hobbies. People who earn money by generating public interest – athletes, musicians, actors, etc. – and everybody associated with them profit from the available money by selling more merchandise and tickets, and by getting better advertising deals. This development gets a lot of money into few pockets, thereby increasing statistical inequality. In reality, though, this inequality is a sign of a country’s prosperity.
- Only 200 years ago, every company was confined to a small market. Modern technologies now allow a company to deliver its products to the entire world. Instead of having multiple breweries in every town and city, with each individual owner only making little more than the average worker, we now have fewer but larger breweries, which has led to an increase in salary for the breweries’ management and ownership, thereby increasing statistical inequality. All other industries have gone through similar developments. Nonetheless, having industries that deliver their products to the entire world is a strong sign of a nation’s prosperity.
- Immigrants often go through an adjustment period in which they have to learn a countries language and customs. During this period, they have to work in low paying jobs, thereby increasing the inequality in countries with many immigrants compared to countries with less immigrants. Since immigrants prefer to immigrate to wealthy countries and the difference is especially significant in wealthy countries, this aspect of inequality, too, is a sign of a countries prosperity.
- Social security payments in most countries aim to provide a minimum standard of living and are therefore detached from the average income. When the average income is low enough, recipients of social security will make a higher percentage of the average income and do not count as poor. When the average income increases, however, recipients of social security will sooner or later fall under the minimum requirement for poverty and the poverty rate will increase significantly. As long as the costs of living do not increase, however, recipients of social security can keep a constant standard of living, despite now being classified as poor.
Prosperity and statistical inequality often go hand in hand. Inequality, in itself is not bad. As long as everybody’s standard of living increases, it is perfectly acceptable if a few peoples’ standard of living increases faster than others. Inequality only becomes a problem when it is created by increasing poverty. Inequality in isn’t the problem, poverty is. Most of the time, the causes of inequality are plenty and exist in layers, which makes it difficult, if not impossible, to attribute changes in inequality statistics to one development.
Unfortunately, most poverty statistics, too, truly measure inequality. As we have seen, the European Union categorizes everybody who makes less than 60 percent of the national average income as threatened by poverty. Other institutions employ similar definitions. While these indicators can create some meaningful insights into a country’s development, we have to treat them with caution. Measuring actual poverty with such statistics is difficult. By itself, they can hardly create an accurate picture of reality, we always have to consider additional statistics. Statistics such as:
- Did the costs of living rise or fall?
- Did purchasing power increase or fall?
- Did the average income rise or fall?
- Is the average income compared to other countries high or low?
When we try to measure poverty by measuring inequality, we can make the worst decisions. For example, Germany is the fourth richest country in the world and has one of the lowest unemployment rates in Europe. Nonetheless, over the last decade, the poverty rate has risen by 1.5 percent. Judged by this statistic, Germany would do well by adopting some lessons from Central-African countries that have much lower inequality rates. In real life, of course, roles are reversed, and we should avoid letting a 1.5 percent change in one statistic trick us into making bad decisions.
Poverty statistics become completely meaningless when we compare two countries. Since the poverty percentage is always related to the average income of the country itself, a country with a high average income can have a higher percentage of people in poverty but nonetheless provide a higher standard of living for everybody than a country with a lower average income and a lower percentage of people in statistical poverty. To generate a meaningful result, we would have to at least compare both countries to the average income of both countries combined, while also accounting for the different costs of living.
Why demagogues love poverty statistics
While poverty statistics should not be used on their own, they are one of the favorite things to quote for many politicians. Especially when a country is doing well and the opposition has run out of arguments, they can use poverty statistics to paint the picture of a deep crisis. Especially demagogues of the far left or far right often repeat the message of increasing poverty to justify their extreme plans to disown or deport people.
These messages usually find at least some willing supporters. Our self-serving biases trick us all into believing that we deserve more than we have. By using statistics in a skewed and manipulative way, demagogues generate the false image that a small group of people is stealing what is rightfully ours, thereby appealing to our self-serving biases. The promise of receiving what we (unjustly) consider to be our fair share of the pie by partly or completely eliminating, disenfranchising, or disowning a small group of people can trick enough of us into believing the demagogues’ propaganda to keep them in secure jobs for decades.
The obvious solution to this dilemma would be to stop measuring poverty by measuring inequality and instead create statistics that truly measure poverty. Since defining poverty is difficult, however, this is much easier said than done. When is somebody poor? Two people who make exactly the same amount of money can have a very different quality of life if they live in cities with different costs of living, if their jobs require different expense in utilities such as clothes, if they have five children or no children, or if their ways to work differ greatly in their cost. Also, any statistic on poverty faces the difficulty of having to define an exact income that marks the threshold of poverty. Those of us who make $1 more than this threshold lead the same lives as those of us who make $1 less, but they fall into a different category.
The bottom line is this: Using statistics to reflect a country’s poverty requires a few calculations. Since politicians prefer easy arguments, we can expect any politician that uses a statistic on inequality to be using this strategy in a misleading, oversimplified way. Instead of allowing the repetitious misuse of overly simplified poverty statistics to trick us into voting for politicians that have run out of valid arguments, we can fulfill our democratic responsibilities better if we stay away from ideologies that want to divide people into groups and then use the newly created division for their own purpose.
How to judge a society’s fairness realistically
When it comes to evaluating our society’s fairness, misused inequality statistics are not the only instrument to mislead us. Just as oversimplified inequality statistics can trick us into overestimating our society’s inequality, the repeated exposure to rags-to-riches tails can cause us to underestimate our society’s inequality. When we believe that the difference between successful and unsuccessful people is limited to effort, especially the more privileged of us can easily discard real inequality issues as a self-imposed problem.
With different influences pulling us into diametrically opposed directions, it is often hard to evaluate a society’s equality realistically. To solve this problem, American political scientist Thomas Rawls devised a thought experiment that he called the veil of ignorance. Rawls wants us to imagine that we are a baby in the mother’s womb, unable to tell which of a society’s many possible circumstances we will be born into. We don’t know which ethnicity or which sex we will belong to, whether our parents will be employed or unemployed, or whether we will grow up in a big city or in a remote town. Rawls argues that we can only consider a society fair when we would gladly accept any situation that we could be born into.
The veil of ignorance forces us to forget the rare rags to riches stories and the misused statistics, and instead demands us to focus on what it would mean to enter our society in the form of a lottery. Based on this principle, nobody would be willing to enter a society that discriminates against a certain group of people because of their skin color, religion, or sexual orientation. We would all want to know that we can live our lives according to our own preferences, regardless of what we look like or what we believe in. Similarly, the veil of ignorance allows us to make more assumptions about what a just society looks like. If we could be born into any kind of circumstance…
- …we would want equal rights for everyone and a just judicial system to defend these rights.
- …we would want education to be available for everyone. We would not care whether universities are financed by tax subsidiaries or whether everyone can get a student loan with easily financeable conditions, but we would refuse to enter a society where our heritage could prevent us from a good education.
- …we would want health care to be available for everyone. It would matter little to us whether the government provides this health care or passes a law that requires private insurance companies to accept everyone, with the highest rate only being x times as high as the lowest, , as long as we would know that we will not be left to die if we get sick.
- …we would want to be able to freely choose which job we take, whom we marry, and how we spend our money. We would not want to be born into a society that tells us whom we can marry, stops us from working in a job because we do not fit the desired perfect ratio, or utilizes any other form of political planning.
- …we would want to live in a peaceful society that spends its money on science, education, and other endeavors that benefit humanity, not in a society that sends its children to die in useless wars.
- …we would want to be able to enjoy the fruits of our labor. If we work hard, get a good job, and make more money than the average person, we wouldn’t mind contributing to the greater good by paying taxes, but we would want these taxes to be as low as possible and not a way to finance election gifts.
Regarding inequality, the veil of ignorance allows for a verdict, too: If we were to be born into a society without knowing our exact circumstances, we would not object to inequality in general. We would only object to poverty. As long as we knew that our parents have enough money to provide us with a decent upbringing, there is no reason to object to other people having more money. On the contrary, we would probably want some inequality, because it would indicate that we can better our lives through our work and that we have some influence over the circumstances we live in. If everyone were completely equal, we would have to conclude that, regardless of what we do, our lives are predetermined, that some kind of norm will be forced on us, and that we can’t influence whether we want to invest time and energy into making more money or want to be content with less – a highly unattractive thought for someone who is about to enter the world.
Rawls’ veil of ignorance can also be applied to the world as a whole. We can only say that we live in a fair world if we can wholeheartedly say that we would be fine if we were randomly born anywhere in the world. How insane such a statement currently seems tells us how much we have left to do.
- Many poverty statistics truly measure inequality because measuring actual poverty is difficult. Inequality in itself, however, isn’t bad. By themselves, statistics that measure inequality provide little insight into whether a country is on the right track or not.
- Since our self-serving biases all trick us into believing that we deserve more than we have, politicians that have run out of valid arguments like to appeal to our biases by misusing and oversimplifying inequality statistics. When a country is doing well, inequality statistics are often the opposition’s and the demagogue’s last straw to create the image of a crisis.
- The veil of ignorance allows us to find criteria for evaluating our society’s fairness without having to rely on the storylines and oversimplified statistics many politicians and media outlets are communicating towards us.
John Rawls: A Theory of Justice
Rawls’ highly intriguing book on justice, containing the veil of ignorance thought experiment.