Are We All In This Together?

All in this together?

I happened to see the BBC’s Question Time on Thursday, broadcast from Liverpool, a deprived English city.   One of the questions was “Are We All In This Together?” – a reference to Prime Minister David Cameron’s claim that rich, poor and middle class must pull together to get out of the economic crisis.  I was struck by a comment from a lady in the audience.  What really got up her nose, she said, was Cameron’s slogan.  It was obvious, she said, that the poor were suffering most, and saying that wealthy people were suffering too was untrue and insulting.

She had a point.  A government can increase taxes on the rich, so that those with the broadest shoulders bear the greatest burden.  The taxes may bite.  But the prosperous minority are not “in this together”, and never really can be.  One of the main advantages of being wealthy is precisely that you have a buffer, a store of seed-corn that you can eat into in hard times without having to tighten the belt.  The rich have more options, including deciding to go and live somewhere that taxes are lower.  So the “all in this together” objective is disingenuous – it’s the wrong thing to strive for, because it’s unattainable.

It goes far deeper than what happens in a recession.  Consider what difference a century of progressive taxation has made to the distribution of wealth.  It’s an amazing story, and a salutary one.

Back in 1897, an Italian professor of economics, working at Lausanne University, Switzerland, studied patterns of income and wealth.   Vilfredo Pareto looked at statistics from nineteenth century England, and saw that most of the money went to a small elite.  Then he studied the picture in previous centuries, and was surprised to see that a curve of wealth distribution followed almost exactly the same.  He then looked at the picture in France, and Switzerland, and everywhere for which he had the information.  He was astounded to see that his graphs and equations looked almost exactly the same, no matter which country, and which time period, he examined.

And that was how the Pareto Rule, later called the 80/20 principle, originated.  Though he never used the phrase “80/20”, it pretty much summed up Pareto’s results.  Twenty percent of affluent people earned eighty percent of the income and owned eighty percent of every nation’s wealth.

A pretty good justification, you might think, for progressive income tax.  In the 1900s, liberal and socialist politicians started to levy serious amounts of income tax for the first time.  Lloyd George, the Liberal Chancellor of the Exchequer, introduced his “People’s Budget” in 1909 and promised to “squeeze the rich until the pips squeak”.  Since then, almost every country in the world, including the USA, has followed suit.

You might expect, therefore, that the rich today would be having a hard time, compared to the upper crust a century or so earlier.

Not a bit of it.  The last data I saw for America showed that the top twenty percent of the population owned eighty-six percent of the wealth.   Surprisingly, perhaps, the numbers are not very different in Europe or Asia, or in fact anywhere, whatever the political complexion of the country.  The most unequal major power is in fact the People’s Republic of China.  A good general rule is still that twenty percent of the people own eighty percent of the wealth.

So a century of high taxes on the rich (and most other people) has made almost zero impact.  When you are up against a tendency as powerful as the 80/20 principle, you should expect nothing else.  Wealth hates being equally distributed – as do many other things, such as athletic attainment, good looks, artistic prowess, and success in every field of endeavour, from science to philanthropy to business, and, yes, even to politics itself.  The few make the music; the few win the big prizes.

Whether we like this or not, we can’t do much about it.  It’s just the way the world works – not just in relation to money, but also to far more important matters, such as how to make the world a better place.   Really major achievement is a minority sport.

Almost certainly, the internet and the “global village” are making concentration greater.  We used to have local or national superstars.  Now we have global superstars.

So, no, we are not all in this together.  It might be nice if we were.  But when something is impossible, we might as well get reconciled to life as it is.  We may even discover that it could be better not to all be in it together.  It might be more exciting and liberating to find the one area of life where each of us is different and better than anybody else, and where we can achieve extraordinary results, not by fighting the grain of the universe, but by working with it.

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