Inequality, whether expresses in income or wealth terms, is both a consequence of emergent economic evolution and a cause of the path that such evolution may take.
A recent set of posts provide both food for thought as well as a perspective that might afford statists some basis for reevaluation of redistribution polices.
Becker and Posner make an interesting distinction between good and bad inequality. Becker uses antecote as a means (in my view very convincingly) to illustrate the incentive dimensions to linking outcomes with performance. By linking outcomes (income and wealth) to performance there will inevitably be differences and most economists would argue that these differentials provide a clear signal and incentive to individuals. It is through the rewards that are implicit in higher incomes that effort can be drawn from society. Adam Smith was dead on when he observed that it is not from the benevolence of the butcher that we receive our meat - rather it is from efforts on the part of the butcher to improve his lot in life. And, in this type of society (one based upon market mechanisms) the butcher who provides the best meat at the best price will prosper and the butcher who is unresponsive to customers by serving poor quality meat will earn a lower income.
Becker is far more eloquent and writes:
On my first trip to China in 1981 I visited several factories in the Beijing area. All the employees in each factory received more or less the same pay, and they could hardly ever be fired for bad work or absenteeism. This was an extreme eqalitarian approach to compensation, and the result was that no one worked hard, even though Chinese workers have traditionally been known for their diligence and energy. The picture was more or less the same in all of the factories I visited, and there was also little difference in pay between factories. Urban China was then highly eqalitarian, but it was also extremely poor because of very low productivity. China’s economic miracle has been in good measure based on allowing much greater inequality in pay and incomes to motivate greater productivity in both urban and rural areas.
As these individual choices emerge and evolve over time, societies will have radically different looks in terms of income and wealth distribution. This is important. These distributions are a result, in free societies, of individual choices that have accumulated over many generations. That is, this inequality is both a result of a long emergent process and has thus become deeply embedded into the institutional framework of the society.
Efforts by central planners to adjust or overturn this process via interventionist redistribution schemes are bound to be highly disruptive to the society and, as we have seen again and again, have unintended consequences. Since these consequences are unforeseen they may well lead to negative reverberations through society that are so disruptive as to be destructive of liberty and freedom.
Over at Marginal Revolution we see nice graphic that illustrates Becker's point about good inequality and shows a comparison that should generate reflection on the part of those who advocate redistribution in the name of egalitarianism.
The graph shows that the bottom 5% of Brazilians are among the poorest people in the world but the top 5% are among the richest. Thus the vertical range of the curve tells us about within-country inequality.
Comparing between countries we see that the poorest 5% of Americans are among the richest people in the world (richer than nearly 70% of other people in the world). The poorest 5% of Americans, for example, are richer than the richest 5% of Indians.
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