Wealth and income inequality has become the big issue of the day. And with Thomas Piketty’s new book it’s become THE hottest topic in economics. But I fear that much of this discussion looks like one gigantic fallacy of composition.
Last year when I wrote my review of Piketty’s book I criticized him for not taking an expansive global view. In fact, wealth and income inequality are problems at a domestic level, but when taken in aggregate it is not really a problem at all. The world is actually become a much wealthier place from top to bottom. I said:
“in a global sense, one could argue that the rise of the developed world and its accompanying wealth explosion has been an instrumental driver in helping to bring the emerging world out of substantial poverty. Over 1 billion people have been brought out of extreme poverty in the last 20 years alone.
…
the short story is that we are living in a tremendously exciting time where our living standards are exploding, humans produced more in the last 25 years than in the entire 1,900 previous years and we’re seeing a more balanced global prosperity.”
And here’s a wonderful visual from Barry’s site which clearly shows that the income distribution of the world is actually becoming much more balanced:
This is why it’s so important to think in a macro sense. Yes, wealth and income inequality is a growing issue at a domestic level, but at a global level capitalism is actually bringing more people out of poverty than ever and creating a much more equal world.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.