GINI - or the increasing inequality between the rich and the poor

This is the 2nd part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here's a link to the other posts: Feminist Economics

As in any gathering of political lefties, inequality is a often-discussed topic. There are very decent debates around and differences to what this actually means, what equality would be and how equality is to be gained - but generally, most lefties agree on the notion that inequality is bad. 

At the conference these ideas were frequent. "The rich are getting richer, the poor are getting poorer" has echoed throughout the world since Seattle, "UK inequality is raising", probably been said since Thatcher or before that even, "rich getting rich at the expense of the poor" are repeated until they stick. Question is, how accurate are they?

We were presented with the following charts of  Wilkinson & Pickett showing the how more equal countries are better countries, also notions heavily worshipped within the left. The chart plots countries according to Income Inequality (measured as GINI) and an index consisting of various problems, obesity, teen pregnancy, mental health, violence etc), showing how more equal countries tend to have less of those social problems.

Discussion

This discussion is twofolded. The left argument is something like this:

P1: "Inequalities are increasing"
P2: "Inequalities are bad and must be prevented"
C = we must prevent the inequalities from increasing, preferably reduce them

I'll address these in turn.

Let's have a look at income inequalities as measured by GINI, then. Here's a chart which compares the UK (Red square) with Scandinavian countries, Germany, France and the US.

Source: Ekonomistas, based on OECD numbers. UK GINI inside the red square.

The trend for continental Europe and Scandinavia is indeed upward over the last 30 years, but from very low levels. In the case of UK, on the other hand, the income inequality has been stable since 1990, actually falling slightly over the last few years. The notion that income inequalities in the UK are increasing is simply not true. Also consider the article published in the Guardian last summer about how income gap in the UK is at its lowest point for 25 years.

The other discussion often involved here is that the rich are getting rich at the expense of the poor, as news regularly imply when posting these kinds of arguments. That discussion is wider and regards the economic foundations and structure of a company. Suffice to say that level of bonus vs layoffs have very little to do with one another.

If we turn our heads to a more global scale, Johan Norberg's In Defense of Global Capitalism, comes to mind. He shows systematically how capitalism increased the living standards around the world and made people better off. He also describes the following, taken from a Forbes article when the book was first published:

"As for the argument that the rich are getting richer, well, they are, according to Norberg: The top fifth of the population made an average $14,623 in 1998, a 75% increase over 1965 wages. But the poor are getting richer faster. The bottom fifth, making $1,137 in 1998, doubled their 1965 wages." - Forbes

That is - yes, the richer are indeed getting richer, but not as fast as the poor. Yet again the Leftie's notion is inaccurate.

Is inequality bad?

Following the first section, the second becomes more philosophical; if inequalities aren't increasing, it matters less whether or not they are bad. Even if they are, it's still less of a problem than the global left claims. And surely, if the levels of inequalities experienced in the UK in 1990 were sustainable, given the increased living standrads since then, surely UK 2014 would be a better place than 24 years back. 

Anyway, the discussion finds most of its academical value in Wilkingson & Pickets work, which relies entirely on correlation. They plot their charts and break law #1 in Academia: don't mix Correlation with Causation. But the Left, hardly creditted with academical excellence or consistency, takes their research and use it for certain proof that inequality is bad. 

How would that even be possible? Inequality is a strictly relative term, not too different from Relative Poverty (which I wrote about some time back); that is, indicators of inequality could be up, even though everyone in a society was better off. Besides, all the effects discussed occur on individual levels (obesity, violence, mental health etc) - why would I suddenly become more violent because a banker across town gets a bonus or because cleaners in a different part of the country suddenly make more money than me? Inconceivable.

Defending the 1%

In addition to all of this, the recent discussion in US media about the top 1% should be taking into consideration. The Harvard economist Greg Mankiw published an article in the NY Times a few weeks back vividly defending the 1% and their contribution to society/world. He also provides compelling reasons to why the Lefties' notions about the richest of the rich are incorrect. More extensive reading can be found in his article 'Defending the 1%'.

Conclusions 

The notion of increasing income inequalities in the UK is incorrect; GINI has remained stable for the last 20 years, marginally falling/raising over the last decade. The rich around the world are indeed getting richer - but so are the poor, and at a rate faster than the rich.

The starting point of the Left ("Inequality is bad") doesn't have more support than the correlations provided by The Spirit Level. Since correlation ≠ causation, this gives us nothing more than a hint towards further research. Also Mankiw's arguments about the top-1% should be taking into account; why are transactions that make both parts better off and at the same time creating income inequalities undesirable?

The question I have for you lefties is simple: why exactly is inequality bad?