Why equity matters

Income inequality is a bad thing. It’s a suboptimal scenario. This isn’t something that is debatable. It follows from a few fairly fundamental principles:

  • Wealth demonstrates diminishing marginal returns.  This is evidenced through risk aversity and other empirical studies
  • Happiness does generally increase with wealth, but at a decreasing rate.
  • There’s plenty of evidence that living in an area where others have more money than you makes you unhappy, even if you’d be happy with the exact same amount of money in a neighbourhood where you earned more than average.

In other words, taking money away from the wealthy to give to the poor makes the wealthy less unhappy than it makes the poor happy. More equal incomes will improve over happiness. Although I suspect the action of “taking away from the wealthy” has a certain inherent bias to unhappiness itself.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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