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Economic inequality: Perception and reality

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There is a link between economic inequality and national stress and unrest – but it may not be the relationship you assume. Rising media coverage of inequality makes people worry about their finances and believe their country is unjust, even if their incomes and economic fortunes are improving, a new study has found.

The number of German media stories about inequality has “more than quadrupled between 2001 and 2016,” according to the Cologne Institute for Economic Research (IW). Reports about income gaps have doubled over the last decade alone, even though measures of such equality have actually decreased.

Researchers from IW and EcoAustria reviewed more than 640,000 media reports, then interviewed 30,700 people repeatedly over a 14-year period. Perhaps unsurprisingly, they found that the more reporters emphasized inequality, the more people expressed concern over the state of the economy.

Media coverage of inequality within “three consecutive days before the respective interview is significantly negative for [stoking] the worries of the interviewees.”

More news stories of economic inequality also made German citizens question their nation’s fundamental commitment to justice. A one percent increase in stories about inequality made Germans 11 percent less satisfied with their country’s level of “social justice” (the term IW used).

This increase in anxiety and discontent is taking place despite the fact that actual economic conditions have been continually improving. According to the World Bank, GDP per capita has had a virtually unbroken increase since 1989, rising from $30,988 to $45,551 in constant 2010 U.S. dollars.

This has benefited citizens across the nation, including the formerly communist eastern part of the reunified land. “From 1991 to 1997, per capita GDP grew in eastern Germany at a rate of 60 percent – a level comparable to the growth seen in West Germany from 1950 to 1956 during the so-called postwar ‘economic miracle,’” according to Deutsche Welle. By 2013, the nominal income level in eastern Germany had risen to 89 percent of that in the western part of the country.

Most of the increase in poverty is due to the influx of migrants, according to the Institute of Economic and Social Research. Poverty among native-born Germans actually decreased last year.

Like the UK, Germany defines “poverty” as anyone making 60 percent of the median income or less. As I’ve noted, that doesn’t actually record poverty; it records inequality. Germany’s booming economy means that “the poor” made 76 euros more each month in 2016, than they did in 2010, adjusted for inflation.

Even economic inequality has been falling. The World Bank shows the Gini Coefficient declining from 2006 to 2011, due to the Great Recession. (As the economy improved, inequality risen, then fallen again.)

Left to their own devices, Germans consider their lives more fulfilling than others in the developed world. On a scale from one-to-10, the average German rates his life satisfaction at 7, higher than the OECD average of 6.5.

But IW found it took but a few media stories to shatter all that national contentment.

“Overall, there is no link between perceived inequality and actual income inequality across national boundaries,” say the authors of the report, which is titled, “Distorted perception: How reports of inequality are unsettling.”  However, they note “the political preferences of voters are shaped by subjective perceptions rather than by actual developments.”

The increased worry can be chalked up to widespread misunderstanding of economics. Well-meaning people assume that growing inequality means greater poverty and privation. The elites appear to be hoarding finite resources, which (it is often implied) may have been immorally acquired. However, “inequality” is a misleading measure. It does not evaluate people’s well-being, the nation’s fiscal trajectory, or whether people are better or worse off than they had been.

The IW chides reporters for failing to distinguish these phenomena adequately. “Traditional media still have an influence on the perception of the population,” said IW researcher Matthias Diermeier. “With this responsibility, they should handle it carefully.”

Journalists could undeniably be more responsible in their coverage of economics. But citizens, especially Christians, have a responsibility to receive and process information carefully, as well.

Reporting on inequality can too easily stir jealousy against those blessed with greater opportunities. One of the spiritual lights of his day – John Vianney, the Curé of Ars – tied contentment and the lack of worry with the absence of envy.

“Good Christians … envy no one; they love their neighbor; they rejoice at the good that happens to him, and they weep with him if any misfortune comes upon him,” he said. “Let us, then be good Christians and we shall no more envy the good fortune of our neighbor.” If we do that, “we shall enjoy a sweet peace; our soul will be calm. We shall find paradise on earth.”

(Photo credit: Public domain.)

Indivisible: Restoring Faith, Family, and Freedom Before It's Too Late

Indivisible: Restoring Faith, Family, and Freedom Before It's Too Late

James Robison, the founder and president of LIFE Outreach International, partners with Jay Richards, Ph.D., a writer who has appeared in both the New York Times and The Washington Post. Together, they tackle tough, controversial political issues facing conservative Christians today, including abortion, stem cell research, education, economics, health care, the environment, judicial activism, marriage, and others.

Rev. Ben Johnson Rev. Ben Johnson is Senior Editor at the Acton Institute.

Comments

  • Envy drives most concerns about inequality. But there are some good reasons to be concerned. Most people don’t know them because they refuse to read any economics and most economists are bad at their job. The fed causes increases in inequality with its inflationary monetary policies that enable the well-connected to get the new money before prices rise. Also, it causes recessions that hurt the working poor. Business regulations reduce competition and create oligopolies that can charge more, make higher profits and reward CEOs with higher pay.

  • jfr83

    The idea that envy is relatively deduced and that it can arise out of perception as opposed to reality is a good point that should not be overlooked.

    However, as the German study cited points out, what may only be perception in Germany is reality in the U.S. where the gap between average and median wages, a key metric of inequality, has been growing rapidly over the past 20 years, while at the same time, the purchasing power of the wages for working class people is lower today than it was in 1975. (The German study did not cite these statistics, but rather they come from other economics white papers that have been published elsewhere).

    While I agree with the sentiment of John Vianney’s quote, especially as it pertains to how we view our own situation, I think that his words can be cited inappropriately to discourage Christians from fighting for greater economic equality for the disadvantaged, such as minorities.

    I really like many of the things that Abraham Kuyper had to say about the nature of labor economics and the Christian’s role in advocating for fair policy, such as a portion of the material in the Handenarbeid brochure, where he argued that laissez faire policy inevitably leads to a reduction in the sense of security of human existence for labor, as they are out muscled by capital absent protections from the state.

    • Actually, inequality has risen only slightly over the past 20 years and it has risen as much in the more socialist countries of Europe. Capitalism cut inequality in half during the 19th century according to Fogel in his “Escape from Hunger and Premature Death.” It was cut again in half by the 1970s and has been rising slightly since. In the 20th century inequality was highest among the communist countries. Socialism increases inequality because those with access to power get the most wealth.

      • jfr83

        First of all, I am not making a case against capitalism. Secondly, I understand that there is a difference between alleviation of poverty and reducing inequality.

        With those points stated, the question of rising inequality in developed countries like the U.S. is well documented. To be honest, my concern is less with inequality, and more with the changes in policy that I see as being structural supports for inequality. What I mean is, when those with money use their wealth to pass legislation that protects them from competition and encourages rent seeking. I see many of the relaxations of anti-trust laws, for example, in this light.

        There are other policies, such as the method of taxing and funding education at the local level, which seems to lock poor people in cycles of poverty, that also come to mind.

        And then, there is the rise of economic moralism, which is rooted in the unbiblical idea of ‘God helps those who help themselves’ type of mentalities. In this aspect, I see Christians advocating for the rich, often by demeaning the poor as those who ‘are unwilling to work’ which is often not true for many of the working poor.

        So, I’m not against capitalism. But, I am against policies that prevent equality of opportunity, which I think have been increasing in America over the past several decades.

        • Well the US is not capitalist. At best it’s fascism light. Yes, the rise in inequality is well documented but never put in historical context. The recent rise is from about 30 on the Gini index to about 35, whereas it declined from about 90 in 1800 and about 50 in 1900.

          The real causes of growing inequality are 1) the Fed and 2) regulations. The Fed enriches the well-connected banks by doing business only with them. Its inflationary policies make those in finance richer because they can buy assets before prices rise while the rest of us have to wait until long after prices have risen. Finally, Fed monetary policy causes booms and busts and the busts hurt the poor far more than the wealthy.

          Regulations increase inequality because large corporations get regulations passed that limit competition, all in the name of health and safety. Limited competition causes most industries to be oligopolies that can charge higher prices, reap greater profits and reward management with higher salaries.