What Thatcher Didn't Understand: Inequality Hurts the Rich and Poor Alike
http://www.theatlantic.com/business/archive/2013/04/what-thatcher-didnt-understand-inequality-hurts-the-rich-and-poor-alike/274940/
In the aftermath of Margaret Thatcher's death this week, the television-watching public was treated to an incessant loop of her quip that the political left "would rather the poor were poorer, provided the rich were less rich." This rebuke was not, in fact, originally Thatcher's: conservative economist Milton Friedman fired off different versions of the attack throughout his influential career. But it did tidily sum up the argument Thatcher sold to the British public on her way to Downing Street.
The obvious problem with the statement is that it simply assumes left-wing policies can't improve the incomes of the poor. The cross-country data that we have generally suggest that they can and do.
But there is an even deeper flaw with Thatcher's barb. It presumes that nobody could ever seriously support making the poor poorer in order to make the rich less rich. Admittedly, the idea seems ridiculous on first glance. But there's substantial evidence that suggests inequality, in and of itself, generates a whole slew of social problems that are harmful to individual and collective wellbeing. It is therefore conceivable that policies that reduce inequality could be worth pursuing even if they leave everyone, the poor included, with less income than they would otherwise have.
In The Spirit Level, Richard Wilkinson and Kate Pickett draw upon decades of research to show that, among rich countries, high levels of inequality correlate with lower levels of social cohesion and social mobility, worse mental and physical health, and higher levels of crime, violence, drug use, and imprisonment. These problems do not merely afflict the poor. Rather, they touch people across the social spectrum. The implication is that large income gaps, by themselves, are significant contributors to these particular sources of human misery.