Saul says that income inequality is cause for concern, but doesn’t say why. If the basis of the concern is mere envy, that is not a legitimate concern – in fact it is very anti-social and it’s anti-social to suggest income redistribution based on force of policy.

On the other hand, if income inequality is bad, why not distribute income equally? Obviously
a) this must spell the end of modern civilization, or
b) at the end of the first day it would be back to unequal again,
but that’s not the point. If the only way to get more income is by providing goods or services that society wants more than the alternative uses of the same factors of production that went into producing them, then attacking income inequality is only attacking the means by which everyone is made better off than they would have been if incomes were more equal.

Thus, absent government intervention, there’s nothing unfair about income inequality resulting from market transactions. It is the means by which the direction of all production is put in the hands of the masses.

Also, the term ‘distribution’ is ambiguous. In market transactions, distribution is an inseparable part of production. It is not as though society produces everything equally in common, then puts it into a common pool, and then there is a separate operation of unequal “distribution”. Unequal incomes arise only because the owners of private property are more or less successful in using it to satisfy the most urgent and important wants of society, as judged by society. It is rational in the sense of consumer evaluations, in a way that government confiscations and handouts can be nothing but arbitrary and counter-productive.

Anyone who doesn’t like the high executive incomes of a company has their remedy – don’t buy their products. Actions speak louder than words. The fact that some people who complain about such companies, continue to patronize them, proves that freedom is better than coercion, even in their own terms.

Three current graphs would greatly assist my appreciation of Mr Eslake's numbers:

Australian gross income distribution,
Australian after-tax income distribution
Australian wealth distribution

The horizontal scale would be percentile, the vertical scale would be income (or wealth) and would need to be a logarithmic (powers of 10) scale.

Comparable sets of graphs for 1970 and 1990 would help put some of his points a clearer context for me. I'd be pleased to know where any such (or similar) graphs might be found.

Actually JKJ I did spell out why I thought 'too much' inequality in the distribution of income and wealth could be a Bad Thing - 1) because it could (and in the US did)contribute to the accumulation of unsustainable levels of household debt, as people whose incomes are stagnant borrow in order to sustain levels of spending, and 2) it can undermine support for a market economy and the policies that make a market economy possible, instead fuelling support for things like protectionism and greater government intervention in the way the market works.

"Sir Victor", it's very hard to publish charts on this site, but you can find long time series of the data I used in writing this article on the web at http://g-mond.parisschoolofeconomics.eu/topincomes/.

There isn't much data on the distribution of wealth in Australia; the most recent source is the ABS publication Household Wealth and Wealth Distribution 2009-10, catalogue no 6554.0

We seemed to have entered an era where financial profits and profits through inflation...sorry "capital appreciation" have come at the expense of real wealth creation.
I believe the stats show that more even income and wealth distribution are associated with more growth, more robust growth and better democratic outcomes...but like all statistics it depends what you measure.
Until "Quality of life" indexes are closer to approximating the mysterious economic quantity "Utility" than the currently meaningless "GDP" then the profits of war or waste will be given equal value to the saving of lives or the provision of efficient essential services.
Obscene wages need not be banned...just fix the progressive income tax system to say...tax anything more than $400K by 80%. Also need to tax war/waste and financial profits by enough to stop their parasitic actions on the real economy. There is nothing wrong with real profits...but when the economy is rigged by bankers for bankers...private profit/public risk, corporate welfare funded by taxpayers, etc. This is not Capitalism, it is corruption.

Your article suggests that the concessional treatment of capital gains in Australia is causing income inequality but the evidence points to an opposite conclusion.

Prior to September 1985, there was no capital gains on any asset owned for more than 12 months. In other words there were greater concessions on capital gains in the past but income inequality was much less. It would suggest that your conclusions are invalid.

I appreciate that income inequality is a problem but please stick to the facts.

Saul Eslake,
Thanks for the links.

Saul Eslake tells us “One doesn’t need to be a socialist (and I’m certainly not)” and he says “distribution matters”.

Then he paraphrases Winston Churchill about markets being the worst system of wealth exchange, but better than any other device.

Finally:
“It may not be illegal for executives of companies to award themselves large salary increases or bonuses, or to put their hands up for large options packages with undemanding performance hurdles, whilst simultaneously sacking large numbers of their employees (or arguing for greater freedom to do so).”
Mr. Eslake’, does so disclose his aversion to unbalance in distribution of wealth and consequently sides with a norm that condemns utter greed.

Mr. Eslake,
doesn’t ‘Minimum Basic wage’ imply ‘Maximum Top Wage?

The meritorious deserve acknowledgement, but to the point of paradox?

Did ever pass our minds that banks are for lending the deposits of a group in order to supply the necessary capital to another group willing to ameliorate the condition of society.

According to this concept, the only economic concept morally valid, we are all bankers and those of us who care for the transactions in the process surely deserve a reward but not one as huge as to starve the institution itself of operational capital?

What reason is there in getting huge wages other than insulting both depositors and lenders

Saul - so we have to undermine the market economy in order to support the market economy? I admit that makes no sense to me.

Besides, the fact that some people spend more than they earn, or go into debt too deep, of itself has nothing to do with the market economy. They could and would still do it even if government arbitrarily redistributes other people's income. People who live beyond their means either need to spend less or earn more, simple as that. Their financial problems have nothing to do with the fact that other people provide services that society considers more valuable. Your argument is a complete non sequitur. It's like saying "Cows moo, therefore we should attack people's freedom".

Also, the reason it's so easy to go into debt is because of fractional reserve banking. This is not a market phenomenon, it's a government-overriding-the-market phenomenon. The government does it so as to create a market for its debt.

The first fallacy of economics, explained in Year 11 economics, is the idea that one person's gain is another person's loss. This is false, otherwise mankind would still be making stuff by bashing things with rocks.

You should be refuting this myth, not propagating it.

Saul's article is a classic example of an original government intervention producing negative consequences which the interventionists want to fix with more interventions.

…The market economy forces inequality thus; as the good fortune of success allows unlimited social progress upwards with all the rewards of wealth accumulations and influence, (top 1%); in the reverse, the opposite is true: The bottom is homelessness, offering the huge impediment of very limited opportunities of escape!

…The less Government manipulation of market outcomes the more unbalanced are social outcomes. This can be a good or a bad “thing” depending on the way the market is warped.

… Living a life of poverty, as many do, should offer alternatives supportive of individual survival, which currently are very limited, and is exacerbated by Government regulations which attempt to standardise society, forcing a conformity to the market. It does this through local Government regulations which pick-off those individuals forced to live alternative lifestyles.

…Byron shire in NSW is an exception: It has set aside an area designated for “primitive camping”, allowing the growing number of the homeless in the area to sleep without harassment. A disturbing and growing trend!

"…The market economy forces inequality thus"

You're not understanding the issue, which is, that we don't have a market economy. We've got one in which the market is controlled at every turn, and government controls interest rates and everything else. Most significant business decisions turn on government regulations. This has consequences. It's causing the poverty that, when you see it, you blame on the market economy.

"as the good fortune of success allows unlimited social progress upwards with all the rewards of wealth accumulations and influence, (top 1%); in the reverse, the opposite is true:"

The good fortune comes from providing what the 99% want; that's how the top 1% get the money.

"The bottom is homelessness, offering the huge impediment of very limited opportunities of escape!"

Why do you blame homelessness on the market economy? Have you ever tried providing rental accommodation to people? If you have, you'll know that government makes it non-viable in lots of different ways. For example, what do you think might be the effect of government manipulating the interest rates, on homelessness? Think about it.

"…The less Government manipulation of market outcomes the more unbalanced are social outcomes".

That's an article of faith, not of reason. If it's true, why not just abolish individual freedom and private property and have one hundred percent government control of everything?

meanwhile half the world work all day just to feed themselves while bludging occupiers want more money from the dole than people who have not got time to waste protesting about anything and everything.

Hi,
As I understand it, the data from Atkinson and Leigh that Mr Eslake cites is derived from the ATO Tax Statistics. It does indeed refer to gross (ie. pre-tax income). However, my understanding is that this measure includes transfer payments, as they are taxable income.

Therefore, the changes in the income of the "bottom 90%" and the shares of various quantiles could be affected by changes in the transfer system. It is difficult to conclude from this data, then, whether 'market' inequality has grown or fallen.

Instead, we can use the ABS microdata from the Survey of Income and Housing. Professor Whiteford has done this along with a colleague, and presented their findings at a recent University of Melbourne/BSL conference. His findings suggest that market inequality has indeed fallen since the mid-1990s, but that the tax and transfer systems also reduce inequality by a lesser amount than they did in the 1990s. The net result is that post-tax/transfer inequality is higher now than in the mid-1990s.