But setting aside the dislocations deep recessions, burst bubbles and depressions cause in household income (the right metric for measuring disparity in my opinion) is the gap between rich and poor – in America and elsewhere – has been declining over the past two centuries, not increasing. By any measure, the Gini ratio in particular, the gap between rich and poor declined from 1967 to 2010. And the cause for this change in which everyone’s incomes rise is mainly medical innovation that allows billions of people to live longer and healthier lives. Nobel Prize winning economist Robert Fogel comments on the effect of what he calls the “technophysical evolution” of the human race on inequality:
“In every measure that we have bearing on the standard of living, such as real
income, homelessness, life expectancy, and height, the gains of the lower classes have been far greater than those experienced by the population as a whole, whose overall standard of living has also improved. If anything sets the twentieth century apart from the past, it is this huge increase in the longevity of the lower classes.
The fact is that government transfers were incapable of solving the problems of beggary and homelessness during the eighteenth and much of the nineteenth centuries, because the root cause of the problems was chronic malnutrition.
Even during the most generous phases of the relief program, the bottom fifth of the English population was so severely malnourished that it lacked the energy for adequate levels of work (It was the huge increases in English productivity during the later part of the nineteenth and the early twentieth centuries that made it possible to feed even the poor at relatively high caloric levels. Begging and homelessness were reduced to exceedingly low levels, by nineteenth century standards, only when the bottom fifth of the population acquired enough calories to permit regular work. The principal way in which government policy contributed to that achievement was through its public health programs. By reducing exposure to disease,more of the calories that the poor ingested were made available for work.”
In our time, longer life and the increased participation of women in the workforce have contributed an increase in income and wealth among married households who are 45 and older. By contrast, households headed up by a single women are likely to be poorer and experience slower growth in income.
Income inequality is a function of education and life expectancy. The healthier people are the more they are likely to think about the long term and as a result, more likely to invest time and money in education and health care. Much of the inequality in income – over the decades -- is still due to barriers to regular work. Education can remove many of those obstacles, but reducing exposure to mental and physical diseases will be required to achieve greater growth and productivity. Thus the key to reduce disparities and promoting prosperity is consumption of new medical products.