The coronavirus has reduced wealth inequality by making the rich less rich
At the time of writing, the coronavirus has killed more than 3,000 people worldwide and has spread to more than 60 countries. Beyond the awful human consequences, its impact is being felt in the local economy, with four in 10 supply managers in a nine-state region from Minnesota to Arkansas reporting negative business effects from the illness in February, according to a monthly report from the Creighton Economic Forecasting Group. All in all, it would seem to be pretty bad news.
Or would it? Those, like father of three Prince William, who claim that overpopulation is having a ‘catastrophic effect‘ on the natural world might view all this with more equanimity than the rest of us.
The same might go for those who claim that wealth inequality is one of the great issues of the age. As Yahoo Finance reported last Friday:
The combined fortunes of the world’s 500 richest people fell by $444 billion as the coronavirus continued to spread — and spread fear — rattling equity markets worldwide. The Dow Jones Industrial Average tumbled more than 12%, the biggest five-day slide since the depths of the 2008 financial crisis, in a rout that vaporized more than $6 trillion from global stocks.
The drubbing more than erased the $78 billion in gains that the 500 wealthiest people had amassed since the start of the year through last week, according to the Bloomberg Billionaires Index.
The world’s three richest people — Amazon.com Inc.’s Jeff Bezos, Microsoft Corp. co-founder Bill Gates and LVMH Chairman Bernard Arnault — incurred the biggest losses, with their combined wealth dropping about $30 billion.
Elon Musk, the world’s 25th-richest person, rang up the fourth-largest weekly loss — $9 billion — as shares of his Tesla Inc. slid after a steep climb to start the year. He’s still up $8.8 billion in 2020 and has a net worth of $36.3 billion.
About 80% of billionaires on Bloomberg’s wealth ranking are now in the red this year, including those whose businesses have been swept up in the global drama. Carnival Corp. Chairman Micky Arison lost $1 billion this week as the world’s largest cruise-line operator held tourists aboard one of its ships in Japan, where at least five passengers have died.
Jeff Bezos is worth an estimated $130 billion. Contrary to what many appear to thnk, this does not mean that he has $130 billion in his checking account or $130 billion worth of bills stuffed under his mattress. Most of it is made up of the estimated value of his assets. The same goes for the vast majority of ‘the rich’. By trashing the value of these assets, the coronavirus has made ‘the rich’ a bit less rich. And that has narrowed the gap between their wealth and the wealth of the average American. This is a win in the fight for greater ‘wealth equality’.
But has this made you any better off? In what way has the decline of the estimated wealth of Jeff Bezos improved your life? It hasn’t. Inequality of wealth is a bit lower than it was, but it hasn’t improved your life at all.
This illustrates why an obsession with wealth inequality is a waste of time and energy. What matters is not the gap between the richest and the poorest – which, as the coronavirus shows, can easily be reduced to nobody’s obvious benefit by making the rich a bit less rich – but how well the poorest themselves are doing. It is poverty that matters, not inequality. Indeed, where the poorest have incomes of $8,000 and the richest have incomes of $50,000, their is greater income equality than where the poor have incomes of $10,000 and the richest of $100,000, but it isn’t clear in what way the poorest are better off.
The only exception is when someone has got rich by theft or fraud. Even there, though, the inequality is only the symptom of the real problem, the theft and fraud.
None of this is new. Margaret Thatcher dealt with this as well as anyone, as long ago as November 1990.
John Phelan is an economist at the Center of the American Experiment.