The debate was never about equality of outcome
Imagine watching a football match. At half time, one team leads three goals to one.
The scoreline tells us something about what happened during the first half. Perhaps one team played better. Perhaps they created more opportunities. Perhaps they simply converted their chances more effectively.
But the score itself does not materially affect what either team is capable of achieving in the second half. The teams each have opportunity ahead of them – respectively to recover, or to extend their lead.
The fact that four goals have already been scored does not make it physically harder to score another three after the break. The scoreline records past performance. It tells us something about what happened, but it tells us relatively little about what either team is capable of doing next (that’s what makes football exciting!!).
But goals scored is only part of the scoreboard.
Now consider a different statistic.
Suppose one team has received four red cards and must play the remainder of the match with only seven players on the field. Let’s ignore for now whether those cards were correctly issued. (Valentin Ivanov, if you’re reading this, I still haven’t forgotten your 2006 World Cup refereeing performance! #Battle of Nuremberg )
That statistic is fundamentally different in character.
The missing players are not merely a record of events that have already occurred. They affect what the team is capable of achieving going forward. Fewer defenders means greater vulnerability. Fewer midfielders means less control of possession. Fewer attackers means fewer opportunities to score.
The red cards are not merely part of the scoreboard.
They are part of the machinery that shapes how the second half will play out. Red cards are not merely an outcome – they are a causal influence on future events.
The distinction becomes even clearer if a young player makes his professional debut at half time.
The substitute played no role whatsoever in the events of the first half. He scored no goals. He committed no fouls. He received no red cards.
Yet the opportunities available to him depend profoundly on the state of the game he inherits.
A player joining a side with an overwhelming numerical advantage will find more space, more possession, more opportunities and a greater chance to impress coaches and selectors. A player joining a side reduced to seven men faces the opposite reality. His prospects are shaped by circumstances that existed before he stepped onto the field, and which he had no role in shaping.
The debate about inequality often follows a remarkably similar pattern.
Much of the political right and mainstream economics implicitly treats inequality as though it were merely a scoreline. The right sees inequality primarily as a record of previous economic performance. It may reflect differences in effort, productivity, talent, risk-taking, luck or merit. But fundamentally it is treated as an outcome of what has already happened.
Much of the political left and heterodox economists see inequality very differently. The left sees inequality less as a scoreline and more like the red cards. Joining a team that’s down four players makes playing the game more difficult, and diminishes opportunity in the future.
The concern is not that the score has become uneven. The concern is that inequality changes the conditions under which future opportunities are created and future outcomes are generated.
When critics of inequality raise concerns about social mobility, opportunity, economic growth or economic dynamism, they are often making a claim about the causal structure impacting opportunity in the future. When their opponents respond with warnings about the harm of pursuing “equality of outcome”, they are responding with an argument about scoreboard outcomes.
The result is that the two sides frequently talk past one another.
For decades, critics of inequality have often been making arguments about future opportunity. Their opponents have often responded with arguments about previous outcomes. The resulting debate has generated far more heat than light because the two sides were never arguing about the same thing.
The ‘equality-of-outcome’ rebuttal is one of the longest-running strawmen in public policy discourse. It is a retorical move that (perhaps unintensionally) switches the topic to “inequality of outcome” which is easier to attack than a concern for future equitable opportunity.
Before we can meaningfully debate whether inequality matters, we must therefore answer the more fundamental question:
Is inequality merely part of the scoreboard?
Or is it part of the machinery that determines future opportunities?
The Equality-of-Outcome Strawman
The curious thing about the ‘equality-of-outcome’ rebuttal is that it is not entirely irrational.
It only appears irrational once we recognise that each side of the debate is talking about different things.
Suppose inequality really is nothing more than a measure of previous economic outcomes. In that case, concern about inequality naturally sounds like concern about unequal outcomes. If inequality is merely part of the scoreboard, then what else could critics of inequality possibly be concerned about other than the simple fact that the score from the first half was different?
Viewed through this lens, the ‘equality-of-outcome’ rebuttal appears entirely reasonable.
If somebody says they are concerned that one team has scored more goals than the other, it is natural to conclude that they would prefer a more equal scoreline.
This is precisely how much of the political right interprets discussions of inequality. It is treated as purely an outcome of previous performance, not an inhibitor of future outcomes.
Under this interpretation, concern about inequality inevitably sounds like concern about previous outcomes, not concern about future opportunity.
The difficulty is that this is often not the salient concern regarding inequality.
When critics of inequality raise concerns about economic mobility, educational opportunity, entrepreneurship, social trust, or economic growth, they are typically not arguing that previous outcomes should have been more equal. They are arguing that inequality changes the conditions under which future outcomes will be generated.
This is why debates about inequality so often become confused.
One side sees inequality as part of the scoreline. The other sees inequality as part of the machinery for how the economy will function in the future.
Until we establish which of those views is correct, the true role of inequality cannot be understood.
Scoreboard or Machinery?
The disagreement ultimately comes down to a surprisingly simple question.
What exactly is inequality?
Is it merely a measure of previous economic outcomes?
Or does it materially affect future economic outcomes? Is the presence of excessive inequality an impediment to future ‘equality of opportunity’?
If inequality belongs in the first category, much of the conventional right-wing argument follows naturally.
A scoreboard does not affect the future course of a football match. It records what happened previously. The score may tell us something about relative performance, but it does not determine what opportunities exist in the second half.
Viewed through this lens, concern about inequality really does look like concern about unequal outcomes.
But the entire argument changes if inequality belongs in the second category.
Suppose inequality alters the opportunities available to future workers, future entrepreneurs, future investors and future businesses. Suppose it affects who can access education, who can obtain capital, who can take risks, who can start businesses, and who can participate fully in economic life.
In that case inequality is no longer merely a record of previous economic activity.
It becomes part of the process that generates future economic activity.
It becomes part of the machinery.
Once inequality is understood in this way, the equality-of-outcome rebuttal largely loses its relevance.
The concern was never about yesterday’s outcomes.
The concern is about tomorrow’s opportunities.
This is where the debate becomes empirical rather than ideological.
The question is no longer whether inequality is fair or unfair.
The question is whether inequality itself changes future economic performance.
- Does it affect economic growth?
- Does it affect social mobility?
- Does it affect entrepreneurship?
- Does it affect innovation?
- Does it affect opportunity?
These are not moral questions.
They are questions about cause and effect.
And once the discussion is framed in those terms, we can finally examine the issue that has largely been hidden beneath decades of arguments about equality of outcome:
What if inequality is not merely recording economic performance?
What if it is helping to shape it?
What If Inequality Is Part of the Machinery?
If inequality is actually part of the causal machinery that shapes future opportunities, rather than just the scoreboard for previous gameplay, the entire debate changes.
The question is no longer whether unequal outcomes are fair. That is beside the point. The question is whether inequality itself shapes what happens next.
This is not a moral question. It is an empirical question. It’s not about fairness. It’s about the economic mechanics.
If the answer to these questions is no, then the conventional right-wing intuition is largely correct. Inequality is simply a record of previous outcomes. Discussions about inequality inevitably become discussions about whether previous outcomes should have or shouldn’t have been more egalitarian. That is not the subject of this article.
But if the presence of greater inequality impairs economic opportunities for everyone, then inequality belongs in a completely different category. It becomes a causal variable. It becomes part of the economic machinery that shapes future economic performance.
Returning to our football match, concern about the red cards is not concern about the first half scoreline. It is concern about how the previous red cards affect the second half. The substitute player entering the game cares less about the final score of the first half, and more about whether he’s joining a team that is 4 players up, or 4 players behind.
He cares about the conditions under which he must now compete.
The same logic applies to economies.
Every new worker enters an economy they did not create. Every entrepreneur starts a business within conditions they inherited. Every investor deploys capital into an environment shaped by previous events. Every child is born into an economic system whose opportunities and constraints already exist before they arrive.
The central question is therefore not whether inequality accurately records previous economic performance. The central question is whether inequality influences the conditions under which future economic performance will occur.
Go back to the 1980s – the average family on an average income could afford to buy a house, they expected to have sufficient income (often with one income earner) to afford a nice lifestyle. They had discretionary income, and could choose to save or to consume more. They had economic choices. Interest rates were higher, but so was return on capital for investors.
The average middle class family had enough disposable income that entrepreneurs could apply their creativity to inventing new goods and services, offering investment opportunities to wealthy backers, and all this was possible because the vast middle class had enough disposable income to buy desirable new goods and services. The level of income inequality created opportunities for everyone – consumers, business operators, entrepreneurs and investors.
Compare that to a much more highly unequal society:
Under high inequality, there’s so much stored savings that the rich bid up the price of houses, to the point where new families can’t hope to ever get on to the property ladder unless they have a fortuitous run of luck. More and more families who do manage to buy a home dedicate a much higher proportion of their income to paying off that mortgage than the equivalent family in the 1980. That doesn’t just mean they need to cut back on avocado on toast. It also means they have less discretionary income to spend on whatever new goods and services might be invented by entrepreneurial individuals. It means less opportunity for new businesses. Less opportunity for investors. And tighter margins on capital invested.
From the 1980s to 2020s economic growth has reduced from 4.5% p.a. to around 1.0% p.a. Average rate of return on capital invested (the risk free rate of return) has dropped from 8% to 10%, to around 2%, and has become much more uncertain.
There are still opportunities for entrepreneurs, but the opportunities are increasing in ‘big tech’ transformations and AI which cannibalize the existing economic activity. Facebook and Google didn’t entice middle-class families to spend more disposable income on new innovative goods and services, because there was relatively little disposable income to entice. Instead, what passes for innovation now kills more existing businesses than it creates. Facebook and Google were successful because they shifted spending from advertising agencies, print media, free to air television, and regional newspapers. A vast ecology of businesses was decimated to create the behemoths that now dominate the world of online algorithmic advertising.
This wasn’t innovation in service of economic growth. It was innovation in service of greater concentration of economic activity. Greater aggregation. Runaway increasing inequality.
That’s a symptom of greater inequality. And it matters. It matters for future opportunity.
This is of course merely anecdotal. The story may be incomplete. The details may be debated. I include it as illustration of the mechanisms that critics of inequality are concerned about. This story is not presented as conclusive evidence. I include it to paint a picture of how inequality influences future opportunities. How inequality kills economic growth for everyone. To illustrate the point that concern about inequality is concern about how the economy works going forwards. About ensuring that the types of opportunities that existed in the past, will also be available to future generations.
This is a subject I’ve been researching academically for 6 years. My research has demonstrated convincingly in academic study soon to be published, that inequality is not merely recording economic performance of previous activity.
It’s more like the number of red cards – the number of players who can effectively contribute going forward. It’s less like goals scored in the past. Inequality shapes future opportunities at the macro-level.
In technical terms, inequality is a state-variable that must be incorporated into our macroeconomic models if we want to be able to understand economic activity accurately. Higher inequality is not simply a description of what happened previously.
It changes how the economy works going forward. It affects the opportunities available to future participants. It affects the rate at which economic opportunities are created. It affects economic growth itself.
Most importantly, these effects do not fall exclusively on those at the bottom of the income distribution. Inequality reduces economic growth across the whole economy, so the consequences are borne by everyone:
- The poor are worse off than they otherwise would have been – the price for essentials, as a share of the lowest incomes, is higher in an unequal society. The poor are made worse off than they would otherwise be, by the presence of higher inequality.
- The middle class is worse off than it otherwise would have been – less discretionary income, lower range of choices for consumption, lower savings, and less ability to invest for the future.
- Even the wealthy are made worse off than they otherwise would have been in a more dynamic, faster-growing economy – lower returns on capital, less economic growth, fewer viable investment opportunities, less economic dynamism.
The debate about inequality therefore is not a debate about whether we should redistribute income or divide the economic pie more equally. It is actually a debate about whether we want to maximise the size of the economic pie in the first place.
And once the question is framed that way, a new understanding emerges.
Reducing excessive inequality is not a trade-off between prosperity and equality. Reducing inequality is part of the process of maximising prosperity itself. For everyone.
The strawman we often hear suggests that the left cares about equality of outcome while the right cares about equality of opportunity. This vastly mischaracterises the inequality debate.
Critics who raise concern about inequality generally do so precisely because they believe that inequality undermines equality of opportunity.
The disagreement is not about whether opportunity matters.
The disagreement is about whether inequality affects opportunity, and a full understanding of the dynamics of macroeconomy shows it does.
Concern about inequality emerges from a commitment to opportunity, rather than opposition to it.
From Equality to Optimisation
Once inequality is recognised as part of the economic machinery, rather than merely a scoreboard, an interesting possibility emerges.
The debate no longer needs to revolve around equality.
In fact, ‘equality’ we can now see, was always a distraction. Part of the strawman.
Some inequality is essential, for all the reasons covered in every previous debate – incentivisation, reward for effort, etc, etc. But once we understand that excessive inequality affects future opportunity, economic growth, entrepreneurship, investment, social mobility and human flourishing, we then need to move on to the next logical question.
The relevant question is no longer whether inequality should exist. Clearly some level of inequality is necessary and desirable. Differences in talent, effort, risk-taking, creativity and productivity are real. A functioning economy requires incentives. Complete equality would likely be as damaging as extreme inequality.
The real question therefore becomes: What level of inequality produces the greatest opportunity and prosperity for everyone?
This is a very different question from the one that dominates public debate.
The equality-of-outcome strawman assumes a world in which people are trying to make outcomes as equal as possible.
But if inequality affects growth and opportunity, then the objective is not equality. The objective is optimisation of opportunity for all.
Too little inequality weakens incentives, innovation and productive effort. Too much inequality reduces opportunity, suppresses entrepreneurship, slows economic growth, reduces economic dynamism, weakens social mobility and diminishes future prosperity.
The challenge is therefore the same challenge faced in every mature science.
Not dogmatic adherence to the postulates of one side or another. Not closing our eyes to half of the system of causation in order to protect a political agenda. The role of a scientific macroeconomics is optimisation.
Doctors do not seek the highest possible blood pressure. Nor the lowest possible blood pressure. They seek the level that maximises health.
Engineers do not seek the strongest possible suspension bridge regardless of cost or weight of materials. Nor the cheapest possible bridge regardless of safety. They seek the design that best satisfies the objectives of the system.
The same principle applies to economic systems.
The goal should not be maximum equality. Nor maximum inequality. Nor absence of analysis, nor absence of policy.
The goal should be implementing the level of inequality that maximises opportunity, prosperity, innovation, mobility and long-term growth for all.
Once viewed through this lens, many traditional political arguments begin to look strangely outdated.
The question is no longer: Should we sacrifice prosperity in order to achieve greater equality?
The question becomes: What distribution of income and wealth produces the greatest prosperity in the first place?
That is not a question about fairness. It is not a question about ideology. It is not even fundamentally a question about inequality.
It is a question about how economic systems function.
And that brings us back to the beginning.
The equality-of-outcome strawman has survived for so long because it assumes inequality is merely the scoreboard that reports the outcome of previous economic activity. Winners and losers.
But inequality is not that. It is part of the machinery, that defines the way the game is played in the future.
It is concern about how many players actually get to participate, and whether the structures around them will allow them to use their talents. Or whether the game will be so stacked that no one will really be able to play at all.
The real challenge for economics and public policy is therefore not deciding how equal outcomes should be.
It is building economic models that allow us to solve the optimisation problem. We need to be able to answer in quantitative terms how inequality shapes future opportunity, future growth, and the future prosperity of everyone who enters the game after us.
The substitute player entering the match at half time is not demanding equal goals. He is not asking that the first half be replayed. He is not even asking that the two teams be identical.
He is asking whether the game he is about to play offers a genuine opportunity to succeed.
The same question confronts every worker, entrepreneur, investor and child entering an economy they did not create.
Once we recognise that inequality helps shape those opportunities, the equality-of-outcome strawman finally loses its force.
The concern for inequality was never about equal outcomes. It was always about opportunity.