Thanks to technology, our circumstances are much more equal today than conventional income measures would suggest

From Mark Perry.

"In an important National Affairs article in 2013 (the year before Thomas Piketty’s best-selling book “Capital in the Twenty First Century” was released) “Innovation and Inequality” Northwestern University law professor John O. McGinnis presents some very interesting ideas about income inequality, innovation and technological advances. Here’s the opening of Professor McGinnis’s article (emphasis added):

The inequality debate has long been a prominent feature of our politics, and many other social and cultural forces are now interpreted in light of it. We have certainly come to understand the progress of technology in that light: Many analysts have argued in recent years that technological advances tend to intensify economic differences, because technology disproportionately increases the incomes of those most able to take advantage of it. Thus, they say, technological innovation is a driver of inequality.
But this analysis is incomplete and misguided. The most important effect of technology on the American economy is not the minting of more millionaires, but the creation of a continual stream of new ideas and products that are quickly enjoyed by everyone. When we surf the web or use mobile computing devices, we are enjoying the value of many hundreds of ideas and innovations. These ideas — not the scarce material resources required to make a tablet casing or to carry packets of information from place to place — constitute most of the value added to our lives by the gadgets in our hands.
Economic value is thus increasingly created not by material things but by the information that arranges the material. And information can be shared equally in ways that material goods simply cannot. In the information age, we enjoy ever-greater access to a common pool of ideas that generates more value and consumption for all, substantially tempering the effect of technology’s differential boost to incomes.
This shift has important implications for our understanding of inequality. Material resources are zero-sum: Five different people cannot all own the same barrel of crude oil or the same hectare of land. The deployment of these resources is similarly limited. One barrel of crude cannot simultaneously heat thousands of homes and power millions of cars on different continents. Ideas and information, however, are radically different. An infinite number of people can access the same information and then use it in untold numbers of different applications all at the same time. And the accelerating pace of technological change drives down the costs of these information-based products — so far down indeed that some products (like many computer applications and a growing portion of online-education offerings) quickly become essentially free.
The fact that ideas can be shared equally in a way that material goods cannot, and the fact that technology increasingly makes ideas the drivers of our society and economy, means that our circumstances are more equal than the conventional income measures would suggest. And to the extent that inequality should be addressed through public policy, acknowledging these facts will help us craft more promising solutions — policies designed to increase innovation and improve education, rather than to simply transfer resources from one group to another. We would thus be better off thinking not of technology in light of inequality, but of inequality in light of technology.

And here are Professor McGinnis’s concluding thoughts:

Differences in income tell us less than they once did about differences in people’s real standards of living. And the immense potential of technology to reshape the lives of the rich and the poor simultaneously has yet to be fully understood and accounted for.
Even when we set out to examine technology and inequality together, we too often get things backwards, considering the effects of technology in terms of who has the money to access it. In reality, the most significant technologies of the past half-century have tended to make money less rather than more important, and have been available more widely, more quickly, than such valuable commodities have ever been before.
In our time, ideas increasingly matter more than things, and information is often more valuable than tangible property. Under such conditions, Americans from different walks of life and in different economic classes have an ever-stronger common interest in promoting innovation. A society with advancing technology is a society in which everyone may rapidly reap the bounty produced by the most talented and entrepreneurial among us. More than ever before, our economy can be a positive-sum game in which gains for some rapidly redound to the benefit of all.

Bottom Line: Professor McGinnis makes a very important contribution to the income inequality debate, summarized below in my words:

In today’s 21st century global information age, innovation, entrepreneurial capitalism, and advances in technology create more wealth for society’s most visionary and talented risk-taking entrepreneurs than ever before. The creation of enormous amounts of new entrepreneurial wealth is disproportionately today concentrated on the innovative genius class (Bill Gates, Mark Zuckerberg, Ted Bezos, Steve Jobs, etc.), which exacerbates inequality when measured by income or financial wealth. But the “continual stream of new ideas and products” that flows from innovation (Facebook, Amazon, Apple, Microsoft) are now “quickly enjoyed by everyone,” often because those new innovative goods and services “quickly become essentially free.”

Stated differently, at no other time in history have differences in monetary income told us less about differences in people’s real standards of living than in today’s information, digital age. Alternatively, at no other time in history has income inequality been more meaningless than in today’s innovation-filled world of advanced technologies and free or nearly free goods and services. Despite rising income or wealth inequality (if that’s true), consumption equality has probably never been greater than today. For example, there are almost no technologies that are available today to a billionaire like Warren Buffett or Tim Cook (computers, Internet, GPS, wireless, Facebook, Spotify, smartphones, Amazon Prime, Netflix, Google, etc.) that aren’t also available to the average person in America, often at a cost that is essentially free.

Thanks to Professor McGinnis for his excellent contribution to the debate on income inequality and its relationship to innovation and technology. According to Piketty, the concentration and unequal distribution of wealth leads to social and economic instability. Solution? Progressive wealth taxes to reduce inequality and prevent the vast majority of wealth coming under the control of a tiny minority. Understanding that the concentration of wealth or income can happen at the same time that consumption equality significantly increases, would suggest that progressive wealth taxes might be unnecessary. And when you consider that rising inequality from technological advances might actually be the driving force behind the equalization of consumption, imposing punitive taxes on the entrepreneurial forces driving innovation could actually backfire, and lead to an increase in consumption inequality."