The Rising Tide

​The rising tide lifts all boats. In a market society, the economy grows, and everybody is better off than they were before. This means that the rich get richer, and the poor also get richer. Income inequality ceases to be viewed as a problem, because everyone sees that their lives are growing in abundance. 

​This theory is of course contested, as not everyone sees the world as a forum in which progress is beneficial to everyone. There is a perspective which focuses on how progress is distributed, and asks not whether the rising tide lifts all boats, but whether all boats are lifted at the same speed and to the same extent. The idea is that if there is unequal or uneven progress, that's unfair and therefore it's unacceptable.

This is a difficult question. In arguing that inequality is a huge and growing problem and we should do something about it, Piketty addresses the 'rising boats' theory:

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​According to Kuznets's theory, income inequality would automatically decrease in advanced phases of capitalist development...until eventually it stabilized at an acceptable level.

For Kuznets, it was enough to be patient, and before long growth would benefit everyone. The philosophy of the moment was summed up in a single sentence: 'Growth is a rising tide that lifts all boats.' A similar optimism can also be seen in Robert Solow's 1956 analysis of the conditions necessary for an economy to achieve a 'balanced growth path,' that is, a growth trajectory along which all variables - output, incomes, profits, wages, capital, asset prices, and so on - would progress at the same pace, so that every social group would benefit from growth to the same degree, with no major deviations from the norm.

Piketty, Capital in the twenty-first century, p. 11.

Piketty's critique reflects the perspective that as the economy grows, richer people are indeed better off than they were before, but poorer people are worse off. Thus the gap between the rich and poor just grows wider.

So, is the ‘all boats’ theory true? Or is it the case that free markets make a few people wealthier at the expense of the masses who remain poor? Do market forces tend to make poor people worse off, and if so would it be better to have a centrally planned economy controlled by a benevolent government, where wealth can be carefully collected up from the rich and then redistributed fairly amongst the poor?

The idea that capitalism makes inequality worse by the second has many adherents, and they have plenty of data to back their dry and gloomy theories:

Piketty, the radical one, is dry. Only the brave would dare argue with his pages of tables and charts, his equations and dense prose.

Piketty (for those who have not followed the story so far) worries about capital and, in particular, the tendency for those who already have it to get more. ‘Money tends to reproduce itself,’ he says. 

Evan Davies, 'Has Thomas Piketty Met His Match'? The Spectator, 24th May 2014.

But not everybody considers it to be a reason for sorrow if rich people tend to grow richer. It's not a problem if the rising tide raises the wealthy boats, because when you look carefully, you notice that the rising tide is raising all the boats. Although the relative speed of progress might differ from one person to the next, over time the rich get richer, and the poor also get richer. That sounds more like a reason to celebrate.

The world is rich and will become still richer. Quit worrying.
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Not all of us are rich yet, of course. A billion or so people on the planet drag along on the equivalent of $3 a day or less. But as recently as 1800, almost everybody did.

By 2010, the average daily income in a wide range of countries, including Japan, the United States, Botswana and Brazil, had soared 1,000 to 3,000 percent over the levels of 1800. People moved from tents and mud huts to split-levels and city condominiums, from waterborne diseases to 80-year life spans, from ignorance to literacy.
You might think the rich have become richer and the poor even poorer. But by the standard of basic comfort in essentials, the poorest people on the planet have gained the most.

Deirdre McCloskey, 'The formula for a richer world? Equality, Liberty Justice' New York Times Sept 2, 2016