Economists Have Admitted a Mistake That Could Change How We View Capitalism

The “elephant chart.” It has been used since 2012 to explain how capitalism causes income inequality, which in turn has been a top political issue, picked apart, dramatized and demonized by social justice warriors for years. It turns out that that chart was wrong, and economists are back to square one in explaining income equality.

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Economist Branko Milanovic first published the chart in a 2012 World Bank working paper, Bloomberg reported. It supposedly explained how the phenomenon of globalization — market activity spreading from the industrialized world to developing nations — has increased wealth inequality since the late 1980s.

Academics, industry leaders and regulators saw the elephant chart as revolutionary — the answer they’d been looking for. Toby Nangle, co-head of asset allocation at Columbia Threadneedle Asset Management, went as far as to call the elephant “the most powerful chart of the last decade,” Bloomberg reported.  

So where did the elephant go wrong?

A report by Adam Corlett of the Resolution Foundation details the chart’s pitfalls, which include things like population growth, and the Chinese boom of recent decades.

“We find that it is incorrect to conclude that there has been stagnation for the lower middle class of the rich world,” Corlett wrote.

“We also find that. . .much of the elephant curve is driven by phenomenal growth in China,” he continued.

A failure to adjust for these things has made the elephant what it is today, an inaccurate chart that people use to condemn free markets.

And why did it take so long for economists to realize these fatal errors? Simply put, according to Bloomberg’s Noah Smith, they glossed over these issues because the elephant satisfied their confirmation biases. How scientific.   

So, there you have it. “The most powerful chart of the last decade” has been rendered useless to anyone who sees it as the damning weapon against capitalism and its wealth inequality. Unfortunately, the chart does not unveil a conspiracy by the top 1 percent to enslave the world. Sorry.

Mobility Matters in Capitalism, Not Equality

But does this mean that wealth inequality doesn’t exist? Of course not.

No one denies that. The disagreement revolves around a simple question: does wealth inequality even matter?

The free market camp says no. Wealth inequality comes naturally in a capitalist system, but doesn’t harm anyone as long as we can improve our lot in life through hard work. It doesn’t matter where you start, it matters where you can go. And Corlett’s findings seem to suggest that mobility still exists.

Bitcoin Hits the System Where it REALLY Counts

The inaccuracy of the elephant chart doesn’t mean that the current economic system is perfect, though, or even good. On the contrary, we live under a financial system that relies on centralized institutions, such as ineffective central banks and inept governments.

These institutions create far more economic circumstances than simple income inequality. The banking system’s fractional reserve scheme creates the business cycle — recurrent periods of boom and bust. Meanwhile, governments shore up banks with taxes and public debt, ensuring the continuance of fractional reserves. This combination of monetary and fiscal policy makes for a world where everyone loses except the political elite. Such an inequality is worse than anything pure free markets could produce.

However, at our fingertips is a solution, a tool that can strike the true inequality at its core: Bitcoin.

With Bitcoin’s decentralization, the average person can participate in central banking’s decline, and put an end to government irresponsibility. Furthermore, we can finally go back to a monetary system that promotes saving and real growth. No more emphasis on increasing debt, or inflating metrics like GDP — the validity of which is questionable.

And we don’t even need mysterious figures like Mr. Robot or fsociety to throw the world into chaos. The revolution can be quiet and peaceful, no violence or force needed — just voluntary action.

So stop with the politics. Load up a bitcoin wallet and participate in the decentralization revolution. It has the potential to bring about a redistribution of wealth and power that the socialists can only dream of.

What do you think about this latest mistake from academic economists? Let us know in the comments below. 

Images courtesy of Shutterstock, Bloomberg, USA Network.

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