Wider applications of the Kuznets Curve

Simon Kuznets, 1971 Nobel prizewinner in Economics, observed that as a nation develops, inequality usually increases until a certain level of prosperity is reached, then it declines. This is the so-called ‘Kuznets Curve,’ an inverted U-shape. It was not proposed as a universal law, just an empirical observation.

The Laffer Curve has a similar shape. Obviously with income tax at 0%, no revenue will be raised. Similarly, no revenue will be raised with income tax at 100%, because there will be no point to work. Between the two is a curve, which might have a point at which a tax rate will yield the greatest revenue. Many statists find this obvious fact unpleasant, preferring to believe that when income tax rates are raised, more revenue will be yielded. Practice suggest otherwise, that the inverted U-shaped curve has a maximum point, after which higher taxes yield less revenue.

Empirical observation suggests that pollution in countries increases as they develop economically. In the earlier stages they find it more important to avoid starvation than to have clean air and water. As they develop, however, they become wealthy enough to afford to produce more cleanly, and to look after their environment. Again, it is the inverted U-shaped curve. China polluted massively as it developed, and is now about at the point where if feels wealthy enough to redress that problem. On the whole it seems to be the rich countries that pollute less than the developing ones, because they can afford to do so.

Poor countries have had high fertility rates because many of those born do not survive infancy, and because children are needed to contribute economically, and later to support aged parents. Medical advances lower child mortality and enable people to live longer, increasing populations. As countries become richer, however, they can afford to put children into education instead of work, and can afford to care for retired people. Fertility rates decline in consequence. Many rich countries have birth rates too low to sustain population levels without immigration. Increases in world population are levelling off, and look set to decline after they reach 10bn, a far cry from the alarmist figures of 50bn suggested by some. Again, it is the familiar U-shaped curve identified by Kuznets.

Popper’s ‘conjecture and refutation’ in scientific discovery is mirrored in the market as some businesses are counted out when they cannot compete. Even the mutation and section of evolution follows a similar methodology, albeit without the inspired human brain behind it. The methodology of innovation and selective death rate seems to function in most aspects of human progress. This formed the basis of my doctorate in philosophy.

Observation suggests that the inverted U-shaped curve features far more widely than in the income inequality observed by Kuznets. It seems that in many cases of human development, the adverse consequences of it rise as it takes place, then level off and decrease when a certain stage of prosperity has been reached.

It provides an empirical counter to those who urge humanity to stop economic development, growth and technological advance. In many cases it seems that the adverse consequences can be overcome not by doing less of these things, but by doing more of them. In that way we acquire the wealth and expertise to solve our problems.