Could Technological Change Solve the Problem of Inequality?

John Nye
13 min readMay 7, 2024

The answer is clearly, No. But the why of it is a bit more complicated.

Today, a lot of people are making claims about how AI will be able to equalize many things by making it possible to have individualized teaching of many basic subjects, greater access to pre-digested information tailored to your demands, serving as a free research associate, democratizing access to dealing with bureaucratic drudge tasks, etc. And yet, we have heard these claims before.

The computer, coupled with the web, was supposed to have been a democratizing agent by bringing information to people’s fingertips while making easier the solution of semi-technical tasks such as creating and filling out business forms, doing a large number of advanced calculations without need of supplementary equipment, access to orders of magnitude more books and papers than any physical library contained, cheap access to music, and videos, as well as promoting learning through recordings of classes in many subjects from some of the most renowned universities in the world. Etc., etc. This is eerily similar to many of the more modest promises made for the invention of movies or the phonograph, and likely goes back to the earliest tools and innovations such as the ax, the wheel, writing, and paper.

Yet most of the time, while these innovations did revolutionize the world, they merely changed the channels through which inequality flowed. The winners and losers from these changes shifted quite a bit, but often a new elite or parts of the elite benefited even more relative to those less fortunately impacted by the change.

But what if I could make an even bolder claim, that if technological innovation could so advance that it would effectively wipe out most material inequality, it would not ultimately eliminate inequality. Moreover, because the inequality that remained would be based on goods and services that changing technology could do little to equalize, the perception of inequality would grow more acute precisely because the inequalities that remained would be so difficult to change, while material improvements grew to be more commonplace.

Already the world has seen an increase in material wealth since the late 1700s such that the vast majority of the earth no longer has issues of merely providing enough food for people to live, but instead focuses on the nature and quality of the food provided, or the quality of nutrition that is cheaply available, or relative differences in access to what were historical rarities, such as fresh fruits and vegetables. And we think nothing of this abundance and focus instead on the inequalities that remain.

Indeed, consider that at one time the availability of salt and common spices like pepper or cinnamon, or drinks such as coffee or chocolate, was so limited that fortunes were made transporting these items on long, hazardous voyages. Voyages which led to frequent loss of expensive ships and uncounted human lives. Salt and other basics were often heavily taxed leading to riots or even attempted revolutions. Today, these items are so cheap that no one sees them as an indicator of inequality, nor feels wealthy because their household has them in abundance. (No one comes to the office today saying, “Oh, my gosh, salt is 50% off!! Time to buy a few more pounds of it to stock up.”)

As we can see, equalizing on multiple margins doesn’t seem to make us feel a lot more equal. But, you might object that there are so many material inequalities left that we are nowhere near more equal, despite the fact that in terms of basic food, medicine, and hundreds or even thousands of goods and services, we are more equal than we’ve ever been. No one points out that at one time, only the very wealthy could ride in nice horse drawn carriages, and that the difference between walking in the mud with very basic and usually inadequate footwear vs riding in a carriage totally dwarf the differences between the cheapest car you can buy in the West and the most expensive luxury car today in terms of utility to the owner.

Surprisingly, technology could do a lot to increase our material equality even by miraculous levels in the future, while actually making our perception of inequality even more acute. Short of forcing everyone to have the same dollar income — which would actually increase the importance of inequality on other dimensions — there is a natural limit to what improvements in technology can do.

Consider the problem of housing. There always seems to be dissatisfaction with the availability and affordability of housing throughout the US, but it is most keenly felt in the most expensive and most desirable metropolitan coastal areas. Of course, factors like NIMBYism and overly strict regulations can discourage enough building to satisfy even current demands for housing in these areas. And we should not minimize those factors in the difficulty of supplying more housing. But the fundamental problem is that there is no way that more material equality alone would be able to lower inequality, especially in the most desirable and costly neighborhoods.

Why? Because housing is partly a positional good.

What is a positional good? They are the goods and services that are valued for their rarity and usually cannot be increased at the same rates as demand, even if we maximized the productivity of all relevant inputs. More explicitly, it is because the main value of the good or service is based on its status and relative quality compared to other similar goods, or is based on some factors that are fixed or impossible to easily duplicate.

If we break it down, a house is really two things. First is the physical unit itself. The structure and the cost of labor and materials used in the production of the house. This could presumably be improved and even cheapened if technological innovations permitted. Indeed, you could imagine miraculous changes even occurring that could make possible nice, well-functioning mansions of 5 bedrooms and 5 baths being built for even cheaper than they are today because of technological and organizational improvements in production. But, no matter how cheap it became to build and produce any given house, it would do little to change the problem of housing inequality.

Because the second aspect of the house is its location. And good locations cannot simply be recreated anywhere. Indeed, to the extent that a location’s value is due to the scarcity of similar locations with equivalent amenities and equivalent communities, then it is nearly impossible to replicate it. If the location’s value is due to the demand from the types of people who most want to inhabit it, then it is even less amenable to improvement. Because status is based on a fixed hierarchy. Locations a, b, and c that are the 3 most desirable locations in a state or country must, by definition represent only 3 locations. Even a diminution in the status of one location will do nothing more than to turn another location into the new most-favored (or second or third, etc. most favored) area.

That is, let us suppose that if there is one corner of land which the wealthiest people all want to own in San Francisco or New York, there is no way that a materially equivalent building in Boise or Detroit would ever be considered the same thing. Hence, the vast difference in prices between virtually identical homes in very different locations. And the value of a home due to location can never be democratized.

Imagine the following scenario. Let’s say that the US discovers and nationalizes a new oil or natural resource that is so abundant that the US easily pays off the national debt and then promises everyone in the US a basic income of $250,000 a year tax free. This would do a lot to lower the gap between the top 1% and everyone else, holding all else equal.

But would it help to solve the problem of housing affordability in the most desirable areas on the two coasts? No, it would not.

In fact, not only would it not lower the problem of affordability but, with so many people now who are wealthier (and they are truly wealthier in terms of what cars or clothes or food or electronic devices and streaming services they could buy) it would actually worsen the problems of housing “affordability” on the Coasts. Even without the problems of the existing rules and regulations, it would simply not be possible to increase housing space of the same quality as what already exists to match increased demand without drastically raising prices of new and existing housing units, whether these were for sale or for rent. And the increased demand by the newly rich would push out even more of the new, not very poor, who live there or want to live there.

Moreover, much of the desirability of the location depends on who one’s neighbors are. To the extent that some communities have more orderly habits than others, while some communities are more violent and disorderly than others, we will have inequality in the desirability of neighborhoods. Whether this is a question of sorting by behavior, or class, or ethnicity, differences in perceived locational values will depend to a large extent on who lives there. And technology cannot change this.

The same is also true for education. Think about the fact that a motivated student today could on his or her own accord, learn as little or as much as college students were taught just a couple of years ago, just from the papers, books, and videos available online for free or very little money on the web.

To the extent you just want book learning, there is no formal barrier to your acquiring as much as you can handle. The ability to learn these things is limited both by one’s own nature and personality, your family background, as well as the quality of the students with whom you might jointly choose to study. It is well known that the biggest determinant of the quality of a given school is the quality of the average student that attends that organization. The most elite public schools are not necessarily the ones with higher budgets. After all, Washington DC spends almost $30,000 per student in its public schools with very little to show for it in terms of student achievement. Moreover, in many areas of the country, most of the students best suited to take advantage of school resources do not have enough faith in the quality and safety of those public schools to attend them. Many poorly performing schools are housed in relatively new buildings with nice amenities, while there are highly desirable and top ranked public schools where there is insufficient space that the students must learn in Quonset huts until new construction becomes possible. Of course, school facilities matter, but they are of minor importance compared to the quality and motivation of the students themselves, as well as the support provided by their families. Those with the will, ability, and cultural/family support for learning will inevitably do better even with constrained resources, in contrast to those who have neither the cognitive nor emotional skills to learn well and quickly even in highly expensive environments with well-meaning teachers.

I’m not saying that public schools can’t be improved. There are many reforms in the USA that I wish were carried out, which could increase learning speed for the poorest and less fortunate, but which seem to be politically infeasible in today’s environment. Nonetheless, even if all the most successful reforms were to be implemented uniformly in all schools, the best schools would still likely be the ones that the best students are attracted to, as we know from observation in school districts throughout the world.

You might object that in terms of universities, the most highly rated schools are those with the most and best resources, especially for research or laboratory work. But let’s be honest, the average student of a top 10 research university does not seem to take advantage of the fact that the school being attended has multi-million-dollar labs or researchers that have won the Nobel Prize. For many, the fact that the school’s researchers are top scholars may even be a detriment, as many scholars are not necessarily good teachers, and many of them make every effort to not teach undergrads. For the most part, students attend top universities for networking possibilities and to study with other ambitious students whose presence may help them all to work more effectively and efficiently. Except for those who are studious and truly devoted to the content of their classes, the others that often miss class and only work hard during exam week, are obviously not at a top school primarily for the rigor of its academic classes. They are there for what the school represents and for the people they can meet and make connections with. And not all schools — by definition — can give you access to the best and most important social and academic networks.

The other varieties of positional goods are of two types. Goods that cannot be reproduced because their supply is totally fixed — such as the art produced by long dead masters — and those goods that are based on limited types of skilled labor. The latter is especially a problem as the nation grows richer on the average because a wealthy country, all else being equal, tends to have wealthier workers. A rich country means expensive skilled labor. Some technological changes can substitute for a few types of labor, but any labor that is still needed in spite of these technologies will on average see higher wages over time, even if those changes would be uneven depending on the types of work that are needed, and the various demands of the market for production and consumption of goods using labor as inputs.

What does this mean? As the world grows richer, and especially as the richer areas continue to grow richer, albeit more slowly than growth in the most successful late comers, the more that the inequalities that remain will depend on status or social goods where the gains are zero sum. No one can win these social contests without someone losing. For example, producing an object like a phone or a car is a positive sum game in material terms, in the sense that the higher the demand for cars, the more that technology lowers the production cost of cars, or the more uses that are found for the car, the more cars could be made.

However, with things like location and elite education, there is no solution to inequality in those markets. You could work to make all better off in absolute terms with better housing materials and amenities for same dollar or more efficient learning for the masses, but there’s no way you can change the inevitability of continued status rankings in terms of the most desirable and valuable locations, or the most elite schools, which are partly due to location. The best you can do is to raise the minimum quality of what the lowest members of society could attain. This is still a lot, but I predict that as the quality of housing for the poor rises, the more people would complain about housing inequality. Even today, many of the strongest complaints about housing are in the most expensive cities. Tell those struggling to live in the major coastal cities or their inland equivalents to move to cheaper cities and states as a solution to their woes and you will have few takers.

Moreover, social goods are shared and that means it can be hard to improve the lot of everybody according to their desires equally. The environment is famously one of them. Everybody might even agree on things like the science of the rate of warming and the value of certain policies to lower the chances of a crisis brought on by climate change, but nothing you do will change the fact that poorer countries and regions are going to value the benefits of saving the environment at a much lower level than the richer areas, given that the poor are going to favor more dirty growth in the short run even if procedures producing the fastest immediate improvement in the present are going to impose very high costs to all in the future. There are almost no improvements in green technology that are positive sum, despite the claims of advocates. At this moment, most non-carbon alternatives like wind or solar are less economically and productively efficient than oil and gas. Moreover, in many countries of Europe, the need to backup systems based on wind and solar power, leads them to use highly polluting coal more when prices on oil and gas are raised through regulation and taxation. The only easily scalable, non-polluting alternative is nuclear, and that seems to be mostly out of the question for the wealthier elites who champion green technology.

Most of all, if you were poor and lived in India, China, or the many parts of the world where the struggle to survive at the most basic levels dominates concerns about the planet’s future, there is no question that you would prefer more growth to cleaner skies or greener technologies. Let alone the more subtle conflicts between the growing middle class worldwide and the anxious wealthier classes most able to insulate themselves from the costs and the mistakes made in transitioning the world to alternate production technologies.

Other aspects of status and relative valuation are going to matter, as basic material equality improves. Take language. The common language of the public space of the nation is a common resource that becomes contentious as the number of users of alternate language increase. You cannot have 5 common languages used simultaneously in all the public spaces. Choices to teach one or many of the languages spoken in the country will always disadvantages someone. This is why many of the political issues faced by Canada or Belgium often break out into regional disputes between different language groups.

Even matters of politeness and good behavior are heavily subject to this problem. Notions of what is rude and what is polite in different cultures can be very different, though they might all share a common core. As diverse cultures become a larger part of the population, the more likely that there will be perceived degradation of the public sphere, especially for the majority, until you get full assimilation or some sustainable compromise.

Changing notions of morality and the status of different viewpoints regarding child-rearing, behavior, dating, and marriage are well known to create rifts between the generations as well as between different cultural or ethnic groups which have differences in what is encouraged or tolerated behavior. Changes in criminal behavior (both in the amount and the variety thereof) in different groups have big spillovers in the public sphere. Again, solutions to these are going to be impossible to arrive out without explicitly disadvantaging certain points of view. Attempts to force elite views onto a population that is reluctant to accept them because of spillovers that are more acutely felt by the non-elites, are going to be especially contentious whether in the US or in China.

The irony of a world that has shown very great progress in reducing material poverty on an absolute scale and also in improving access to many goods and services which were once seen as the prerogative of the wealthy, is that fights over positional goods will inevitably increase. That will make conflict and even war, more likely both within and between nations.

To the extent that we mischaracterize the positional aspects of disputes regarding housing, education, or any other socially contentious goods and services, and treat them as a mere problem of differing wealth inequality, the more we are likely to focus on the wrong questions in finding solutions to the great issues that divide countries without and within. There are no easy answers, but stating the problems clearly is a necessary first step.



John Nye

Professor of Economics at George Mason University and Bastiat Chair in Political Economy Mercatus Center