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November 10, 2011

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Matthew

You're right, although I think drawing a Lorenz curve helps explain the different societies (and doing so makes me prefer b)

Jon

Also, don't forget that the Gini co-efficient only measures monetary income. So two countries could have identical Ginis, but one might have free medical care for all citizens, free housing for all citizens, free education for all citizens, and the other might have none of these, and the two would appear to have identical levels of equality.

Jim

Does all this mean if (or when) the Gini rises again you won't be berating the Tories for creating rising inequality?

Paolo

I would argue that the answer depends on: 1) which society is more easily tractable (i.e. in reducing inequality); and 2) the multiplier effect of reduced inequality (i.e., in which society GDP will grow most when inequality is reduced).

On the first one, loss aversion suggest that Society B is less tractable, as the super-rich would resist (through lobbying or political capture)redistributive interventions. Tractability also depends on what type of social mobility do you have: either the bad type where people swaps rankings but inequality stays the same overall (zero sum game); or the good type where only low income rankings move towards the median.

This last point is strongly related to the multiplier effect of a reduction in inequality. This would suggests that in society C, libertarian objections to large transfers to lift up low-incomes could be overcome by arguing that everyone will be better of thanks to the multiplier effect. This is less likely to be the case in society B, where the super rich will likely be the residual claimant of any multiplier effects, thus undermining support from the squeezed middle-classes for this type of intervention in the first place. What I am saying is that I have the impression that Society C could be more tractable and resilient to economic shocks.

jungle

"Tim says that inequality falls in recessions, because top incomes are determined by market forces and so fall whilst bottom incomes are welfare benefits which, barring reforms, are fixed in real terms."

The key phrase surely is "barring reforms". As the current political debate about freezing/cutting benefits shows, such "reforms" do seem to occur in recessions. Those least able to fund campaigns against themselves bearing the cost of the recession will tend to bear most of the cost of the recession, one way or another.

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