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Who Cares About Income Inequality?

The world is in a Pikkety frenzy. For all those unfamiliar with the name, Thomas Pikkety is a French economist, a genius who was awarded a PhD when he was 22 and the author of the best seller “Capital in the Twenty-First Century”. The hype and success of the book turned Pikkety into a “super-star” economist. The book evolves around his main argument, which is that if the rate of return on capital is larger than the growth rate of the economy, inequalities will increase. Since this tends to be a common feature of the free-market capitalism, inequality can only be decreased by state intervention.

The book has been widely acclaimed and also criticized by economists and policy makers. Perhaps the strongest critique so far appeared only on last Friday (May 23, 2014) on FT over concerns of the data Pikkety uses. I will not go into detail about Pikkety’s arguments. Whether or not you agree with his hypothesis, one thing is clear: Pikkety has succeeded in drawing the world’s attention to the growing wealth and income inequalities.

You might be thinking that income inequality has always been in people’s minds. Redistribution policies aimed to reduce inequality are common topics in policy debates. People, or at least the majority of the society, naturally demand more equality. Well, data seems to disagree. Below are the aggregate data driven from the responses to a question in the World Values Survey. The question is simple: Respondents are asked to place their views on a scale between 1 and 10 of two opposing statements – “Incomes should be made more equal” vs. “We need larger income differences as incentives for individual effort”. I call this variable “intolerance to inequality”.  India seems to be the country with highest intolerance – that is in average; Indian respondents placed their views closer to the statement “income should be made more equal”. That might seem normal since India currently witnesses extremely high levels of inequality and people should be expected to desire state intervention to reduce inequalities. However, that is not always the case.  Pakistan, a country with a higher Gini value (measure of income inequality) than India is placed on the opposite end of the spectrum. Transition countries tend to demand more equality, even though Poland with relatively low inequality scores lower than the average.

What I want to leave you with is this: there doesn’t seem to be a clear and straightforward link between inequality and how people feel about it. Perhaps it’s because how the people perceive inequality is different than how unequal the society actually is. I will talk about precisely this point in my article next month. Until then, I’ll try to finish reading “Capital in the Twenty-First Century” (it’s massive) and I suggest you take a look at it as well.

income equality

Data source: World Values Survey (2014), Gini values are the latest available from the Standardized World Income Inequality Database (2009)


Image source: Flickr

Çınar Baymul

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