16 May 2007

Question for readers: rising inequality?

Old rich, new rich

"Economic inequality", as defined by the Gini coefficient, has supposedly been rising in developed nations over the last twenty or thirty years. But, while there has been a plethora of studies and articles seeking explanations and trying to make political capital of the basic statistic, I have not come across any attempt to drill down into the data itself, and untangle the changing composition of the top economic strata.

Because what has happened is surely more complicated than just "the rich have got richer". Okay, the super-rich may have got even richer. And there seem to be more of a certain kind of rich person, i.e. those who make money from selling their product to a mass audience (footballers, entertainers and so on). On the other hand, the people traditionally associated with the term "rich" — upper middle class families with inherited capital — have suffered a decline, as a recent article from the Sunday Times served to remind.

So is it that globalisation, "neoliberalism", or whatever, has allowed those with economic advantages to further enhance those advantages, as some have argued? Or is it that mediocracy (an ideological system that peddles a phoney egalitarianism in order to penalise the relatively functional) creates a different economic hierarchy in which a small group of super-rich gain at the expense of the class of the (formerly) moderately well-off?

Differential rates of inflation also need to be taken into account. If the prices of those things which the upper middle class spend more on (e.g. education) rise faster than those of consumer goods, then there needs to be a rise in the Gini coefficient just to keep everyone's living standards unchanged. In other words, a rising G.C. could merely be a reflection of divergent inflation rates between the consumption baskets of different social classes.

I suspect that we have here an example of capitalism being blamed for producing a certain version of "the market" — a version which is the result of intervening in the market in a particular way.

I want to write about this in more detail in due course. In the meantime, I'd be interested in readers' comments, and grateful for references to other articles which shed some light on the issue. I've taken comment moderation off, pro tem.

Images courtesy Englishman, Tissot.


Mister Anonymous said...

"upper middle class families with inherited capital"

So they pay lots of tax. Altogether 40%? But they're not rich enough to go into Tax Exile. Unlike Phil Collins, but he is hardly a mediocre super rich celebrity!!!

Tim Worstall said...

Piketty and Saetz (spelling?).

It's not a concentration of capital, it's of incomes.

My take is globalization, meaning that those few with very rare skills (Tiger Woods, Spielberg etc)are getting 5 cents each off 6 billion people rather than 5 cents each off 300 million (for the US of couse).

But read P&S. The rise in hte gini is being driven by hte top 0.1% and top 1%.

Fabian Tassano said...

Thanks for the lead, Tim.

Fabian Tassano said...

Mr A, I'm not sure what your point is.