Why should we care about inequality? Tim Harford nails it in this Financial Times column

Tim Harford nails it in an article called “How the wealthy keep themselves on top.

I set out two reasons why we might care about inequality: an unfair process or a harmful outcome. But what really should concern us is that the two reasons are not actually distinct after all. The harmful outcome and the unfair process feed each other. The more unequal a society becomes, the greater the incentive for the rich to pull up the ladder behind them.

The noted Financial Times columnist, and author of The Undercover Economist, does a great service to readers by pulling a major theme from the series of articles on inequality and the top 1% published in the summer 2013 issue of the Journal of Economic Perspectives.

First, he states that while the “idea that the fat cats simply stole everyone else’s cream is emotionally powerful; it is not entirely convincing.” Then he goes on to note that:

In a well-functioning market, people only earn high incomes if they create enough economic value to justify those incomes. But even if we could be convinced that this was true, we do not have to let the matter drop.

This is partly because the sums involved are immense.

We should care about inequality because of the outcomes. But also because outcomes influence process.

At the very top of the scale, plutocrats can shape the conversation by buying up newspapers and television channels or funding political campaigns. The merely prosperous scramble desperately to get their children into the right neighbourhood, nursery, school, university and internship – we know how big the gap has grown between winners and also-rans.

This is what sticks in the throat about the rise in inequality: the knowledge that the more unequal our societies become, the more we all become prisoners of that inequality. The well-off feel that they must strain to prevent their children from slipping down the income ladder. The poor see the best schools, colleges, even art clubs and ballet classes, disappearing behind a wall of fees or unaffordable housing.

This is exactly what I hoped would be the main message of my article “Income Inequality, Equality of Opportunity, and Intergenerational Mobility” in the Journal of Economic Perspectives symposium, and it is very satisfying to witness a talented journalist articulate these and related ideas with such clarity and precision!


7 thoughts on “Why should we care about inequality? Tim Harford nails it in this Financial Times column

  1. Prof. Corak, first of all many congratulations for your blog.
    I study labor market inequalities and I would like to hear your opinion about the following: Which is your suggestion for a model, other than Mincer equation, in order to research income inequalities, namely having as dependent variable income) and make use of microdata?

    1. Well, certainly understanding the role that differences in formal and informal training play in determining wages and wage differentials is central to the way labour economists think about inequality. As you know, the Mincer equation relates (the natural logarithm of) wage rates (and earnings) to the number of years of schooling and the number of years of work experience, and is based upon theories of human capital as articulated in Gary Becker’s book (called appropriately enough Human Capital). More education, and more experience, imply higher wage rates and earnings.

      But there are many other theories. Maybe one way to start is to look at the easy to read books by Chrystia Freeland (called Plutocrats) and that by Timothy Noah (The Great Divergence). The authors of both books are very respectful of economic theory in the way they organize their discussion of inequality. You will get a good idea of which sources to follow up on by looking through the footnotes and bibliographies.

      1. Prof. Corak.
        Thank you very much for your prompt reply and all your relevant suggestions. Although, I was thinking of expanding the pure model of Mincer equation, since I wanted to focus on the vital role of human capital plays, definitely I am going to look at your readings suggestions.
        Thank you once again.

  2. Inheritance is still an important source of wealth. The traditional ways to make a billion are to:
    1) own a founder’s share in a huge, successful business 2) marry someone with a billion 3) be born to someone with a billion.

    Notably in #1 less than 100% of the profits in the successful business is to social good because they may have edged out a competitor who was providing almost as good of a customer service.

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