Sunday, November 29, 2009

Inequality has NOT increased

Professions can have blind spots, and I think one thing that not only have pundits been mistaken on, but economists as a whole may also have been, has been rising inequality. It has become a oft repeated stylized fact that inequality (which has declined for centuries) has been increasing in the United States since the 1970's.

I never believed it. Mostly due to my own prejudices for optimism. Prejudice can be good when it forces you to seek out more information.

A lot of the inequality can be explained by increases in immigration which opened up in the 1970's; inequality amongst American born Americans has declined (Easterbrook). Also, the inequality picture looks a lot better when looking at outcomes like health, where inequality continues to decline, rather than just income (Lomborg).

Yet despite this, most economists still believe that inequality is on the rise, and the profession has mostly come to take this for granted. Two new studies have revisited this (Gordon and Winship):

They emphasize that the measured inequality has really only occurred in the top 1% (bankers and CEOs and movie stars, the superstar winner take all effect that economists like Frank and Rosen have emphasized) of the population, but does not reflect shifts amongst the population as a whole.

Anyway, this could still be a reflection of my own biases for sunny-optimism and that the world is always getting better.

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