December 18, 2017

Do economists care about inequality

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The traditional view of economics is that it is a discipline that cares little for how the income and wealth of a nation is distributed. In Module 9.3 of our own text we come across the following: ‘How efficiently an economy’s resources are allocated and how evenly an economy’s income is distributed are not related. An economy may be operating at maximum efficiency and have a very uneven income distribution.’

This approach leads to criticism of economists for not caring about unequal distribution of wealth. However, a leading contender for the Nobel Prize in economics disputes this view. Sir Richard Blundell states that ‘Economists are often accused of not worrying about inequality – it’s just unbelievably untrue.’ Blundell has pioneered the application of statistical approaches to economic data – a branch of the subject known as Econometrics. This means more analysis of empirical ‘big data’ rather than producing controversial theories. Economic facts rather than economic opinions!

Blundell’s research unearthed concerns about the increasing power of those at the top-end of income and wealth – the ‘super-rich’. Some like Bill Gates are a force for good, others not so much. He suggests there must be international cooperation on tax to ensure that those at the bottom-end of income and wealth distribution are better supported.

The level of inequality varies around the world, and the method most commonly used to calculate it is the Gini index. This measures the extent to which the distribution of income among households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 1 implies perfect inequality.

What’s the Gini index for your country? Use this interactive website to see your score. The existence of tax havens, and problems with the actual measurement of GDP mean that the index may not be entirely accurate.

We want to hear your comments. Is your country score accurate? Do you think economists should care about wealth and income distribution?

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Gerry Reilly, Senior Teaching Fellow About Gerry Reilly, Senior Teaching Fellow

Senior Teaching Fellow, delivers the on-campus Economics seminars and is part of the Strategic Planning teaching team.