Inequality: How Much is There and Is It All Bad?

I have a new working paper out there, written with Steve Horwitz of St-Lawrence University. Our paper concerns the measure of inequality and the categorization of the causes. We argue that a) the increase is real; b) that the amplitude of the increase and the level are exaggerated; c) that a part of observed inequalities is actually the result of “good” inequality reflecting choices and preferences; d) that the bad inequalities are those resulting from birth and policies; and e) that the cheapest and fastest way to reduce inequality is attack policies that redistribute income in the wrong direction.

The abstract is below, the SSRN version can be downloaded here and the Academia version can be downloaded here

Abstract: This article is an attempt at providing a better perspective on the debate over inequality. First, it claims that inequality is increasing, but not as much as many claim. In fact, the increase is modest and badly measured. Moreover, inequality is well below the levels observed prior to the 20th century. Secondly, it claims that inequalities must be decomposed between “good”, “neutral” and “bad” inequalities.  “Good inequalities” result from individual preferences and have no perverse impact on economic growth. “Neutral” inequalities relate to changes in family size, demography and marriage patterns and they have no moral implication whatsoever, as they merely exhibit changes in economic structures. “Good” and “Neutral” inequalities create no “social malaise”. The “bad” inequalities are those that are socially noxious because they result from impairments in the capacity of individuals to make choices. Thirdly, this paper argues that a large share of the “bad” inequalities stem from government policies that push down the left-tail of the income distribution while pulling up the right tail. Although there are inequalities from birth, these are much costlier to combat than inequalities resulting from government intervention.