Review: Inequality part deux is a better start

June 12, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Move over, Thomas Piketty. Anyone who has been put off by the French economist’s overblown and overly long book on inequality now has a succinct alternative, “The Globalization of Inequality”. In a mere 189 pages, François Bourguignon provides a measured introduction to what is right and what is wrong about current trends in the dispersion of incomes.

Like Piketty, Bourguignon is French, and he is emeritus chair at the Paris School of Economics, where Piketty teaches. They are both big names in the small world of inequality economics. Where Piketty is full of grand theories, however, his elder colleague is healthily cautious.

“Globalization” explores a paradox. On the positive side, global inequality has decreased sharply since about 1990, thanks largely to the great rise of China accompanied by lesser gains in most developing economies. On the negative side, inequality within many countries, both rich and enriching, has increased.

That sounds simple and clear, but Bourguignon deftly presents some serious qualifications to both claims. The global good news is marred by the persistence of severe poverty, especially in sub-Saharan Africa. Also, while the overall trend is positive, the gap between developed and emerging economies remains very wide. And there are good reasons to fear that the catch-up of many populous poorer countries is slowing.

As for inequality within nations, there are many exceptions to the increasing trend. France is one rich country in the mix and many Latin American nations among the poorer ones. Bourguignon also points out that popular perceptions do not correspond with typical measurements. Most Americans, for example, believe that inequality has not increased over the last decade. He speculates about the reasons for the discrepancy, but misses one possible explanation: perhaps cash measures of income are poor proxies for actual consumption and economic standing.

Bourguignon is sceptical, and with good reason, of the standard economic theory that there is always a trade-off between an efficient economy and a just one. He reviews ways in which greater equality can accelerate GDP growth, and dedicates several pages to explaining why increased inequality might be a significant cause of the 2008 collapse in the U.S. housing market.

Like most inequality economists, Bourguignon believes greater equality is generally desirable. He argues that a fight against rising inequality is justified in rich countries “from the point of view of social justice”. More pragmatically, he claims this fight is “an essential safeguard for preserving societal stability and economic performance”.

Bourguignon the scholar, however, is less certain than Bourguignon the campaigner. “We must admit that it is extremely difficult to demonstrate empirically the consequences of excessive levels of inequality …” The possible dire effects of inequality are not the only area where the data fall short. Indeed, such words as unclear, uncertain and complex keep turning up.

What sort of inequality – of income, wealth or opportunity – is most significant? What measures of inequality are most informative? How do changing household structures influence real inequality? Why has inequality increased more in some countries than others? What are the best ways to reduce inequality, whether among or within nations? Bourguignon explains that not enough is known to provide definitive answers to any of these questions.

Bourguignon is particularly sketchy when it comes to the largest question raised by his admirably global book. How much attention does the rise in inequality in rich countries deserve? Piketty uses dubious theories to justify his focus. Considering the great global gap, however, furious national campaigns against in-country inequality may seem narrowly parochial. The energy might be better dedicated to finding ways to help the world’s poorest residents.

Perhaps that debate is best left for philosophers. For anyone else interested in the economics of inequality, this book is a good place to start.

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