Global Inequality May Be Much Worse Than We Think

By Jason Hickel and cross-posted from The Guardian

It’s familiar news by now. Oxfam’s figures have gone viral: the richest 1% now have more wealth than the rest of the world’s population combined. Global inequality is worse than at any time since the 19th century.

For most people, this is all they know about global inequality. But Oxfam’s wealth figures don’t quite tell the whole story. What about income inequality? And – more importantly – what about inequalities between countries? If we expand our view beyond the usual metrics, we can learn a lot more about how unequal our world has become.

The first thing to say about Oxfam’s numbers is that they present a very conservative picture. Given that the rich hide so much of their wealth in tax havens and secrecy jurisdictions, it is impossible to know how much they really have. Recent estimates suggest that up to $32tn is stored away in tax havens – around one sixth of the world’s total private wealth. If we were to add that to Oxfam’s metrics, inequality would look much, much worse.

We can measure income inequality with the Gini index. A score of 0 represents total equality and a score of 1 represents total inequality, where one person has everything and everyone else has nothing. According to Milanovic, the global Gini index has decreased slightly, from 0.72 in 1988 to 0.71 in 2008. So perhaps we shouldn’t be overly worried about inequality.

The Gini index is a troublesome measure, though, because it only captures relative changes. If the incomes of the rich and the poor increase by the samerate, then the Gini index remains the same, even though absolute inequality is increasing. In other words, if person A has $10k and person B has $100k, and then both of them double their income, the Gini remains the same, even though the income gap will have grown from $90k to $180k.

Economist Robert Wade argues that this is a highly misleading measurement, as it obscures the true extent of inequality. We should be using the absolute Gini index, he says. So what happens if we do that? We see that inequality has exploded over the past few decades, from 0.57 in 1988 to 0.72 in 2005

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