What Is Inequality?

Though debates about inequality have been building for years, distinctions between after- and before-tax income, wealth, opportunities, outcomes, and other metrics suggest that the issue is more complex than it seems. The question, then, is whether policymakers can make sense of a concern that means different things to different people.

In this Big Picture, Nobel laureate economist Angus Deaton points out that inequality is often conflated with unfairness, and should be understood not as a cause of social and political processes, but as a consequence. Princeton’s Harold James notes that much of the current inequality debate, particularly in advanced economies, is implicitly about property ownership, and specifically real estate in today’s global cities. 

Jayati Ghosh of Jawaharlal Nehru University, meanwhile, contends that income and wealth inequalities are best seen as a reflection of the top 10%’s growing political power. Mahmoud Mohieldin and Carolina Sánchez-Páramo of the World Bank add that while different kinds of disparities afflict different countries, all can be traced back to specific legal and policy failures.

Nonetheless, as Harvard’s Ricardo Haussmann warns, some inequalities are generated by the market for a reason, and should thus be approached carefully by policymakers. Likewise, Nobel laureate economist Michael Spence points out that recent proposals to rein in corporate stock repurchases, for example, would not raise wages as intended, but rather frustrate the proper workings of capital markets.