In a column on Yahoo! Finance, Charles Wheelan “The Naked Economist” takes on the question of whether or not the growing income gap matters. Wheelan is a lecturer at the Harris School of Public Policy at the University of Chicago. He suggests,

If the gap between rich and poor gets too large, and if those at the bottom feel they have no meaningful route to the riches at the top, then the fabric of society will fray, or even come unraveled entirely.

He argues that if the gap gets too large, those at the bottom will no longer feel compelled to play by the rules, and he suggests that events in Brazil (which has a large gap and where he spent some time) as a cautionary tale.

Turning to the U.S., he used the Gini Index, which measures the degrees of inequality, to contrast the U.S. to other nations. Gini varies between zero and one; the closer to zero means more quality and closer to one means more inequality. He reports Gini coefficients as follows: Japan=0.25; Sweden=0.25; India=0.33; U.S. in 1970=0.39; U.S. in 2005=0.47; and, Brazil=0.58.

In the end he suggests a thought experiment (from philosopher John Rawls):

Rawls argued that decisions about economic justice should be made behind a “veil of ignorance.” How would you want the world to look if you were going to be born tomorrow but didn’t know the economic station into which you would be born?

If you were going to be born somewhere in America tomorrow — in the projects of Chicago or perhaps into one of those families that brought home $50 million this bonus season — what would you want the economic landscape to look like today?

Would you want a distribution of income that looked more like Sweden’s, or Brazil’s? It’s worth thinking about.

Wheelan’s column is titled, “Why Income Inequality Matters” and was posted on Tuesday, January 9, 2007.

Advertisements