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Which inequalities matter?

Kenneth Arrow is high in the pantheon of the Econ-Gods. And today he posts at Crooked Timber on Piketty and inequality.

Professor Piketty and his colleagues at the Top Income Distribution Study have put us all in great debt for the great increase in our knowledge of historical development of inequalities in income and in wealth in a number of leading countries.

Notice I have already mentioned two inequalities, income and wealth. There is one more leading inequality which does not receive much attention in Piketty’s work: consumption. Papers and books have already appeared which try to measure this inequality. Many more inequalities, e.g. health, educational achievement, race, and gender differences have been the subject of study, but these are more specialized and less central to economic analysis.

There is a strong argument for emphasizing consumption. Why, after all, do we consider inequality in wealth, income, or consumption to be undesirable? If we consider only economic arguments, it is because the poor are being deprived of goods that are valuable to their lives, exactly because they are more basic than the desires of the rich.

Consumption inequality matters most. Accumulation of wealth could fuel larger consumption differences, or fund investment and growth, or a bit of both. Arrow reminds us that consumption inequality measures, rather than income or wealth inequality, paint a better picture. If wealth is being used to fuel economic growth, would you really want to tax it all away?

And remember that consumption inequality in New Zealand was lower in 2013 than it was in 1984.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

1 Comment on Which inequalities matter?

  1. If you have no income or wealth you have no consumption – consumption is the tail not the dog. Inequality in the former is therefore more important – especially given that saving is another option for those with wealth


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