Quote of the Day: Kolm on inequality

By Matt Nolan 29/04/2014

One of the forefathers of modern income inequality analysis, Serge-Christophe Kolm, started one of his most famous papers (REPEC) in the following way:

Many people consider the reduction of economic inequalites as a basic aim of society. Such ideas are, however, largely nonoperational, sterile, and even meaningless, as long as what is called inequality is not stated with precision. This is so because, as well appear below, different measures of inequality give widely different, and even opposite, results. Such policy which diminishes some apparently reasonable measure increases other ones.

This is no small point.  While it is nice for us to bang on about “reducing inequalities”, it is nothing more than empty platitudes if we aren’t willing to discuss the trade-offs associated with individual policies.

Also, let’s not forget this quote:

Few concepts are as meaninglessly used as that of inequality.

But this is not because he thinks analysing issues of social justice don’t matter – in fact it is the complete opposite!  He believes that multi-dimensional ethical issues deserve careful and specific analysis, rather than being thrown into one broad, and close to meaningless, term.

Like exchange rates, productivity, GDP, and inflation, inequality is a broad macro(social/economic) term that can be used as a touch stone to go on to think about other real issues.  But it should not be allowed to become more important than these issues, and an understanding of the trade-offs that do exist when we go to make policy choices.

0 Responses to “Quote of the Day: Kolm on inequality”

  • Chilling. Oh, let’s see now, draw a graph of median life expectancy against median income and see how one falls with the other. Or how about infant mortality against parent’s income? Or the real kicker; infant mortality against income inequality. The excess deaths clearly revealed are mocked as “Meaningless” by economists are they? SCK’s musings on social justice are crocodile tears. The problems caused by inequality are nasty and have been starkly made clear.

  • Are you talking about the work discussed in the Spirit Level?

    Yes, economists do have a problem with that book – some of the best critiques of specific points, from left leaning economists, can be found in the Oxford Handbook of Economic Inequality.

    But there is a broader point here – I am critical of the Spirit Level for many reasons, one being that it ignores what the “inequality” is. It specifically states it uses the Gini coefficient just because it felt like it. But without knowledge about what the mechanism is – how are you supposed to know the impact of policy, this is the Lucas Critique (the structure of the relationship isn’t policy invariant).

    So we actually have to ask tough ethical and policy relevant questions – that is all economists ask. If people want to draw thoughtless correlations and engage in pseudo-science to make themselves feel like they are saving the world, then whatever – but if people are trying to sell policy on the basis of it I want them to be danged sure they’ve analysed the trade-offs that exist, or else they will end up just hurting people.

    The “problems caused” have not been established, not in the slightest, as an index of statistical dispersion is not really a cause of anything – it is symptomatic of fundamentals within a society. To make it “operational” as Kolm says, we actually need to do the hard work of figuring out what is causing this dispersion and its mechanistic relation to other things – so we can design policy. The Spirit Level’s refusal to admit that was its main failing – not its only failing, but the main one.

  • The good thing here is that we care enough to comment on inequality, and certainly we need definitions and quantitative measures. For what it is worth, I think there are questions to answer here, if we call it equality or justice or what ever.

    I find it interesting the way Wilkinson’s name comes up in these conversations and the antipathy the economists have for his work.

    It is not surprising that economists using the approaches and methods of economics reach conclusions different from sociologists using the methods of sociology. My view is that for these interdisciplinary challenges we need to remember that humanity has been successful because we cooperate, just as much as because we compete. Both approaches build understanding, and move us toward solutions.

    • Do read the rather extensive critiques of Wilkinson’s work by, for example, Matt Nolan (here), Andrew Leigh (Australian Labor MP, hardly a screaming right-winger), and Chris Snowden (researcher at the Institute for Economic Affairs). Leigh points out that, when he’s run his own analysis on the kinds of stuff Wilkinson looks at, he just does not find the effects that Wilkinson’s claiming. Snowden says that’s because Wilkinson engaged in heavy cherry-picking: his year/country choices in each graph were determined not by data availability but rather by the combinations that would yield “inequality -> bad stuff”. Matt can provide his own summary: http://www.tvhe.co.nz/2013/07/18/review-spirit-level/.