good news and bad news about global inequality

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http://www.newyorker.com/online/blogs/johncassidy/2014/01/good-and-bad-news-about-global-inequality.html

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If you set aside China and India, which admittedly isn’t very wise, you find that, worldwide, the gap between rich and poor countries is as large as it’s ever been, maybe even larger. And even if you do include China and India, the two great success stories, it’s surprisingly hard to find evidence that inequality has fallen on a global basis.

Deaton acknowledges this reality, but I’m not sure he confronts it adequately. At one point, he writes, “There has been little or no narrowing of income inequality between countries; for every country with a catch-up story there has been a country with a left-behind story.” Elsewhere, though: “The rapid growth of China and India has not only enabled hundreds of millions of the world’s citizens to make The Great Escape but made the world a more equal place.” Theoretically, these statements could both be correct: if you lined up all the people in the world, rather than all the countries, you might expect to find a narrowing in income dispersion thanks to the contribution of all those newly middle-class Chinese and Indians.

But when Branko Milanovic, the World Bank’s leading expert in this area, and a colleague, Christoph Lakner, recently carried out such an exercise, they couldn’t identify any appreciable fall in inequality. Their study, which has just been published as a working paper, was based on household surveys that they compiled from around the world. Allowing for possible statistical errors and gaps in the surveys, they concluded that between 1989 and 2008 the over-all level of global inequality basically remained the same. Their initial estimate was that it had gone down a bit. When they adjusted their figures for the underreporting of top incomes, which is a common problem in household surveys, they found it had risen a bit. Either way, they wrote, “our results confirm earlier findings that the level of global inequality remains high.”

In fact, the extent of inequality that Milanovic and Lakner found was even greater than estimates from previous studies, including some carried out by Milanovic himself. A commonly used measure of income inequality is the Gini coefficient, which ranges from zero (perfect inequality: one person gets all the income) to one (perfect equality: everybody gets the same level of income). According to Milanovic and Lakner’s calculations, in 2008 the global Gini coefficient was somewhere between sixty-eight per cent and seventy-six per cent, depending on which specification they used. Previous studies mostly found global Ginis in the mid-sixties. If the new calculations are right, the world is an even more unequal place than we thought.