Ha-Joon Chang - Economics - The User's Guide

For a more detailed argument along this line, see J. Stiglitz, The Price of Inequality (London: Allen Lane, 2012), Chapter 4.

Another definition of the term, popularized by the American political scientist Robert Putnam, refers to the collection of social bonds among the members of a society.

Wilkinson’s and Pickett’s explanation is that lower-income individuals in more unequal societies are subject to greater stress than are their counterparts in more equal societies. This stress comes from what they call ‘status anxiety’, namely, the anxiety about one’s low status and inability to overcome it, especially in early life. This stress, Wilkinson and Pickett argue, negatively affects the health of the individuals concerned and makes them more prone to antisocial behaviour, like crime.

Comprehensive and balanced reviews of the evidence can be found in F. Stewart, ‘Income distribution and development’, Queen Elizabeth House Working Paper, no. 37, University of Oxford, March 2000; downloadable from:

http://www3.qeh.ox.ac.uk/pdf/qehwp/qehwps37.pdf, and in B. Milanovic, The Haves and the Have-Nots (New York: Basic Books, 2011).

Other indexes include the Theil Index, the Hoover Index and the Atkinson Index.

It is named after the early twentieth-century American economist Max Lorenz.

See G. Palma, ‘Homogeneous middles vs. heterogeneous tails, and the end of the “Inverted-U”: The share of the rich is what it’s all about’, Cambridge Working Papers in Economics (CWPE) 1111, Faculty of Economics, University of Cambridge, January 2011; downloadable from: http://www.dspace.cam.ac.uk/bitstream/1810/241870/1/cwpe1111.pdf).

For a detailed discussion of these points, see A. Cobham and A. Sumner, ‘Putting the Gini back in the bottle?: “The Palma” as a policy-relevant measure of inequality’, mimeo, King’s International Development Institute, King’s College London, March 2013; downloadable from: http://www.kcl.ac.uk/aboutkings/worldwide/initiatives/global/intdev/people/Sumner/Cobham-Sumner-15March2013.pdf. A user-friendly visual explanation can be found at: http://www.washingtonpost.com/blogs/worldviews/wp/2013/09/27/map-how-the-worlds-countries-compare-on-income-inequality-the-u-s-ranks-below-nigeria/.

To see this point more clearly, do a little thought experiment. Suppose that you are told that scientists have identified fifty-five planets with sentient beings within our galaxy that are all vastly richer than the earth and also have huge income gaps between themselves, giving a very high galactic Gini coefficient. Would you be terribly upset about it? Probably not – because you don’t really know those beings and cannot even imagine how they live.

Thereby reducing its Gini coefficient to 0, as it will be a perfectly equal society – of one person.

See OECD, Divided We Stand: Why Inequality Keeps Rising (Paris: Organization for Economic Cooperation and Development, 2011), and ILO, World of Work 2012 (Geneva: International Labour Organization, 2012).

The following Gini coefficients are for 2010 from ILO, World of Work 2012 , p. 15,figure 1. 9. Figures for Botswana and Namibia are from older sources.

Interestingly, the dividing line here is similar to what some of the friendly critics of The Spirit Level use when they say that inequality produces negative social outcomes in countries above a certain level of inequality.

UNCTAD, Trade and Development Report 2012 (Geneva: United Nations Conference on Trade and Development, 2012), Chapter 3, p. 66, chart 3. 6. The fifteen countries studied were Australia, Canada, Chile, China, Germany, India, Indonesia, Italy, Japan, (South) Korea, New Zealand, Norway, Thailand, the UK and the US. The data used ranged from 1988 for Korea to 2008 for the UK, showing the difficulty of getting information on wealth distribution.

Their income Ginis were below 0. 3, but their wealth Ginis were over 0. 7. Their wealth Ginis were higher than those of some countries with much higher income inequality, such as Thailand (just over 0.6 wealth Gini; income Gini over 0.5) or China (wealth Gini around 0.55; income Gini close to 0.5).

Detailed information is provided by ibid., especially Chapter 3.

A. Atkinson, T. Piketty and E. Saez, ‘Top incomes in the long run of history’, Journal of Economic Literature , vol. 49, no. 1 (2011), p. 7,figure 2.

Ibid., p. 8,figure 3.

F. Bourguignon and C. Morrisson, ‘The size distribution of income among world citizens, 1820–1990 ’, American Economic Review , vol. 92, no. 4 (2002).

UNCTAD, Trade and Development Report 2012 . But see Milanovic, The Haves and the Have-Nots , Chapter 3, for a more cautious interpretation of the data.

Poverty rates were 6.4 per cent in Iceland, 7.2 per cent in Luxembourg and 7.3 per cent in Finland. They were 17.4 per cent in the US, 16.0 per cent in Japan and 15.4 per cent in Spain.

The term has become famous in economics thanks to The Theory of the Leisure Class by Thorstein Veblen (whom we met in Chapter 4), a savage critique of what he called conspicuous consumption (consumption to show off one’s wealth, rather than for the pleasure of it).

The ILO defines child labour as children under the age of fifteen (or twelve, for some jobs) doing jobs that hamper their physical development and education, thereby excluding cases such as children helping with domestic chores or doing paper rounds.

J. Garraty and M. Carnes, The American Nation: A History of the United States , 10th edition (New York: Addison Wesley Longman, 2000), p. 607.

This point is discussed in the ‘Unrealistic individuals, over-acceptance of the status quo and neglect of production: limitations of the Neoclassical school’ section in Chapter 4.

The ILO does not provide national breakdowns for forced labour due to the data quality problem.

There are different sources for working hours, but I use the ILO data because they are the most comprehensive. For the rich countries, I sometimes use the OECD data, when the ILO data are not available.

The hours are 1,382 hours for the Netherlands, 1,406 hours for Germany, 1,421 hours for Norway and 1,482 hours for France.

The hours are 2,090 hours for Korea, 2,039 hours for Greece, 1,787 hours for the US and 1,772 hours for Italy.

Korea actually had the longest working hours in the OECD (including Mexico) until 2007.

For further discussions, see Chang, Bad Samaritans , Chapter 9 (‘Lazy Japanese and thieving Germans’), and H.-J. Chang, 23 Things They Don’t Tell You about Capitalism (London: Allen Lane, 2010), ‘Thing 3 ’ (Chapter 3).