Income and Inequality

January 17, 2020

On November 12, the JVI hosted a lecture on “Income and Inequality” by Danny Quah, Dean and Li Ka Shing Professor in Economics at the Lee Kuan Yew School of Public Policy, National University of Singapore. He pointed out that there seem to be unanimity among leaders that addressing growing inequality should be the priority for policy-making today. Pope Francis tweeted in April 2014 that “Inequality is the root of social evil” and former US President Barack Obama declared inequality to be “the defining challenge of our time.” Professor Quah called for more analysis and evidence on the dynamics of inequality and its causes to avoid counter-productive policies that “treat visible symptoms rather than curing the patient.”

As an example, he noted that in 1999 U.S. policy had pushed for increased mortgage lending to lower- and middle-income American households as a strategy to tackle rising inequality in the country. However, rather than treating the fundamental causes of poverty and inequality, the policy led to the subprime mortgage crisis and the collapse of the housing market that caused economic damage worldwide.

There is growing concern about the significantly increased concentration of income and wealth at the top. Professor Quah argued that this discussion needs to be broadened to cover what happens to income trajectories at all levels, not just at the very top, and to understand better how people view their life-chances, that is their prospects of income mobility.

Expanding on this, Professor Quah discussed the dynamics of mobility in U.S., France and China from 1980 to 2014. He noted that although the average income of the top 10 percent increased in all three, further analysis reveals important differences:

Inequality has increased in the U.S. and the incomes of the poorer have been falling; their income mobility has been downward.
In China, inequality has also increased but the income share of the bottom 50 percent has quadrupled.
In France, since 2000 inequality has been flat or declining, but the incomes of the poor have increased.

Professor Quah added that across economies in the world his analysis did reveal increased inequality. However, the research also shows a rise in the average incomes of the poor in 81 percent of the economies in his sample, similar to results in China and France, offering evidence of upward income mobility in most countries. He suggested that downward income mobility in the U.S. could indeed explain the life dissatisfaction and policy preferences of the disadvantaged. At the same time, the political unrest in France, where inequality has remained in check while the incomes of the poorer have increased, cannot be explained by lack of economic prospects of those worse off.

He further reflected on the concept of inequality and that it can often be difficult to grasp. Hence, understanding inequality as a lack of social mobility may cause confusion. He demonstrated that there is little relation between mobility on the one hand and inequality and its dynamics on the other. While in the U.S. rising inequality coincides with stagnant incomes of the poor, this is not the case in other countries. Professor Quah observed that the discussion about inequality may distract attention from the challenges that, in his view, genuinely need attention—poverty and lack of upward income mobility—and lack of understanding of inequality (or inequality illiteracy) combined with populist rhetoric may lead to social and political unrest.

Professor Quah concluded that public policy on inequality needs to take into account the possibility of disinformation and called for more analysis and empirical evidence.

Asel Isakova, Senior Economist, JVI

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Income and Inequality

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