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Todd A. Knoop

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Todd A. Knoop

How can we quantify inequality? There are many different types of inequality that we could talk about, and many different sources of data that could be used to measure inequality. A great deal of the public debate surrounding inequality is often at cross-purposes because different people have different ideas about what constitutes inequality and how they choose to measure it. Many people believe in equality as a principle, but there is often little agreement about what should be made equal. Here, we examine the many ways that economic inequality can be defined and how we can bring data—or sometimes fail to bring data—to each of these definitions. Who are we talking about when we talk about economic inequality? Where are we talking about? What are talking about? When are we talking about? And how are we going to talk about it? This chapter addresses each of these questions.

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Todd A. Knoop

Surveys have shown that people across the world are shockingly ignorant about inequality and underestimate the extent to which inequality exists despite the voluminous research on inequality that has taken place over the last two decades. The purpose of this chapter is to take a closer look at the inequality data across the globe, summarized in six important facts about inequality across the globe. 1. Income Gini coefficients have risen significantly since 1980 within most countries of the world. 2. The top 10%, top 5%, top 1%, top 0.1%, and top 0.01% income shares within countries are rising particularly fast. 3. Global wealth inequality is growing even faster, and the number of billionaires is booming. 4. The middle-class in rich democracies is shrinking and economic mobility is stagnant. 5. The global middle-class and poor are gaining ground (relatively). 6. Where, not who, is still the biggest story in global inequality.

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Todd A. Knoop

Some of the best and brightest minds in economics, philosophy, sociology, and history do not believe that inequality is necessarily something to worry about, and that a society in which equality is imposed on it by government is worse in every important aspect. Here, we examine different perspectives on inequality that contend that economic inequality is a necessary evil that should be accepted, not corrected. The views presented here argue that allowing markets to work optimizes efficiency and welfare by maximizing the size of the pie; allowing free choice ensures freedom; and that competition and a focus on meritocracy and “just deserts” promotes the virtues of hard work and entrepreneurship. In other words, inequality is not only efficient, it is also just. Focusing on attaining some abstract notion of “equality” will not only lead to a less efficient economy, it will also lead to a less fair society.

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Todd A. Knoop

This chapter examines ten ways that our individual behavior is shaped by inequality, how these behaviors impact society, and how these societal changes then, in turn, impact individuals in complex ways. This includes the impact of inequality on: status-based behavior, the networking of ideas, education and health, intergenerational mobility, economic rent-seeking, discrimination, trust and conflict, democracy and civil society, and macroeconomic instability. The unifying theme of this chapter is that there are social consequences of inequality that not only impact welfare, but also impact efficiency. In other words, an unequal society will also be an inefficient one. As a result, changes in inequality within countries produce positive and negative externalities that can create poverty traps and virtuous circles that fundamentally shape the nature of our friends and families, our societies, and our economies.

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Todd A. Knoop

This chapter examines theories about what drives broad-based expansions and contractions in inequality. These theories set the stage for examining the seven primary reasons behind our current trend toward increasing inequality; reasons that are not mutually exclusive. The factors that are driving growing within-country inequality today are the result of the changing nature of production in modern, information-based economies, and the impact that these economic changes are having on our social norms. Changes in our economics—such as the growing importance of education-intensive labor, intangible capital, the role of globalization, and the creation of economic superstars and winner-takes-all markets—have changed the ways that we organize ourselves in our work, but also the ways that we organize our families, our broader society, and our politics. All of these factors are contributing to the growing domestic inequality we are experiencing today.

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Todd A. Knoop

In this chapter we look at inequality from a global perspective and examine differences in income across the world’s population, regardless of country. We want to understand why the global income distribution is as unequal as it is, and also why global inequality and poverty have fallen dramatically over the last 25 years. The vast majority of inequality across people can be explained by one simple fact: which country you live in. “Where” is much more important than who you are or what you do. In other words, the social determinants of productivity are more important than the individual determinants of productivity. The local economic institutions that shape our incentives to engage in productive behavior—things such as corruption, property rights, historical path dependence, open markets, macroeconomic policy, education systems, democracy, and culture—play a bigger role in determining our income than how hard we work or our innate skills.

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Todd A. Knoop

There is no a strict tradeoff between growth and inequality because economic institutions matter. Institutions and the incentives that they create lead to vastly different levels of inequality between countries with similar income levels. In this chapter we examine policies that impact domestic inequality, while keeping a keen eye on the potential costs of these policies in terms of reducing efficiency and production. This includes evaluating structural reform policies that change the workings of markets (such as changes in labor laws, creating more market competition, and improving education) and fiscal policies that transfer resources from the richer to the poorer citizens (such as increasing the progressiveness of taxation and providing universal guaranteed incomes). The purpose here is to understand the policy menu that governments have to choose from when they set a goal to reduce inequality.

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Todd A. Knoop

In this chapter, we will attempt to discern the most likely path of inequality in the future, even if that path is sure to be different from what we expected. At the same time, we will also look forward to the factors that are most likely to play a role in making our forecasts about inequality wrong in the future, particularly the future impact of technological innovation, globalization, and public policy. Inequality matters because productivity is socially determined; perceptions of fairness influence our behavior; and inequality impacts institutions which are key determinants of how our economy and our society are doing. Like inequality itself, changing public policy to deal with inequality will only come about as the result of complicated synergies between people with different backgrounds and different levels of privilege, all interconnected in webs composed of externalities and ideas and social norms and psychology.

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Understanding Economic Inequality

Bigger Pies and Just Deserts

Todd A. Knoop

In Understanding Economic Inequality, the author brings an economist’s perspective informed by new, groundbreaking research on inequality from philosophy, sociology, psychology, and political science and presents it in a form that it is accessible to those who want to understand our world, our society, our politics, our paychecks, and our neighbors’ paychecks better.