Measuring Economic Inequality I

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Nice review of common mistakes when measuring economic inequality. A whopper, using a 2011 paper by Norton and Ariely as an example, is the commingling of income and wealth inequality measures.  Norton and Ariely asked survey participants to indicate their preference between pie charts depicting wealth distribution in the US and income distribution in Sweden--while framing both as wealth distributions.

In fact, wealth distributions of the US and Sweden are much closer than presented by the researchers. Ariely has since admitted that it is difficult to find a country that has a relatively equitable distribtution of wealth.

Finding such an example is likely to prove more than difficult. It is probably impossible. Concentrated wealth has been a condition of society since the beginning, with observers such as Pareto considering the phenomenon along the way. Even countries positioned far toward the socialism end of the economic spectrum are likely to reflect large quantitities of wealth concentrated in small fractions of their populations.

An important but usually unaddressed issue is the extent to which wealth distributions are skewed by force.

Returning to Norton and Ariely's paper, add the fact that the authors did not merely present two hypothetical distributions (e.g., A and B) to reduce respondent bias related to particular countries and you get results that are highly contestable at best and severely slanted at worst. It is easy to construe this paper as more propaganda than research.

That this study appeared in a peer reviewed outlet demonstrates that any paper can pass editorial muster if the review board is sympathetic to a particular ideological viewpoint.

There are several other good points made by this author concerning the (mis)measurement of economic inequality. We will consider some of them in future posts.