The Inequality Puzzle
Over the last decade, income inequality has come to be seen as one of the most urgent issues on the international policy agenda. And yet, despite all the attention, few potentially effective solutions have been proposed.
NEW YORK – Over the past decade, income inequality has come to be ranked alongside terrorism, climate change, pandemics, and economic stagnation as one of the most urgent issues on the international policy agenda. And yet, despite all the attention, few potentially effective solutions have been proposed. Identifying the best policies for reducing inequality remains a puzzle.
To understand why the problem confounds policymakers, it is helpful to compare the world’s two largest economies. The United States is a liberal democracy with a market-based economy, in which the factors of production are privately owned. China, by contrast, is governed by a political class that holds democracy in contempt. Its economy – despite decades of pro-market reforms – continues to be defined by heavy state intervention.
But despite their radically different political and economic systems, the two countries have roughly the same level of income inequality. Each country’s Gini coefficient – the most commonly used measure of income equality – is roughly 0.47.