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The Year Ahead 2018

How Inequality Works

The political upheavals and populist incursions of the past few years owe much to widespread perceptions of inequality and economic injustice in advanced economies. While median wages have stagnated, incomes at the top have continued to rise, and there is growing evidence to suggest that the two phenomena are connected.

PRINCETON – Inequality has been named as a culprit in the populist incursions of 2016 and 2017. But what is inequality, and what role does it play in inhibiting or encouraging growth, or in undermining democracy? Does inequality kill, say, by driving people to suicide or to “deaths of despair”? Or is inequality a necessary evil that we must tolerate at certain levels?

These are questions I am often asked. But, truth be told, none of them is particularly helpful, answerable, or even well posed. Inequality is not so much a cause of economic, political, and social processes as a consequence. Some of these processes are good, some are bad, and some are verybad indeed. Only by sorting the good from the bad (and the very bad) can we understand inequality and what to do about it.

Moreover, inequality is not the same thing as unfairness; and, to my mind, it is the latter that has incited so much political turmoil in the rich world today. Some of the processes that generate inequality are widely seen as fair. But others are deeply and obviously unfair, and have become a legitimate source of anger and disaffection.

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