On Saturday The New York Times ran an article by economics professor Tyler Cowen in which Cowen writes about the decline of global inequality. Professor Cowen writes:
“Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.”
The article celebrates the capitalism fueled growth of developing nations like China and India and attributes the cause of declining global inequality to economic growth in China and India over the past two decades.
“The economic surges of China, India and some other nations have been among the most egalitarian developments in history.”
This article by the Times is highly misleading. There are two assertions made by Cowen that deserve closer scrutiny: 1. that the economic development in China and India has been “egalitarian” and reduced inequality, and 2. that global inequality is declining.
First, Cowen may have his facts wrong. According to an article published by Harvard Business Review, written by World Bank economist Branko Milanovic (one of the co-authors of the report cited by Cowen), inequality in China is rising. Milanovic writes:
“China, under Deng Xiaoping, introduced private ownership of land in 1978, and thus began its 35-year period of unprecedentedly high economic growth and rising inequality. During that same period, Chinese inequality increased at a tempo outpacing even that of the United States: inequality in China rose from a level lower than in the United States to a level equal or slightly exceeding that in the United States today.”
A similar rise in inequality can also be see in India:
So, on his point that China and India become more “egalitarian,” Cowen appears to be incorrect. Secondly, the report (written by Branko Milanovic and Christopher Lanker) that Cowen cites in the Times, is a comparative study that examines the wealth gap between nations. This is important to note, because a situation may exist where geopolitical inequality is decreasing but absolute inequality is still rising. By comparing the wealth gap between nations Lanker and Milanovic seem to demonstrate that developing nations like China are catching up to the developed West therefore reducing inequality. Lanker and Milanovic compared “relatively poor people in the US with relatively rich people in China.” Their data showed that the wealth gap between the two was narrowing, again suggesting that inequality may be declining.
To me it appears that by comparing economic data between nations such as the United States and China it can be demonstrated that the gap between developing and developed nations is shrinking (economically, China is catching up to the US), however, that does not seem to be true to the intent of measuring the wealth gap.
The point of the wealth gap as a metric is to measure income disparity between classes and not nations. Cowen does not make this distinction in his Times article. He writes about that the wealth gap “within individual nations” is increasing but goes on to write about the wealth gap between nations as if it were the same as the wealth gap between classes, and as a result Cowen’s article is misleading.