This is the second part of a three-part series. first part of this seriesI’ve talked about the different types of inequality and which ones we should be concerned about. You can find part one on understanding inequality here and part three on declining inequality here.
Part 2: Measuring Inequality
Adam Smith Smith knew full well that money is not the sum total of well-being; he once said that “the greater part of human happiness comes from the consciousness of being loved.” Smith would easily understand why someone might choose greater flexibility over a higher salary in order to spend more time with loved ones, and would understand that such a choice does not make anyone worse off, but is simply an example of someone acting on their personal preferences. The more freedom a person has to make choices to act on their preferences, the better off they are. “Every man is rich or poor according to the extent to which he can afford to enjoy the necessities, conveniences, and amusements of human life,” as Smith noted. Income is only one measure (an important one, to be sure) of well-being, precisely because higher income often provides individuals with more options.
Well-being is a multifaceted concept. Measures should include income, but they should also take into account the complexity of the issue and avoid focusing solely on income.
George Mason University economist Vincent Geloso and I tried to do just that by creating a new measure of inequality, the Human Progress Inequality Index (HPI)The IHPI measures well-being holistically, seeking to capture a fuller range of choices available to individuals than can be derived from income alone. By examining inequality in a multidimensional way, the IHPI takes inequality more seriously than measures that focus solely on income inequality. In fact, we have studied international inequality across more dimensions than any previous index.
We first constructed a human progress index that includes income as well as other measures, each referring to a different component of progress that matters in terms of human well-being: lifespan, child survival, nutrition, environmental security, access to opportunity, access to information, material well-being, and political freedom.
We chose these variables to capture the multifaceted nature of well-being using the best available data. Smith may be right that “the sense of being loved” is a key component of well-being, but finding a good measure of well-being is quite difficult; we limited ourselves to easily quantifiable measures where the wide range of years in each dataset and the coverage of different countries allowed for meaningful analysis. The inclusion of so many variables meant that we were limited to measuring changes in global inequality since 1990, as data were often unavailable or limited before that date. The index confirmed that impressive progress has been made since then, with most people in the world becoming better off in absolute terms.
It is important to know whether these gains have been shared or whether a few countries have benefited most of the benefits while others have been left behind. To find out, we looked at how inequality Relations between countries have evolved over time in dimensions that I will address in the third part of this series.
You want to know more ?
John VC Nye on Living Standards and Modern Economic Growth in the Concise Encyclopedia of Economics.
Jeremy Horpedahl, Americans Still Prosper at Econlib.
A Brief Biography of Adam Smith by James R. Otteson at AdamSmithWorks
Chelsea Follett is editor of HumanProgress.org, a project of the Cato Institute that aims to educate the public about global improvements in well-being by providing free empirical data on long-term developments.
