Inequality: an introduction

Abstract

I grew up in India, and it was a mess. I saw poverty and inequality right there in front of me. For my graduate studies, I went to the United States, to Northwestern. So I learned Gérard Debreu's theory of value and Kenneth Arrow's social choice theory, and I looked around—the United States knew how to develop systems to get the best out of people. This made my view very positive about how well the market system (and economic theory that underpinned U.S. culture and education) had helped that country grow in terms of innovation and wealth creation. There were people with no high‐school degrees who would get jobs, have homes, and raise families very successfully. Things have since changed my perspective. For Schumpeter's creative destruction, we consider measures of that creativity but not the destruction part of that equation. So now my questions are: Should, as in Korea, government set goals for increases in per capita income and for equitable distribution? Should governments, as in India, force companies to engage in corporate social responsibilities? Should public‐private partnerships go as far as corporate governance, as in Germany, with labor represented on the boards of companies? As in Singapore, should public‐private partnerships help in guiding students to where the jobs are and in making their choices of education before they enter education? Is inequality good to provide incentives for creativity, innovation, and entrepreneurship? Or is it incumbent on governments to endeavor to reduce inequality as a matter of equity and community? We have three very distinguished economists to help us think through these issues. Professor Yew‐Kwang Ng examines issues of separating efficiency and equality, the effects of automation, and on Piketty's theory of increasing capital share. Professor James A. Mirrlees focuses on capital and inequality. Professor Peter A. Diamond presents the forces driving inequality in the United States and policies that address these.