Digesting Income Inequality


Here Mr Krugman points to what he considers to qualify as the chart of the year 2014. It represents the global income-growth distribution in the period 1988-2008. The chart, from a working paper by Christoph Lakner and Branko Milanovic, is actually remarkable:

What you see is the surge by the global elite (the top 0.1, 0.01, etc. would be doing even better than his top 1), plus the dramatic rise of many but not all people in emerging markets.

Then Mr. Krugman goes on to explain that:

What Mr. Milanovic shows is that income growth since the fall of the Berlin Wall has been a “twin peaks” story. Incomes have, of course, soared at the top, as the world’s elite becomes ever richer. But there have also been huge gains for what we might call the global middle — largely consisting of the rising middle classes of China and India


Between these twin peaks — the ever-richer global elite and the rising Chinese middle class — lies what we might call the valley of despond: Incomes have grown slowly, if at all, for people around the 20th percentile of the world income distribution.

However the “twin peaks” story authors tell in their original paper is a slightly different one:

China has graduated from the bottom ranks, modifying the overall shape of the global income distribution in the process and creating an important global “median” class that has transformed a twin-peaked 1988 global distribution into an almost single-peaked one now.

twin-peaks no more

I am sure it is just the result of Mr. Krugman twisting the “twin peaks” metaphor, but you should be cautious when navigating through the intricacies of statistics (and jargon) used in economics.

Looking to the figures in the paper by Lakner and Milanovic, I recalled one of the highest “summits” in literature, the beginning of “Le Petit Prince” (“The Little Prince”) when the narrator explains that, as a young boy, he drew a picture of a boa constrictor with an elephant digesting in its stomach, but adults who saw the picture thought it was supposed to be a hat.

le petit prince

The narrator would try to correct the confusion, but grown-ups advised him to give up drawing and pursue geography, arithmetic, or grammar instead.

So, now you know why I didn’t devote myself to economics.


(1) Christoph Lakner, Branko Milanovic, “Global Income Distribution, From the Fall of the Berlin Wall to the Great Recession”, Working Paper, The World Bank Development Research Group, December 2013

Featured Image: The elephant inside a boa constrictor from The Little Prince


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