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Wednesday, March 12, 2014

A Response to Another Attack on the Great Gatsby Curve

WCEG:

A response to another attack on the Great Gatsby curve—and can we call it the “line to serfdom” instead? By Carter Price:  Let me apologize up front for this wonky post. In a piece of analysis posted last month, Scott Winship and Donald Schneider attack the Great Gatsby curve, which illustrates the relationship between economic inequality and mobility across countries. Let me first say that I dislike the moniker “Great Gatsby Curve” (apologies to Alan Krueger) because I don’t find it to be a very enlightening description of the effect. Therefore, I propose that we call this relationship the “line to serfdom,” which is not only a more accurate description of the high inequality/low mobility relationship but also an allusion to Friedrich Hayek’s classic tome of Austrian economics, “The Road to Serfdom.” Winship and Schneider make three arguments against a consistent correlation between economic inequality and mobility across countries. Specifically: The Luxembourg Income Study’s Gini Coefficient is a better measure of inequality than the World Bank’s Gini coefficient (Gini coefficient is a measure of the income inequality, with higher numbers indicating a higher concentration of a country’s income among the top earners). Rank correlation coefficients are a better measure of mobility than intergenerational elasticity. Recently released data indicates that the mobility trend has been relatively flat over time in the United States. I’ll address each of these points below ...

    Posted by on Wednesday, March 12, 2014 at 08:46 PM in Economics, Income Distribution | Permalink  Comments (3)

          


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