This is the second of a three-part series. Part 1 of this seriesSo we’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 reducing inequality here.
Part 2: Measuring inequality
Adam Smith Smith was well aware that money is not the sum of happiness. He once said that “a large part of human happiness arises from the consciousness that one is loved.” Smith would easily understand why some people would 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 disadvantage anyone, but is merely an example of acting on personal preferences. The greater the freedom of choice an individual has to act on his preferences, the happier he is. As Smith pointed out, “every man is richer or poorer, according to the degree to which he can afford the necessities, conveniences, and pleasures of life.” Income is only one (admittedly important) measure of happiness, since more income often gives an individual more choices.
Happiness has many dimensions, and while income should be taken into account when measuring happiness, we must also be aware of the complexity of the subject and avoid focusing solely on income.
George Mason University economist Vincent Geloso and I have developed a new measure of inequality called Inequality Index of Human Progress (IHPI)The IHPI provides a comprehensive assessment of well-being, aiming to capture a broader range of choices available to individuals than that derived from income alone. By examining multiple dimensions of inequality, the IHPI takes inequality more seriously than indices that focus solely on income inequality. Indeed, we have examined more dimensions of international inequality than any previous index.
We first constructed a Human Progress Index that includes income and other indicators, each of which represents a different component of progress that is important in terms of human well-being: life expectancy, childhood survival, nutrition, environmental security, access to opportunity, access to information, material well-being, and political freedom.
We chose these variables because they capture the multiple dimensions of happiness with the best available data. Smith correctly states that “feeling loved” is a key component of happiness, but finding a good way to measure it can be quite difficult. We therefore limited ourselves to easily quantifiable indicators that allow for meaningful analysis due to the wide range of years and the range of countries in each data set. The inclusion of so many variables meant that we had to limit ourselves to measuring how global inequality has changed since 1990, because data prior to that date is often unavailable or limited. The index confirms that remarkable progress has been made since then, with most people around the world becoming better off in absolute terms.
The key question is, have these gains been shared, or have a few countries captured most of the benefits while others were left behind? To find out, we inequality Relations between nations have changed over time in these dimensions, which we will discuss in part three of this series.
Want to read more?
John V. C. Nye on living standards and modern economic growth In A concise encyclopedia of economics.
Jeremy Hopdahl, Americans are still thriving In Econlib.
A brief biography of Adam Smith by James R. Otteson Adam SmithWorks
Chelsea Follett is editor-in-chief of HumanProgress.org, a Cato Institute project dedicated to educating the public about the global improvement in happiness by providing free empirical data on long-term development.
