J. Ruiz-Huerta. Professor of Applied Economics (Public Finance) University Rey Juan Carlos of Madrid and collaborator of the Alternatives Foundation
Concern about inequality has grown significantly after the crisis period suffered in the countries of southern Europe, particularly in Spain. During the earlier periods of expansion, it was not a central issue and of particular concern among citizens or among economists. Arguably even bewitched by the functioning of markets and competition and the continued growth of GDP, many economists believe that the subject of inequality was a minor issue, the subject of attention more appropriate to other scientific disciplines and not deserving of special attention from the economic point of view.
However, since the period of consolidation of the economy as an autonomous discipline, distributional issues were present between the interests and objectives of the first economists. Often mentioned in this regard, the statement of David Ricardo in his correspondence with Thomas R. Malthus on October 20, 1820 said in the following terms: "You think that political economy is an investigation into the nature and causes of wealth. I think it should be defined rather as an investigation into the laws that determine the division of industry product between classes who are present at its formation. "
It is true that the distributional problems that economists turned their attention to are those relating to the distribution of income from a factorial or functional perspective, that is to say, the analysis of the distribution of the proceeds among the owners of capital, workers and the owners of natural resources and raw materials, but other issues such as the meaning and scope of welfare, equitable distribution of public tax burdens or how to implement the principle of equal opportunities, have a long history in the field of economic studies. In contrast, problems of equal results in personal terms or related to access to benefits and public services were incorporated into the agenda of economists later, after they were the object of attention of other scientific disciplines.
Growth does not guarantee increased prosperity
It seems reasonable to argue that the central object of social sciences is how societies function and what is the level of welfare of citizens living in them. The fundamental objectives of modern economic analysis have been the growth in production, the employment rate of everyone and the level of unemployment, or the maintenance of basic equilibrium in the field of prices, foreign trade or large government budgetary figures, all issues of undoubted importance, however they do not tell us much about the welfare of individuals. We even used to think that growth was essential and implicitly assume that if GDP increases at a reasonable rate, everything should good for everybody.
And yet, we know that the traditional measure of output growth does not guarantee increased prosperity for all. An interesting example appears in Figure 1, which shows what happened with the growth in the different sectors of income distribution.
The exercise carried out is not complicated: If from a source, such as household budget surveys, we can order the distribution of income according to the income levels of citizens, organized by percentiles, we can know what happened to their income in the years of economic recession, and comparing the evolution of the rate of each subject with the average rate of evolution of income, we can get an idea that the crisis has not had the same effect on some groups as others. It is true that during this period the average rent declined, so most individuals lost economic capacity, but it is important to remember that some groups lost more than others and some, the better off, even managed to increase their income in the period of recession.
Speaking of welfare requires the consideration of more factors than the GDP or the GDP per capita. Today there are multiple indicators that include various components to complement the traditional measure of economic growth: indicators of access to services, availability of consumer durables, degree of social integration, subjective perceptions of welfare itself, and so on. However, one item that is usually dispensed with in studies on welfare is inequality. It is important to have information on the evolution of inequality or inequalities to try to understand how the eventual growth of GDP between households and individuals that live in them. Even some synthesized welfare indicators attempt to provide an integrated view of the two main factors: the increase (or decrease) of the product and its distribution, as measured by levels of inequality.