Inequality is a charged topic. Measures of income
inequality rose in the USA in the 1990s to levels not
seen since 1929 and gave rise to a suspicion, not for
the first time, of a link between radical inequality and
financial instability with a resulting crisis under
capitalism. Professional macroeconomists have generally
taken little interest in inequality because, within the
parameters of traditional economic theory, the economy
will stabilize itself at full employment. In addition,
enlightened economists could enact stabilizing measures
to manage any imbalances. The dominant voices among
academic economists were unable to interpret the causal
forces at work during both the Great Depression and the
recent global financial crisis. In Inequality and
Instability, James K. Galbraith argues that since there
has been no serious work done on the macroeconomic
effects of inequality, new sources of evidence are
required. Galbraith offers for the first time a vast
expansion of the capacity to calculate measures of
inequality both at lower and higher levels of
aggregation.Instead of measuring inequality as
traditionally done, by country, Galbraith insists that
to understand real differences that have real effects,
inequality must be examined through both smaller and
larger administrative units, like sub-national levels
within and between states and provinces, multinational
continental economies, and the world. He points out that
inequality could be captured by measures across
administrative boundaries to capture data on more
specific groups to which people belong. For example, in
China, economic inequality reflects the difference in
average income levels between city and countryside, or
between coastal regions and the interior, and a simple
ratio averages would be an indicator of trends in
inequality over the country as a whole. In a
comprehensive presentation of this new method of using
data, Inequality and Instability offers an unequaled
look at the US economy and various global economies that
was not accessible to us before. This provides a more
sophisticated and a more accurate picture of inequality
around the world, and how inequality is one of the most
basic sources of economic instability. |
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