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Inequality over Time

November 27, 2010

In this article Tim Harford puts forward an interesting reflection on the value of money over time. Roughly summarized, because of the much higher base level of goods and services (e.g. central heating, cell phones) available today, $7 today could to many people be worth more than $7 one hundred years ago, in spite of what inflation indices tell us.

This led me to think about the size of gaps between rich and poor. If it is preferable to be given $7 extra for goods and services now than 100 years ago, then it is more of a detriment to be $7 worse off than someone else now than 100 hundred years ago. This means that today the gap between rich and poor is actually far larger than it was 100 years ago. The main assumption for this of course is that you can use all that additional money to buy additional goods and services – I think this is a reasonable assumption, as there are goods and services enough to spend almost any amount of money on.

There are two ways to analyze these scenarios. Firstly, a utilitarian conception – in this case, as Tim Harford suggests, the greater purchasing power of $7 today due to the sheer availability of goods and services greatly increases the general happiness. Secondly, we can try to think about it in terms of a preferred distribution of wealth/opportunities – in this case, the situation preferred by a neutral observer (as per Rawls’ idea of a just society) would be one where it was more equally distributed, and due to the lesser disparity due to the lower purchasing power, the situation 100 years ago would be preferable. While we may be happier now, we may live in a less just world. It is perhaps our perceptions of injustice in this way that prevent us from using rose tinted spectacles to look at the present.

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