Economics 175: The Economics and Politics of Inequality - Lecture 1 Flashcards

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• Course and topic: Economics 175 — The Economics and Politics of Inequality
• Instructor/author: Ethan Kaplan
• Purpose: Introduce the study of inequality from economic and political perspectives.

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• Focus: Income inequality within countries and across countries
• Lecture 1 introducess the comparative and within-country perspectives on inequality.

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• Course mechanics and grading:
  • 1 Empirical Assignment (10%)
  • 7 Pop Quizzes (10% total): Best 5 of 7
  • 4 In-Class Group Debates (40% total)
  • Midterm (15%)
  • Final Exam (25%)

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• Course overview includes five core components (as listed, though slide truncates some items):
  • Political Philosophy: Should we care about inequality and is there a role for government involvement in reducing it?
  • Measurement of Inequality: Inequality of what?
  • Theory
  • Data
  • Economics of Inequality
• Historical evolution of inequality; topics include:
  • Wage Inequality
  • Capital Income Inequality
  • Wage Share of Income
  • Economic Policies Used to Mitigate Inequality
• Political Economy: Why do different countries have different amounts of inequality?

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• Question: Inequality of what?
• Observation: Much of the research focuses on income, and specifically wage income.
• Core question: Why wage income is central to inequality studies.

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• Continued discussion on inequality of what:
  • Consumption
  • Lifetime consumption
  • Wealth
  • Happiness
  • Income
• Reiteration: Most research centers on wage income because wealth and consumption are harder to tax and harder to measure.

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• How incomes are compared across countries:
  • Problem: Incomes are in different currencies.
  • Solution 1: Convert using the exchange rate to a common currency.
  • Example: Average US income ~ US$66,000/year vs Colombia 28.5 million pesos; question: who earns more depends on conversion.

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• Exchange rate conversion example:
  • Question: Is $40,000 USD richer than £35,000 GBP if the exchange rate is 1.34 $/£?
  • Calculation: £35{,}000 × 1.34 $/£ = $46{,}900
  • Conclusion: $46{,}900 > $40{,}000, so £35{,}000 is worth more in USD terms at this rate.
• Implication: Currency values affect cross-country income comparisons.

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• A more nuanced perspective: Purchasing Power Parity (PPP) adjustments.
  • Real-world complication: Goods are cheaper in some countries (especially non-tradables like housing and transportation).
  • PPP approach: Use a basket of goods to compare living costs; adjust incomes accordingly.
  • Example formula provided: If a basket costs US$100 in the U.S. but 14 Pesos in Mexico, PPP-adjust income in Mexico is Income_{Mexico} × (100/14).
• Intuition: PPP accounts for local price level differences, giving a better sense of real living standards.

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• World incomes and data source:
  • Penn World Tables provide PPP-adjusted incomes for 185 countries.
  • The lecturer shows top, middle, and bottom groups by per capita (average) income.
• Key concept: PPP-adjusted incomes standardize for price level differences across countries.

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• Top-to-bottom income ratios:
  • Qatar (Rank 1) / Democratic Republic of the Congo (Rank 185) = 177
  • US (Rank 13) / Niger (Rank 180) = 59
  • Top 10 Average / Bottom 10 Average = 86{,}946 / 1{,}131 ≈ 76
• Interpretation: Large cross-country disparities and substantial gaps between top and bottom groups.

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• Top Ten Richest People (Forbes 2025)
  • 1 Elon Musk — United States — Tesla, SpaceX — Automotive — $342 B
  • 2 Mark Zuckerberg — United States — Facebook
  • 3 Jeff Bezos — United States — [not explicitly labeled in slide, but listed]
  • 4 Larry Ellison — United States — Oracle — Technology — $216 B
  • 5 Bernard Arnault & family — France — LVMH — Fashion & Retail
  • 6 Warren Buffett — United States — Berkshire Hathaway — Finance & Investments
  • 7 Larry Page — United States — Google — Technology
  • 8 Sergey Brin — United States — Google — Technology
  • 9 Amancio Ortega — Spain — Zara — Fashion & Retail
  • 10 Steve Ballmer — United States — Microsoft — Technology
• Note: The slide text contains some formatting inconsistencies; wealth figures are shown for some entries as listed.

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• Top 11-20 Richest People (Forbes 2025)
  • 11 Rob Walton & family — United States — Walmart — Fashion & Retail — $110 B
  • 12 Jim Walton & family — United States — Walmart — Fashion & Retail — $109 B
  • 13 Bill Gates — United States — Microsoft — Technology — $108 B
  • 14 Michael Bloomberg — United States — Bloomberg LP — Finance & Investments — $105 B
  • 15 Alice Walton — United States — Walmart — Fashion & Retail — $101 B
  • 16 Jensen Huang — United States — NVIDIA — Technology (Semiconductors) — $98.7 B
  • 17 Michael Dell — United States — Dell Technologies — Technology (Computers) — $97.7 B
  • 18 Mukesh Ambani — India — Reliance Industries — Diversified — $92.5 B
  • 19 Carlos Slim Helu & family — Mexico — América Móvil — Telecom — $82.5 B
  • 20 Francoise Bettencourt Meyers & family — France — L’Oréal — Fashion & Retail (Cosmetics) — $81.6 B
• Observation: The slide lists the 11-20 richest with country, company, industry, and net wealth figures where shown.

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• Income inequality in the U.S. (Top World Incomes Database)
  • Data: Share of income held by top brackets over time
  • 1970: Top 0.01% 1.15%; Top 0.1% 3.41%; Top 1% 10.70%; Top 10% 33.35%
  • 1980: Top 0.01% 1.16%; Top 0.1% 3.43%; Top 1% 10.42%; Top 10% 33.84%
  • 1990: Top 0.01% 2.45%; Top 0.1% 5.97%; Top 1% 14.71%; Top 10% 38.76%
  • 2000: Top 0.01% 3.44%; Top 0.1% 7.73%; Top 1% 17.34%; Top 10% 42.73%
  • 2007: Top 0.01% 3.68%; Top 0.1% 8.34%; Top 1% 18.38%; Top 10% 44.04%
  • 2010: Top 0.01% 3.67%; Top 0.1% 8.12%; Top 1% 17.89%; Top 10% 43.81%
  • 2023: Top 0.01% 4.72%; Top 0.1% 9.93%; Top 1% 20.73%; Top 10% 46.76%
• Source: Top World Incomes Database (U.S. distribution over time).

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• Income inequality in Norway (Top World Incomes Database)
  • 1980: Top 0.01% 0.90%; Top 0.1% 2.46%; Top 1% 7.26%; Top 10% 26.45%
  • 1980 (second row): Top 0.01% 0.55%; Top 0.1% 1.70%; Top 1% 5.63%; Top 10% 22.57%
  • 1990: Top 0.01% 2.50%; Top 0.1% 5.43%; Top 1% 12.23%; Top 10% 31.60%
  • 2000: Top 0.01% 2.53%; Top 0.1% 5.62%; Top 1% 12.84%; Top 10% 32.83%
  • 2007: Top 0.01% 2.29%; Top 0.1% 5.17%; Top 1% 12.05%; Top 10% 31.81%
  • 2023: Top 0.01% 1.07%; Top 0.1% 3.12%; Top 1% 9.34%; Top 10% 30.61%
• Observation: Norway shows high top-end inequality by percentiles, with long-run changes across decades.

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• Graph description: Income shares for Top 0.1% and Top 10% in Sweden and the U.S.
  • USA: 0.1% share and 10% share shown for comparison
  • Sweden: 0.1% share and 10% share shown for comparison
• Note: The slide appears to juxtapose income shares for the top deciles in Sweden vs the U.S.

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• Richest people in the world: 1-10 (Forbes)
  • 1 Elon Musk — United States — Tesla, SpaceX — Industry: Automotive/Tech — Net Wealth: $415.0 B
  • 2 Larry Ellison — United States — Oracle — Industry: Software/Tech — Net Wealth: $278.0 B
  • 3 Mark Zuckerberg — United States — Meta (Facebook) — Industry: Technology/Social Media — Net Wealth: $260.0 B
  • 4 Jeff Bezos — United States — Amazon — Industry: Technology/Commerce — Net Wealth: $228.0 B
  • 5 Bill Gates — United States — Microsoft — Industry: Software — Net Wealth: $165.0 B
  • 6 Warren Buffett — United States — Berkshire Hathaway — Industry: Finance — Net Wealth: $142.0 B
  • 7 Larry Page — United States — Google — Industry: Internet/Technology — Net Wealth: $135.0 B
  • 8 Sergey Brin — United States — Google — Industry: Internet/Technology — Net Wealth: $130.0 B
  • 9 Jensen Huang — United States — NVIDIA — Industry: Semiconductors — Net Wealth: $125.0 B
  • 10 Alice Walton — United States — Walmart — Industry: Retail — Net Wealth: $107.0 B
• Takeaway: The very richest individuals are concentrated in tech, software, e-commerce, and finance, with substantial wealth in the United States.

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• Richest people in the world: 11-20 (Forbes)
  • 11 Rob Walton & family — United States — Walmart — Industry: Fashion & Retail — $110 B
  • 12 Jim Walton & family — United States — Walmart — Industry: Fashion & Retail — $109 B
  • 13 Bill Gates — United States — Microsoft — Technology — $108 B
  • 14 Michael Bloomberg — United States — Bloomberg LP — Finance & Investments — $105 B
  • 15 Alice Walton — United States — Walmart — Fashion & Retail — $101 B
  • 16 Jensen Huang — United States — NVIDIA — Technology (Semiconductors) — $98.7 B
  • 17 Michael Dell — United States — Dell Technologies — Technology (Computers) — $97.7 B
  • 18 Mukesh Ambani — India — Reliance Industries — Diversified — $92.5 B
  • 19 Carlos Slim Helu & family — Mexico — América Móvil — Telecom — $82.5 B
  • 20 Francoise Bettencourt Meyers & family — France — L’Oréal — Fashion & Retail (Cosmetics) — $81.6 B
• Insight: Wealth concentration extends beyond the top 10, with a global distribution of extreme wealth largely centered in a few countries and sectors.

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• Recent history question: How has the world distribution of income changed in recent years?
• Answer: The slides indicate this is summarized in a single graph (not reproduced in text): a global view of income distribution changes.
• Method: All data and trends are synthesized into a single composite figure.

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• Our recent history (Figure 4): Change in real income between 1988 and 2008 at various percentiles of global income distribution (calculated in 2005 international dollars).
• Axes overview:
  • Real income increase on the vertical axis (percentile groups on horizontal axis)
  • Percentiles include 15, 25, 35, 45, 55, 65, 75, 95, 99, 99.9, 99.99, 99.999 (approximate from slide)
• Purpose: Show how different segments of the global income distribution gained real income over the period.

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• The elephant curve of global inequality and growth (1980-2016):
  • Real income growth per adult (%)
  • Top 1% captured a large share of growth (28–27% depending on the year range in slide)
  • Bottom 50% captured around 12% of total growth over the period shown
  • Rising prosperity of the global 1% and growth of emerging economies
  • The bottom 90% in the US and Western Europe experienced slower growth (squeezed middle)
  • The curve demonstrates the split between the top earners and the rest as growth occurs globally
• Source: WID.world (2017). See wid.world for more details.

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• Summary slide: Types of Inequality
  • Income, Wealth, Consumption, Lifetime Consumption, Happiness
• Key takeaways:
  • Focus will be primarily on within-country inequality, though cross-country inequality is large
  • Price level differences complicate cross-country income comparisons
  • The world distribution has seen growth in the bottom and top ends, with the top rising substantially over the last decades

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• Reading for next lecture:
  • John Stuart Mill, Utilitarianism, pp. 1-26
  • John Roemer, Free to Lose, pp. 14-27