Branko Milanovic, lead economist of the World Bank research group, has a fascinating new book called The Haves and the Have-Nots, a look at inequality across the globe and throughout history. In the first chapter, he summarises what he sees as the difference between “good” and “bad” inequality in a more succinct manner than I managed in my response to Christopher Joye back in January. Milanovic argues that we should:
…look at inequality, as far as economic efficiency is concerned, as cholesterol: There is “good” and “bad” inequality, just as there is good and bad cholesterol. “Good” inequality is needed to create incentives for people to study, work hard, or start risky entrepreneurial projects. None of that can be done without providing some inequality in returns…
But “bad” inequality starts at a point – one not easy to define – where, rather than providing the motivation to excel, inequality provides the means to preserve acquired positions. This happens when inequality in wealth or income is used to forestall an economically positive change for the society… or to allow only the rich to get education, or to ensure that the rich keep the best jobs.
I’d broaden the definition of “bad” inequality, but this is a good start.