Thursday, January 12, 2012

Inequality versus Dispersion

I'm glad to see that Alan Krueger, chairman of the Council of Economic Advisers (a fancy name for a panel of three economists), discussed the problems with inequality in his address today. You can find his remarks and graphs here. I liked his graphs, and he shows convincingly many of the standard findings in sociology and political science on politics and inequality in the United States. However, I found the following comments puzzling:
Although I have done much research in my career on inequality, I used to have an aversion to using the term inequality. The Wall Street Journal ran an article in the mid-1990s that noted that I prefer to use the term “dispersion.” But the rise in income dispersion – along so many dimensions – has gotten to be so high, that I now think that inequality is a more appropriate term.
The mixing of the statistical concept of dispersion with the sociological concept of inequality muddles the discussion. It's true that any distribution is often described by some measure of dispersion (e.g., standard deviation) and central tendency (e.g., mean or mode). But inequality encompasses a concept of equity, as well as some concept of disparity (or disparities), neither of which is analogous to the statistical concept of dispersion. Moreover, if we use Krueger's logic it's unclear at what threshold "dispersion" is labeled "inequality"; for instance, his comments imply that Sweden currently has dispersion, while the United States has inequality, although many Swedes would probably disagree.