This is part two of three-part series. In part one of this series, I discussed different kinds of inequality and which ones we should be concerned about. You can find part one on Understanding Inequality here and part three on Declining Inequality here.

 

Part 2: Measuring Inequality

Adam Smith was well aware that money is not the sum total of well-being; he once opined that “the chief part of human happiness arises from the consciousness of being beloved.” Smith would easily comprehend why someone might choose greater flexibility over higher pay to spend more time with loved ones and would understand that such a choice does not render anyone worse off but is merely an example of someone acting on personal preferences. The greater an individual’s freedom to make choices to act on her preferences, the better off she is. “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life,” as Smith noted. Income is just one (admittedly important) measure of well-being precisely because greater income often affords more options to individuals.

Well-being is multifaceted. Attempts to measure it should include income but should also recognize the complexity of the topic and avoid focusing myopically on income.

George Mason University economist Vincent Geloso and I tried to do just that by creating a new measure of inequality, the Inequality of Human Progress Index (IHPI). The IHPI assesses well-being holistically by seeking to capture a fuller range of choices available to individuals than can be gleaned from income alone. By examining inequality in a multidimensional way, the IHPI takes inequality more seriously than measures that focus solely on income inequality. In fact, we surveyed international inequality across a greater number of dimensions than any prior index.

We first constructed a Human Progress Index that includes income as well as other metrics, each speaking to a different component of progress that matters in terms of human well‐​being: lifespan , childhood survival , nutrition, environmental safety , access to opportunity , access to information, material well‐​being, and political freedom.

We chose those variables to capture the multifaceted nature of well-being with the best available data. Smith may be right that “the consciousness of being beloved” is a key component of well-being, but it is rather hard to find a good measure of it; we limited ourselves to readily quantifiable metrics where the extensiveness of each data set’s year range and coverage of different countries allowed for meaningful analysis. Including so many variables meant we had to constrain ourselves to measuring how global inequality has changed since ​1990, because data were often not available or limited before that date. The index confirmed that impressive gains have been made since then, with most people around the world becoming better off in absolute terms.

Importantly, were those gains shared, or did a few countries see most of the benefits while other countries were left behind? To find out, we looked at how inequality between countries has changed over time across those dimensions which I will discuss in part three of this series.

 

Want to read more?

John V. C. Nye on Standards of Living and Modern Economic Growth in the Concise Encyclopedia of Economics.

Jeremy Horpedahl, Americans Are Still Thriving at Econlib.

James R. Otteson’s Brief Biography of Adam Smith at AdamSmithWorks

 

Chelsea Follett is the managing editor of Human​Progress​.org, a project of the Cato Institute that seeks to educate the public on the global improvements in well‐​being by providing free empirical data on long‐​term developments.