Escaping the Inequality-Data Dark Ages

FACUNDO ALVAREDO , LUCAS CHANCEL, THOMAS PIKETTY, EMMANUEL SAEZ, GABRIEL ZUCMAN
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PARIS – We are living in the Dark Ages of inequality statistics. More than a decade after the “Great Recession,” governments are still unable to track accurately the evolution of income and wealth. Statistical agencies produce income-growth statistics for the population as a whole (national accounts), but not for the “middle class,” the “working class,” or the richest 1% and 0.1%. At a time when Google, Facebook, Visa, Mastercard, and other multinational corporations know intimate details about our private lives, governments still do not capture, let alone publish, the most basic statistics concerning the distribution of income and wealth.

Despite the latest Sino-American "skinny deal" to ease tensions over trade, technology, and other issues, it is now clear that the world's two largest economies have entered a new era of sustained competition. How the relationship will evolve depends greatly on America's political leadership – which does not bode well.

This failure has huge costs for society. The perception that inequalities are reaching unjustifiable heights in many countries, combined with a lack of any possible informed choice for voters, is fodder for demagogues and critics of democracy.

Making matters worse, experts in the field of inequality are sometimes depicted as being overly reliant on specific methodological approaches, as illustrated in The Economist’s recent cover story, “Inequality illusions.” But, of course, data in the social sciences are by their very nature open to challenge, which makes methodological debates largely unavoidable. The question is where to draw the line between legitimate academic disagreement about inequality levels and trends and outright inequality denialism.

Whether or not inequality is acceptable – and whether or not something should be done about it – is a matter of collective choice. To help inform the debate, more than 100 researchers from around the world have joined forces to develop innovative methods for compiling inequality statistics through the World Inequality Database, which now covers more than 100 countries. The WID includes the widest possible array of available data sources, from household surveys, tax-administration data, national accounts, and wealth rankings published in the media, to the “Panama Papers,” through which the International Consortium of Investigative Journalists exposed stockpiles of wealth stashed in various tax havens.

The WID’s methodology is set up in a way that allows results to be reproduced and debated, while contributing to the expansion and improvement of the available data. When consistently applied to various regions and countries, divergent patterns appear, with inequality increasing in some countries, and stagnating or declining in (a few) others. And the WID is just one of multiple institutions – including the LIS Cross-National Data Center, the Commitment to Equity Institute, the World Bank, and the OECD – now fruitfully working to improve our understanding of these issues.

But progress in measuring inequality has been hampered by recent policy developments, which belie narratives about greater transparency. Many advanced economies have reduced the number of tax audits performed each year, making it harder to access and analyze this key source of information. Likewise, as progressive taxes on capital incomes have been phased out, and as wealth and inheritance taxes have been repealed, some of the most basic sources of data on wealth inequality have disappeared.

Owing to the lack of high-quality fiscal and administrative data on capital incomes and wealth, many observers will turn to other sources, such as billionaire rankings published by a number of magazines. But while these sources can provide valuable insights, they do not meet the standards of methodological rigor and conceptual clarity on which an informed public conversation should be based.

For these reasons, researchers, the media, and civil-society organizations need to get more involved. It is critical that we develop an internationally recognized set of indicators and methods for tracking income and wealth. Government statistical agencies should be publishing the income and wealth levels of the top 1%, 0.1%, and 0.001%, as well as the effective taxes paid by these groups.

To that end, a particularly important milestone will come with a revision, due in the next three years, of the United Nations System of National Accounts. (We are currently working with national statistical offices, the OECD, and the UN on this effort.) GDP statistics were originally born of researchers’ stubborn commitment to provide evidence of national incomes during the Great Depression. It would be a pity to wait for the centennial of GDP – or for another recession – to craft distributional growth statistics.

All societies must start to engage more in the production and dissemination of transparent economic information. We call on all interested parties from civil society, the media, governments, and the academic community to join the effort to bring inequality data into the twenty-first century.

In addition to the listed authors, signatories to this commentary include Miguel Artola Blanco of the University Carlos III in Madrid; Lydia Assouad, Middle East Coordinator, WID; Oscar Barrera, research fellow, WID; Thomas Blanchet, Statistical Tools and Methods Coordinator, WID; Marius Brülhart, Professor of Economics, University of Lausanne; Guilhem Cassan, Associate Professor of Economics, University of Namur; Denis Cogneau, Professor of Economics, Paris School of Economics; Guillermo Cruces, Professor of Economics, University of Nottingham; Léo Czajka, research fellow, WID; Mauricio De Rosa, research fellow, WID; Luis Estevez Bauluz, Wealth Aggregates Coordinator, WID; Matthew Fisher-Post, North America Coordinator, WID; Ignacio Flores, Latin America Coordinator, WID; Reto Foellmi, Professor of International Economics, University of St. Gallen; Bertrand Garbinti, research fellow, WID; Leonardo Gasparini, Professor, Universidad Nacional de La Plata in Argentina; Amory Gethin, research fellow, WID; Jayati Ghosh, Professor of Economics, Jawaharlal Nehru University; Jonathan Goupille-Lebret, research fellow, WID; Yajna Govind, research fellow, WID; Markus Jäntti, Stockholm University; Thanasak Jenmana, research fellow, WID; Jong-il Kim, Department of Economics, Dongguk University; Nak Nyeon Kim, Dongguk University; Camille Landais, Professor of Economics, London School of Economics; Andrew Leigh, Parliament of Australia; Juliana Londoño-Vélez, Assistant Professor of Economics, UCLA; Nora Lustig, Professor of Latin American Economics, Tulane University; Clara Martínez-Toledano, Wealth Distributions Coordinator, WID; Isabel Martinez, Postdoctoral Researcher in Economics, University of St. Gallen; Marc Morgan, Western Europe Coordinator, WID; Theresa Neef, Eastern Europe coordinator, WID; Filip Novokmet, Research fellow; WID; Anne-Sophie Robilliard, Africa Coordinator, WID; Moritz Schularick, Professor of Economics, University of Bonn; Paul Segal, Senior Lecturer in Economics, King’s College London; Paul Richard Sharp, University of Southern Denmark; Jesper Roine, Adjunct Professor of Economics, Stockholm School of Economics; Claudia Sanhueza, Director of the Center for Economics and Social Policy, Universidad Mayor in Chile; Matti Tuomala, University of Tampere in Finland; Tancrède Voituriez, research fellow, WID; Daniel Waldenström, Professor, Research Institute of Industrial Economics (IFN); Roger Wilkins, Professorial Fellow, University of Melbourne; Li Yang, Asia Coordinator, WID.