Why inequality may be worse than it seems
GLOBALLY, income inequality has collapsed over the past 25 years. A lower proportion of the world population live in poverty today than at any time in human history. People doing the same job in different countries are more likely to earn similar wages. However, within economies, income inequality has risen. Almost every major economy has seen a growing gap between the richest and poorest in its society. This creates political, social and economic problems.
What really matters to most people is not income (as such) but living standards. After all, it is what money can purchase that makes money important. Thinking about living standards means thinking about real or inflation adjusted levels of income. This creates a problem, because alongside income inequality there has also been inflation inequality.
Inflation measures the rise in price of the things bought by an average consumer. The problem is trying to decide what "average" is. What things are important, and what things are more important, when calculating inflation? Most countries simply look at what people spend their money on. If people spend more money on a particular thing, then that thing should be considered more important when calculating the rate of inflation. This all seems very logical.
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