In his post James Ahiakpor defends the vision that "governments should worry
about absolute poverty rather than inequality of incomes." The arguments he uses
are classic. Who would object to the rich getting richer when the poor get
richer too? Simple, only sentimental researchers that play too
much on emotions and jealous people that envy their wealthier fellow men. There
are however more valid arguments that do justify that we pay attention to the
problem of income inequality. At this point I would like to refer to the note by
Branko Milanovic, "Why we all do care about inequality (but are loath to admit
it)" [http://ssrn.com/abstract=530363]. In this short note Milanovic, who is
chief economist of the World Bank's Development Research Group, puts forth one
central remark: "The key point is that income of others enters our own utility
function. And once we allow for it, inequality affects our own welfare and the
arguments regarding irrelevance of inequality come to naught." In my opinion,
Milanovic illustrates this view in a provocative but convincing matter. A lot of
research on this point has also been performed by Richard Easterlin. A very
interesting article of his in this discussion is "Will raising the incomes of
all increase the happiness of all?" [Journal of Economic Behavior and
Organization, Vol. 27 (1995) 35-47].
Jan-Frederik Abbeloos