Huang Youguang: why is there inequality in the distribution of wealth?

 Huang Youguang: why is there inequality in the distribution of wealth?

Are you happy? How to be a happy person? Must money and happiness be in direct proportion? What are the influencing factors of happiness? Netease Research Bureau invited Huang Youguang, a well-known global Chinese economist who has been engaged in happiness research for a long time, distinguished professor of economics of Fudan University and academician of Australian Academy of social sciences to interpret the secret of happiness.

Why is wealth distribution unequal?

In our last article, we said that reducing poverty and excessive inequality is an important government function. Now, lets talk about why there is inequality in wealth, and what is the benefit of reducing inequality.

With the reform and opening up, Chinas economy has developed rapidly, but the gap between the rich and the poor is also increasing. Although it is difficult to avoid this result completely, we should try to reduce it. The Gini coefficient of income inequality has been maintained at a high level in recent years after a large increase for many years, and there is no obvious continuous increase. However, some scholars believe that official data underestimate the true level of inequality. The central government, also aware of the importance of poverty and inequality, is committed to basically eliminating poverty by 2020 and appears to have made significant progress.

Poverty, especially extreme poverty, will cause great harm to the vast majority of people, especially children, including physical and mental health, academic and career development. In this regard, there are a lot of studies. Poor mothers have important negative effects even on the fetus. [see Persson and Rossin Slater 2018. u3011It is obvious that absolute poverty can cause a significant negative effect that is difficult to overcome and remedy. Therefore, it is very important to avoid absolute poverty. But after the well-off level of food and clothing, wealth and consumption can not bring absolute happiness. People still want more wealth, which is mainly due to the comparison between people and their own comparison with the past. If the conditions are better than before, you will feel happy. It can also be said that after the well-off level of food and clothing, in addition to interpersonal comparison, happiness is not brought by wealth and consumption level, but by the increase of level (including quality). As for interpersonal comparison, we have discussed it in previous articles.

Lets talk about why there is inequality. Inequality can refer to different aspects, including height, life span, appearance, intelligence, etc. We aim at economic inequality, mainly income and wealth inequality. The causes of economic inequality can be divided into several categories

2. In the market economy, the prices of various factors of production, including the prices of resources and talents, which are determined by supply and demand, together with the ownership of these factors (including the first point above), determine their income.

3. Peoples choice of the following options: work vs leisure; consumption vs. savings; effort vs. laziness; dangerous, strenuous, dirty vs. safe, relaxed and interesting work; healthy lifestyle; donation, gift and legacy.

4. Gifts and Legacies (which can be traced back to the previous generation or generations).

5. Whether there are or are willing to use some power, relationship, opportunity and method to make profit, including legal and illegal.

6. Luck.

The difference between income and wealth, if caused by choice (item 3 above), is not really inequality. For example, if someone chooses more leisure (less work time), more consumption (less accumulated wealth), and a lighter and safer job, he may be much lower than the income of another person who is willing to work hard, save more and take risks now or in the future. If the two are the same in other ways, their real fullincome should be equal. This inequality in income is because we neglect leisure in measuring the level of equality, only for the superficial inequality caused by the current income defects, is not real inequality.

Because of the above-mentioned point 5, the inequality caused by the use of power and relations should be the least and the most negative. In addition to this point, the other points are actually different kinds of luck. For example, if you dont rely on hard work, you may make a lot of money in the business or stock market because of your luck; you may also be lucky to be born in a rich family and get better education opportunities or human capital investment and inheritance.

Although the inequality caused by luck is not as bad as that caused by power and relations, it still needs to be dealt with if the inequality is large, especially if there is extreme poverty. If the cost of eliminating poverty and reducing inequality is not very high, the society or the government should work to improve equality. I do not accept Nozicks (1974) view that inequality is not a problem as long as it is properly taken.

There are at least three major benefits to reducing or increasing inequality. First, as we have mentioned before, human beings are gregarious species, and at first they live by cooperating with each other in hunting. Therefore, we are born with a preference for equality, which helps us cooperate. Therefore, the increase of equality directly increases our utility, because we prefer equality. Even if a rich man is given his own wealth level, the equality of the whole society will be improved. Most rich people should also want it.

Economic historians have argued that before the advent of the welfare state after the Second World War, the British poor law generally promoted technological progress, because it reduced the resistance of those who lost due to technological progress and reduced social unrest (solar 1995; Greif and iyigun2013). Economic historians (including Lindert 20042009) have also argued that the effect of government welfare expenditure (and the taxes it needs) on economic performance is roughly equal to the benefits and costs, making the welfare state a free lunch. If we consider the contribution to equality, welfare is not too much, but should be increased. The economic problems of some southern European countries are not due to too much welfare, but to too much government debt. Nordic countries have more welfare, but there is no problem. On the contrary, they have been leading the world in happiness index for a long time. (see world happiness report 2020. )

Our next article will discuss ways to increase equality. Readers, do you have any good suggestions?


GREIF,Avner&IYIGUN,Murat(2013).Whatdidtheoldpoorlawreallyaccomplish? Aredux.InstitutefortheStudyofLaborDiscussionPaper7398 .

LINDERT,PeterH.(2004).Grow ingPublic:Volume1 , TheStory:SocialSpendingandEconomicGrowthsincetheEighteenthCentury.CambridgeandNewYork :CambridgeUniversityPress.

LINDERT,PeterH.(2009)Grow ingPublic:Volume2 ,Furthe rEvidence:SocialSpendingandEconomicGrowthsincetheEighteenthCentury.CambridgeandNewYork :CambridgeUniversityPress.

MILANOVIC,Branko(2011). Moreorless.Finance&Development ,48(3):6-11.

MIRRLEES,JamesA.(1971),Anexplorationinthetheoryofo ptimumincometaxation.ReviewofEconomicStudies ,38:175-208.

MOKYR,J.(2014),A flourishingeconomist.JournalofEconomicLiterature ,52(1):189-196.


OKUN,ArthurM.(1975/2015),EqualityandE fficiency:TheBigTradeoff (W) ashington:BrookingsInstitution .

PERSSON,P.&ROSSIN-SLATER,M.(2018).Familyruptures,stress,andthementalhealt hofthenextgeneration.Americaneconomicreview ,108(4-5),1214-52.



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