The Gatsby Curve: How Inequality Became a Household Word

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from Bloomberg Businessweek,

New measures of income inequality helped the concept become an issue for U.S. politicians.

On Dec. 4, President Obama gave a speech about income inequality in Washington. A family in the richest 1 percent, he said, has more than 288 times the wealth of the median family. The likelihood that a child can escape her parents’ circumstances is lower in America than in “most of our wealthy allies—countries like Canada or Germany or France.” Although the president didn’t pull out any graphs, Obama borrowed two ideas for his speech that make inequality easier to understand: the 1 percent and the Gatsby Curve.

The Gatsby Curve

For much of the 20th century, academic economists accepted the ideas of Simon Kuznets, who in 1971 won a Nobel prize for his work on inequality. In the 1950s, Kuznets looked at IRS returns going back to the introduction of the personal income tax in 1913 and discovered that income inequality had been dropping in the U.S. He suggested that for developed economies, economic growth lowered inequality.

“The Gatsby Curve has been around for a decade,” Corak says. “Only when it got that label did it become something that people could hook on to.”

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