Understanding income and wealth distribution: getting the basics right

The state of wealth and income distribution in a society is very important for social consensus and cohesion. Various traditions of economics have established models and theories of how distribution determines not only the business cycle (the short term), but also long-term economic growth. It was in this context, I launched a series of columns on the ethnic security dilemmas (ESDs) and their implication for economic outcomes today. Distribution of income and wealth is at the core of the ESDs.

My primary argument has been that the ESDs are based on economic insecurity which impels people to take political actions and resort to stereotyping. When we look at the ESDs in this framework, we observe that the actions of each group takes into account the actions of the other – hence, we have here problems of low inter-group trust and high strategic uncertainty. There is no guilty ethnic group, just aggregate economic losers as each group does what it perceives is best for itself – thus, the classic definition of a social dilemma…..

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