Dredging up the Rubber Band of Economic Inequality and the Bullwhip Curve

Published by Chris Oestereich on

I’m sitting on a panel hosted by the Sasin Center for Sustainability Management at Chulalongkorn University that will follow a showing of Robert Reich’s documentary, “Inequality for All.” If you haven’t seen the film, it’s well worth the time.

Here’s a short trailer.

I’m dredging up a couple ideas that I’ve written about before for the event mentioned above. Those are the Rubber Band of Economic Inequality, and the Bullwhip Curve. While I was prepping for the event, I thought I’d share a quick overview here…

The Rubber Band of Economic Inequality

The rubber band draws from an idea of philosopher John Rawls, who though that our incomes ought to move up and down together in good and bad times. He used the idea of a vertical chain to visually represent this idea. As the economy improves, the chain moves up and no one gets left behind as those at the top are restricted by the chain from pulling away from the rest.

Can an elephant be made into a bullwhip?

For the rubber band version, if we add a bit of elasticity into the system I think helps capture the reality of our complex, imperfect economic systems. Multiple forces will always be acting pull up and down on the band, but as long as it stays within a reasonable tolerance, a bit of stretching wouldn’t damage the band, as long as it came back to its “resting” state reasonably quickly. But if the tension becomes to great at any point in the band (say a small elite does incredibly well while the rest languish or regress in their position)….WHAMMO!

Branko Milanovic, a former World Bank economist who specializes in inequality research, developed the chart at the right which has become known as the “Elephant curve.” It depicts the changes in income by percentile of global income distribution with those at the top, and those in the middle to low end of the distribution doing rather well over the last twenty years, but those in between, and those at the bottom, doing rather poorly over the same time frame.

Milanovic’s “Elephant Curve”

[bctt tweet=” In the future, we may see this curve undulate over time in a pattern similar to a bullwhip.” username=”costrike”]

I think an elephant is a good way to describe the way it looks today, but I fear that may be a short-lived phenomenon. In the future, we may see this curve undulate over time in a pattern similar to a bullwhip, with the tip of what had been the trunk becoming the handle. If this is correct, then we might see the graph shift over time in a pattern similar to the one shown at right going from the original blue, to green, orange, red, yellow, and then finally the blue at the bottom. Hopefully, motivated wisdom would arrive in enough supply to head things off before they got really bad, but it’s easy to see where this might get ugly fast if this was indeed the trend. (Yet another time when I hope my gloomy take on a potential future is well off the mark.)

inequality, bullwhip curve, Branko Milanovic, branko milanovic, inequality, elephant curve, bullwhip curve
My take on what might happen to Milanovic’s “Elephant Curve.”