Introduction: comparing cakes

Up to now we have given only scant attention to the size of the economic ‘cake’ or ‘pie’ – in other words, to income levels, as opposed to income distribution. The principal exceptions to this were our questions concerning scale versus translation independence in chapter 4 and the case of the monotonicity principle which we considered in chapter 5. But what has been lacking in all this is a systematic treatment of the way in which distributional judgments may change when income levels and the extent of inequality are varied jointly.

There are several reasons why income levels might affect people's views on inequality. For example, it could be that people's ‘taste’ for equality, like their taste for butter, guns or other economic goods, depends on income in the sense that the amount of other things that they are prepared to see sacrificed for the sake of marginally greater income equality is income-dependent. This income dependence could be related to the person's own income, or the average income in the community, or both. This point alone raises issues that can be quite important for policy-makers: because people's views on the relative urgency of income inequality may be determined by the average living standard, or of their perceptions of it, the income-growth-versus-equality trade-off may be resolved in different ways in economies at different levels of economic development.