Thursday, May 16, 2013

The Gatsby Curve

Posted By on Thu, May 16, 2013 at 9:39 AM

Shelling out nearly $15 to watch a 3-D version of The Great Gatsby may be, in itself, a lesson in economics, but this week's release of the Baz Lurhmann-directed Leonardo DiCaprio star vehicle has brought renewed attention to F. Scott Fitzgerald's American tragedy.

The movie aside, The Great Gatsby has much to teach about economics in general and economic inequality in particular.

Take a look at this graph, or as Alan Krueger—the chairman of the White House Council of Economic Advisers—has dubbed "The Great Gatsby Curve." It was designed by Miles Corak of the University of California at Santa Barbara.


The horizontal axis here represents income inequality (Gini coefficient), while the vertical shows economic mobility—specifically, how much a 1 percent jump in your parent's income affects what you can expect to make.

The Gatsby Curve illustrates how a negative relationship between how unequal a country is, and how hard it is to change your social status there.

As Paul Krugman pointed out last year when viewing this chart, "America is both especially unequal and has especially low mobility. But (Krueger) also argues that because we are even more unequal now than we were a generation ago, we should expect even less social mobility going forward."

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