In 1971, Jan Pen, a Dutch economist, published a celebrated treatise with a less-than-gripping title: Income Distribution. The book summoned a memorable image. This is how to think of the pattern of incomes in an economy, Pen said (he was writing about Britain, but bear with me). Suppose that every person in the economy walks by, as if in a parade. Imagine that the parade takes exactly an hour to pass, and that the marchers are arranged in order of income, with the lowest incomes at the front and the highest at the back. Also imagine that the heights of the people in the parade are proportional to what they make: those earning the average income will be of average height, those earning twice the average income will be twice the average height, and so on. We spectators, let us imagine, are also of average height.
Pen then described what the observers would see. Not a series of people of steadily increasing height—that’s far too bland a picture. The observers would see something much stranger. They would see, mostly, a parade of dwarves, and then some unbelievable giants at the very end.
As the parade begins, Pen explained, the marchers cannot be seen at all. They are walking upside down, with their heads underground—owners of loss-making businesses, most likely. Very soon, upright marchers begin to pass by, but they are tiny. For five minutes or so, the observers are peering down at people just inches high—old people and youngsters, mainly; people without regular work, who make a little from odd jobs. Ten minutes in, the full-time labor force has arrived: to begin with, mainly unskilled manual and clerical workers, burger flippers, shop assistants, and the like, standing about waist-high to the observers. And at this point things start to get dull, because there are so very many of these very small people. The minutes pass, and pass, and they keep on coming.