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It is fair to say that the reductionist notion that selfishness, that is, individual self-interest alone, is the right way to understand the economy and set policies has taken a huge knock with the financial crisis. However, it is a mistake to think economics always assumes everyone acts as a selfish individual. There was certainly a strong strain of that in the subject reaching a high tide in the 1980s, with right-wing governments in some countries—especially Prime Minister Thatcher’s Britain and President Reagan’s United States—implementing that extreme version of economics in policies that have continued in some shape up to the present time.

But much of economics is about trying to understand the collective outcome of many individual decisions. Sometimes, this will be the sum of those individual decisions, taken for selfish reasons and without paying attention to others: there are many circumstances in which the caricature free-market economics predicts what happens very well indeed. Often, though, people’s decisions will depend on what others decide. All of game theory involves looking at the interaction between individuals, whether they are cooperating with each other or not.

The key assumption is not individual selfishness but rather that people will act in self-interested ways, where self-interest can include considerations of the wider good or straightforward altruism.

GLOBAL INEQUALITY

If people universally have a sense of fairness, how is it that there is such glaring economic inequality? The evidence on this is startling.

One of the most neuralgic issues in the debate about globalization in recent years has been whether or not it has been unfair. The “pro” camp argues that the decades since 1980 have brought about the biggest reduction in inequality the world has ever experienced. The “anti” camp argues that globalization has helped a few prosper but left behind the majority, leading to the greatest degree of inequality in history.

Both hold some truth, depending on how you look at inequality. In particular, there is a distinction between inequality within countries and inequality between countries. Starting with the latter, and looking at average income per capita nation by nation, countries such as the United States and United Kingdom have pulled much further ahead of the poorest countries such as Zimbabwe and Niger. At the same time, there has been a huge rise in average income per capita in China and India such that they have narrowed the gap with the richest countries. This latter development means global inequality has decreased substantially, but inequality within nations has not.14

In general developing countries divide into sheep and goats—a group including India and China that have been gaining ground on the rich countries in average per capita incomes and a group concentrated in sub-Saharan Africa where this process (which economists term convergence) has not been taking place. With their huge populations, the income advances in the two Asian giants carry real weight in the global income distribution. But national averages, which look only at inequality between countries are not fully adequate measures given that there is great inequality within many countries—and especially in the rapidly growing countries of Brazil, Russia, India, and China (called the BRICs), which have made such a big difference in the middle parts of the global income distribution.15 Branko Milanovic reports that about two-thirds of global inequality currently is due to differences in income levels between countries, a big shift from the nineteenth-century pattern, when only 15 percent of measured inequality was due to national differences, and 85 percent due to income inequality within countries.16

Another way of assessing inequality suggested by this pattern is to look at what has happened to individual incomes across the world.17 The incomes of the Forbes Rich List have soared massively ahead of those of people living in the poorest African