The collapse of the socialist regimes in eastern Europe and central Asia brought an unprecedented increase in economic freedom for hundreds of millions of people. Many people, however, still believe that their lives have become worse since the start of the transition. One apparent reason for this belief is a perceived increase in income inequality, a perception supported by income surveys. However, an analysis of these survey results shows that the argument that democrati zation led to a real increase in income inequality is weak and that the pretransition sur vey data are poor and biased in an unknown direction (Henderson, McNab, and Rôzsâs 2004).

Unfortunately, reconstructing pretransition data with greater accuracy is not possible. Still, because nostalgia for the communist past is one of the major obstacles to further political and economic liberalization, it is important to understand as clearly as possible how …