Filed under: Capitalism, Freedom | Tags: Income Inequality, The United States, The World's Rich and Poor
This graph, posted by economist Veronique de Rugy, takes a minute or two to understand, but there’s a lot of information here, and it’s worth your time. The graph shows inequality within a country— in the context of inequality around the world.
The horizontal line at the bottom shows the population of each country divided into 20 equal-sized income groups, ranked by their household per-capita income. This is divided into 5 clusters (or ventiles) each of 5 percentiles, similar to the way we customarily divide people in this country from ‘poor’ to ‘rich.’ So the entire population of a country is divided, by income, into 20 equal parts.
The household income numbers are all converted into international dollars adjusted for equal purchasing power, since the cost of goods varies from country to country. In other words the chart adjusts for the cost of living in different countries, so we are looking at consistent living standards worldwide.
The vertical axis shows where any given ventile from any country falls when compared to the entire population of the world.
Trace the line for Brazil, a country with extreme income inequality. The poorest 5 percent of Brazilians are as poor as anyone in the entire world,while at the other end of the Brazil line are some of the world’s richest people. This one country spans the entire range of world income.
See how the entire line for the United States falls in the top portion of the chart? The entire country is relatively rich. Americas poorest people are still richer than most of the world.
Compare with the line for India. India’s poorest correspond with the 4th poorest percentile worldwide, and India’s richest are in the 68th percentile, about where America’s poorest are, as a group. The bottom chunk of Americans, some of whom make as much as $6,700, amounts to a good standard of living in India where about a quarter of the population lives on $1 a day.
When it comes to income inequality, in America, there is relatively not all that much of it. For most people in the world, where you are born makes all the difference.
What do the poor most need? They need to stop being poor. And how can that be done on a mass scale excpt by an economy that creates more wealth? Yet the political left has long had a remarkable lack of interest in how wealth is created. As far as they are concerned, wealth exists “somehow” and the only interesting question is how to re-distribute it.
(Thomas Sowell)The very fact that economists sweat over statistics purporting to demonstrate economic inequality in America proves that there is, relatively speaking, not much of it.
(Irving Kristol)
The chart comes from Catherine Rampell of Economix.
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Pingback by Daily Dive-2 May 11 | adeliemanchot May 2, 2011 @ 9:56 amIf the x-axis had higher resolution, the curves for all of the countries would end at 100 and probably start at 0. It’s very difficult to actually say how relatively well off the very poorest people in America are since they, like the poorest people everywhere else, don’t report their income and rely on informal transactions and payment in kind.
The most egregious problem with this graph is the use of global income percentile rather than actual PPP income. If one looks at the global distribution of incomes as a function of global income percentile, one sees that the curve stays rather flat over the lowest 60% of people and increases steeply in the upper few deciles. Therefore, there’s not much of a change in actual income as one’s percentile increases in the lower two thirds of the y axis, but relatively huge changes in income as one’s percentile increases in the top decile.
The graph certainly does say something useful, but not what you claim it does. There are far fewer of the poorest people in the world in America than in developing countries. Big surprise. Because so much more variation in PPP income takes place over the top decile or two, the substantial variation in actual income in America is compressed to a small portion of the graph. “Income inequality” refers to differences in actual income, not position on a rank curve, within a population. In no reasonable sense can “fewer people in America are among the poorest in the world” be taken to mean that “there is relatively little income inequality in America”.
Comment by Mufasa May 3, 2011 @ 1:38 pmIf you follow the link to Veronique de Rugy’s article, and the link in her’s to the post from which the graph is derived, they did use PPP income, but described it in terms more accessible to the ordinary reader. A number of economists have noted and explained that the income of our poor is far greater than their reported income. A year or so ago, Swedish economists produced a study that showed that America’s poorest were better off than Sweden’s middle class. As far as income inequality in America, perhaps I should have underlined the term relatively. Brazil has people who are among the poorest in the world, and their richest people are almost as rich as our richest. Relatively we haven’t all that much income inequality. We also have enormous mobility. Those in the bottom quintile here move up into the higher quintiles. As long as “the poor” are the bottom 20%, we will always have “the poor,” no matter how rich they become.
Comment by The Elephant's Child May 3, 2011 @ 2:15 pmUsing PERCENTILE instead of actual INCOME (I know they used PPP) is what distorts the graph. The bottom 60 percentiles globally are quite similarly poor. In the upper middle and higher percentiles globally, there’s a much greater difference in INCOME between neighboring PERCENTILES. Therefore, America’s relatively small difference in percentiles translates to a large difference in income because America’s ventiles all have an average income in the upper range of global income. Differences in INCOME not PERCENTILES are what one talks about when one discusses income inequality, Which is RELATIVELY GREATER than most other OECD nations when one uses actual statistical measures like GINI. What you are actually observing is that there is less absolute poverty in America than in Brazil, which is of course accurate. Income INEQUALITY is inherently RELATIVE. You can’t measure inequality without two things to compare.
Furthermore, we do have absolutely destitute people, there just aren’t enough to bring down the lowest ventile average, thus they don’t show up on the graph because using ventiles doesn’t give high enough resolution to see them.
There’s a Swedish study done by a retail lobby that I saw referred to on freerepublic that says the median Swedish income is less than the median income of African Americans, is that what you mean? The median black family is hardly representative of “America’s poorest”.
Comment by Mufasa May 3, 2011 @ 3:17 pmForgot to address something: US mobility isn’t enormous. Here’s a pamphlet :.
Comment by Mufasa May 3, 2011 @ 3:47 pmI haven’t read this one, but from what I’ve seen it draws the same conclusion as studies that I have read. Of the Western European and North American nations they compare us to, only the UK has less mobility by the metric of the author they cite.
I have written about this several times. Whenever an election approaches, Democrats start with the class warfare. I’ll read the pamphlet, but Brookings is a left-leaning think tank, and Pew is even farther left. Current articles talk about American Decline, Obama thinks we in “competition” with China and Europe in general, which I find a strange position. The Democrats will promise to make the poor not poor, and rescue us from our inevitable decline, George W. Bush’s fault, of course.
Comment by The Elephant's Child May 3, 2011 @ 4:53 pmI only remember that it was a study by Swedish economists, and it was quite some time ago. We do have a fairly extensive safety net, so you are incorrect that we have people who are absolutely destitute. Neither the poor nor the rich are the same people over time. Young people start out broke, learn, work, get promoted and wealthier, save, and retire and slide back down the economic scale. To be—not poor— all one has to do is graduate from high school, not get married until you have, and not have kids before you get married.
Comment by The Elephant's Child May 3, 2011 @ 5:09 pmHow is it strange that America is in competition with China and Europe? Governments provide infrastructure and a workforce as an externality by providing such services at cost to businesses operating therein. If they do a bad job, businesses in the country will be more likely to leave or go out of business and residents would have to suffer or take pay cuts to retain capital in the country. There certainly is competition to retain capital in a country and no one is usually more eager to remind everyone than the right…or is that only the case when discussing how large a corporate tax cut there should be?
Veronique de Rugy of Mercatus, Irving Kristol from the National Review and O’Toole from Cato–but the Brookings institution! What a propaganda mill!
You may have written about income inequality and mobility several times, but I never see any figures, just some good old-fashioned, down-home, common-sense, corn-pone American can-doism. Are there not long-term homeless people who get money solely from begging and don’t have any accurately measurable income? Here’s a paper that includes an interesting table (table 3). It suggests that parental income at is highly predictive of income of their children at the same age (median of 38,37, respectively). To be fair, people probably reach their full earning potential later in life, but it’s still quite suggestive. It’s from Center for American Progress though, so if I were you I’d just assume that the opposite of everything it says is true.
Comment by Mufasa May 3, 2011 @ 6:31 pmWe are partisan here, and don’t pretend otherwise. I read stuff from Brookings, but don’t find it too dependable. Center for American Progress? Surely you joke! The late Irving Kristol was with The Public Interest, not National Review. This blog is opinion, and proudly Conservative. I’m a fourth generation Republican, and I hope I am offering good old-fashioned, common- sense American can-doism — that’s my intent. Corn-pone? Please!
Comment by The Elephant's Child May 3, 2011 @ 9:27 pmI’ve no objection to bias whatsoever, I just don’t think it’s becoming to offer “the source is too liberal” as a counterargument. It’s only possible to have a good exchange of ideas if you’re willing to engage with arguments or data rather instead of just making assumptions based on sources. I admit that I didn’t scrutinize the first link I sent, but I have read similar things in their entirety in the past so I have some trust in its conclusion. You don’t, so give me a reason not to. It’s not as though I regard Heritage Foundation publications seriously or that I’ve wasted my time reading many, but if presented one in an argument, I would attack the methodology or assumptions if possible.
Opining doesn’t obviate the need for facts. One can have fundamental values, but translating these values into policy requires solid reasoning and data, unless your fundamental values are simply advancing a particular policy agenda somewhat apart from other concerns. I’m pointing out statistical concerns that might have been overlooked. First of all, using rank obscures the actual income distribution, but that point is tired. Also, your metric for income inequality is strange. Subtract the percentile of the poorest (or an average of a group of the poorest, as the case is) from the percentile of the wealthiest (or an average of a group of the wealthiest, as the case is) in the country? What if a small goup of wealthy managers goes overseas to open a factory in a poor but egalatarian country, is it now suddenly highly unequal income wise? What if a small group of people in a prosperous and egalatarian society can’t hold a job and fail to meet the criteria for a welfare program and stop receiving an income? Would it be as unequal as Brazil? There’s no hard and fast standard for measuring inequality, but it seems silly to allow the mere span of incomes have such an effect on one’s metric, even if one uses actual income instead of percentile. There’s a good reason that it’s not normally used.
If you understand what I’m saying and still stand by the article and the graph from the book, well, go ahead, but you’re not talking about what anybody else is when they talk about income inequality, and I don’t think you’re talking about what people feel when they say “income inequality”. You seem to be talking about absolute poverty, which supposedly doesn’t even exist at all in the US. You also continue to expound on America’s social mobility without providing any statistical evidence that I could find in your linked posts. Be a Republican all you want, but be reasonable.
With regard to Kristol, I assumed that he was being quoted in connection with the article, so I figured it was Bill but I didn’t pay enough attention to the name as I wrote it.
Comment by Mufasa May 4, 2011 @ 5:40 amIf the chart were enlarged, you would see that only Brazil has people who are totally at the bottom of the income pile, but they have the Amazonian tribes who are unconnected to civilization. China and India have none at the bottom, but lots of poor. The chart is simply a glimpse of world inequality. There will always be inequality. Spending too much time or effort trying to eliminate inequality is foolish. A good safety net for those who cannot help themselves, but you cannot eliminate the differences among people. You cannot make the lazy industrious, you cannot make the foolish brilliant. Human nature is complicated and can’t be fixed.
I was joking about the Center for American Progress, but only a little.
Comment by The Elephant's Child May 4, 2011 @ 4:40 pmI would be surprised if India didn’t have some at the very bottom, just not enough to impact the ventile average. The chart may just be a glimpse at world inequality, but what points will it be used to make? If one uses it to attempt to demonstrate that there isn’t much inequality in advanced societies, one would be doing so wrongly. The way the graph is prepared, however, lends it toward being used in this way. While there is not much severe poverty in advanced countries, there is a high degree of income inequality and even more in the distribution of wealth. You can think that this is a concern or not, but there is a large variance in incomes in the US.
It is true by definition that spending too much time or effort on anything is foolish, but it is misleading to say that you cannot eliminate all differences between people. No one thinks this is possible and this is nobody’s goal. You can eliminate some differences between people. People learn from their environments and form their attitudes and develop their knowledge accordingly. Some people are raised by entrepreneurs and they have seen how businesses are managed first-hand. Others are overwhelmed by the complexities from outside and are discouraged from even trying to understand them. Some people might learn anyway, maybe through a school, but how much easier would it be if you were born into a household that actively engaged you in, say, running a restaurant? Similar arguments could be made for anything from basic financial skills to engineering. Sure, there are other factors, some of which can’t be changed, but there’s room to improve things through intervention. You can’t give everyone affluent or conscientious parents, but you can at least reduce the financial barriers and risks to gaining knowledge at a school. You can prevent temporary job loss from lapsing into chronic unemployment and laziness that will propagate through generations with employment programs.
There will always be by definition a poorest person, but this is irrelevant for the same reason that the graph is a poor one. The issue is the distribution of wealth in real terms, and the variance and the peakedness of the distribution can be changed through policy. How much is too much is a complex question that depends in part on fundamental values.
Comment by Mufasa May 5, 2011 @ 1:13 pm