US vs World Income Inequality

By On August 15, 2012 · 20 Comments · In Uncategorized

A facebook friend posted this graphic, from the Atlantic, comparing US income inequality to inequality in other countries.

 

People posting this take the obvious thrust to be: Wow, the US is much worse than I thought.

Here’s an alternative reading of the graphic: Wow, inequality matters less than I thought.

 

 
  • http://twitter.com/Rhubarb8 Rhubarb

    Care to elaborate?

    • http://www.facebook.com/profile.php?id=1702318862 Jason Brennan

      Oh, I wanted just to be suggestive, Tyler Cowen-style. But, sure, I’ll elaborate.

      My Facebook friends looks at this and says, “Wow, the US has a higher degree of income inequality than most countries, including Russia, many African countries, and so on.” The article above says, “We’re on par with some of the world’s most troubled countries, and not far from the perpetual conflict zones of Latin American and Sub-Saharan Africa.” That seems to insinuate that we must be really troubled.

      However, someone could respond with a Moorean shift here. The US is not nearly as troubled as those trouble polities, despite having high income inequality. In fact, its political system is much more functional* than many of the countries with lower income inequality. So, perhaps this chart just shows that income inequality isn’t always such a big deal.

      *N.B. I say this as a staunch, radical critic of American politics.

  • Sean II

    That link contained the funniest thing I’ve read all week: “The Gini coefficient is reliable enough that the CIA world factbook uses it.”

    Well why didn’t you say so in the first place? I guess it must be legit!

    • Sean II

      I’m dying to know who thumbed me down on this comment. I can’t imagine anyone who reads this board expending even that much effort to stick up for the CIA. :-)

  • ThaomasH

    Could Mr Brennan (or someone else) explain why “Wow, the US is much worse [or better] than I thought” or “Wow, inequality matters less [or more] than I thought” is, even without the “wow,” a reasonable reaction to the graph?

  • Peter

    Agree it’s interesting the correlation looks nil.

    This would be, I assume, inequality before taxes and transfers? Post-transfer inequality might yield more of a pattern, and US would probably fall in the inequality ranks.

  • kevinsdick

    @Peter. The US Gini ranges from .507 down to .390 depending on what you include:

    http://www.census.gov/hhes/www/income/data/historical/measures/rdi5.html

    • Peter

      Thank you @kevinsdick. Any idea how alternative numbers place US, relative to other countries?

      • kevinsdick

        You can get the OECD measures here, though the US values are slightly different from those calculated by the Census Bureau:

        http://stats.oecd.org/Index.aspx?QueryId=26068

        The US is still quite high. Though the difference isn’t quite as stark.

        • Peter

          Nice source. Thanks!

  • http://twitter.com/cabalamat Philip Hunt

    Forget about that graphic for one moment. Imagine you got a sample of Americans — or BHL readers, for that matter — to write down the 5 countries apart from the USA they’d most like to live in.

    Does anyone seriously doubt that it would include vastly more blue countries than red ones?

    • Peter

      @ Philip Hunt,

      Depends on region:
      Europe = true
      Latin America = not true (Chile, Mexico)
      Asia = not true (Sing, HK)
      Africa = not true (S Africa)

    • http://www.facebook.com/people/Peter-McIlhon/586369168 Peter McIlhon

      Imagine you got a sample of people NOT from America and asked them which 5 countries they’d most like to live in. How many would put America as #1? I’m willing to bet that most would.

  • http://www.facebook.com/les.nearhood Les Kyle Nearhood

    It has always troubled me that people take this sort of thing seriously. First of all, if this were a problem that the common person worried about then we would not have appx. half a million people a year trying to enter illegally. Secondly, we are still the place where most capitalists go to make a fortune. Because we allow them to keep a higher portion of those fortunes than many other places, then we are going to have a lot of really rich people living here and thus a high Gini rating.

    SO what is the alternative? we tax the crap out of them and they move elsewhere, They also take their purchases and investments with them. Our Gini goes up, but we are all a lot poorer.

    This is something, by itself, that just does not matter. Now, if you had lot’s of income disparity along with a caste system and no upward moblity, then it could be a problem.

    • Jay_Z

      Capitalists come here to make a fortune because they get special tax breaks and infrastructure for free that the small businessman and common citizen don’t get. Cities build publicly funded stadiums for sports teams, for example. Then the teams get the stadium built to spec, perhaps keeping capacity low to keep prices high. The cost is paid by taxpayers whether they use the stadium or not. And smaller businesses who don’t get the same breaks can’t compete, because they need to pay taxes for the infrastructure of the big business. This is known as socialism for the rich.

      • http://www.facebook.com/les.nearhood Les Kyle Nearhood

        So you are describing cronyism, something we all dislike, so what? what does that have to do with Gini ratios? or do you suppose that other nations do not also have plenty of cronyism?

  • http://twitter.com/jamesallworth James Allworth

    the implication is that a static representation of this chart matters RIGHT NOW. much more important is the trend (ie what’s happening year over year — improvement or regression), and on the trend my hypotheses are:
    a. the US is doing way worse than almost all the rest of the world
    b. there’s a critical level that you hit, and once you do, there are some very bad social and economic ramifications — see developed world 1929.
    c. similarly, as inequality shrinks, you get some very GOOD social and economic ramifications: see 1950s USA

    • Sean II

      On the contrary, the American 1950s are an excellent example of how equality in statistical incomes can utterly fail to produce meaningful social equality.

      Here’s who had the good part of that bargain: white male union members, white specimens of “organization man”, white college boys, white military veterans, white male farm owners, plus also Don Draper, Robert McNamara, Ray Kroc, and Colonel Sanders.

      Here’s who got the shit end: everybody else. Not only were they locked out of the above-listed clubs, but now they have to endure the insult of being told they lived through some kind of golden age.

  • http://profiles.google.com/yrrosimyarin Yrro Simyarin

    Every study I have read on income equality proves nothing more than “Scandinavia is a really nice place to live.” Which is true, but it’s really hard to create a general rule for world policy out of it.

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