A point on global income inequality

From Ezra Klein we have the following:

Those at the 34th percentile of income in the United States are at the 90th percentile globally, and those at the 50th percentile in the United States are at the 93rd percentile globally. Even the very poorest Americans — those at the 2nd percentile of income in the United States — are at the 62nd percentile globally.

So a person who represents the poorest 2% in the US has more income than 62% of the worlds population – and don’t forget this excludes the implicit security net you gain by being in a developed economy (and excludes the fact that wealth disparities may be more significant at a global level). And the following graph:

Now I would note that the fact that there is global inequality does not imply that domestic inequality is “fair” – or that policy is appropriate.  But it does imply that there are other more important sources of income inequality in the world.

Another thing, the key issue isn’t inequality of income – it is inequality of opportunity.  The fact that people in the developed world restrict the movement of labour, and do not help improve institutions in poor countries, is doing more to reduce equality of opportunity than anything.

In NZ, I came from a poor family in a country town – thanks to the way the country is structured I have been able to borrow, invest in my human capital, and work my way up to be an economist and live comfortably.  That sort of mobility on the basis of effort is what we want in society.  And this is the thing that people born in poor countries do not have access to, which is why the real injustice is being perpetrated on these people.

  • James Edwards

    Matt, income is only part of the issue, it does’t account for the amount of money left over once all the expenses are paid, many of which aren’t exactly discretionary. Taxes, rates, accomodation costs, utility bills, fuel for your vehicle or other transport costs. Many of them are deadweight costs due to the way our society is structured.

    • Miguel Sanchez

      For which you get shelter, power, water, roads, schools, parks, law enforcement, etc, etc, etc in return. Billions of people don’t get the option of bearing those “costs”.

      • James Edwards

        Yes Miguel,

        And those public services are worth more to some people than they are to others. The unfortunate thing is that societies like ours blessed (or cursed) with access to incredibly abundant energy often pursue complexitiy, merely for the sake of complexity. To solve issues resolve issues caused by to much complexity, authorities preoffer solutions requiring even greater degrees of complexity.

        Its just not an option in energy starved countries in Asia, Latin America, and Africa.We in the West already use too much, there just isn’t enough for them to attempt to copy our materialist lifestyles. Policy makers in the United States have been cognizant of that reality since the War.

        “Furthermore, we have about 50% of the world’s wealth but only 6.3% of its population. This disparity is particularly great as between ourselves and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism and world-benefaction.”
        http://en.wikisource.org/wiki/Memo_PPS23_by_George_Kennan

        “The major factor influencing the demand for non-agricultural raw materials is the level of industrial activity, regional and global. For example, the U.S., with 6% of the world’s population, consumes about a third of its resources. The demand for raw materials, unlike food, is not a direct function of population growth. The current scarcities and high prices for most such materials result mainly from the boom conditions in all industrialized regions in the years 1972-73.”
        http://www.population-security.org/28-APP2A.html

        • Miguel Sanchez

          As with most of your links, James, I’m scratching my head as to what they have to do with your point. Against the wishes of one long-dead Cold Warrior, Asia has in fact narrowed the income disparity over the last few decades, without the US having to sacrifice anything in terms of quality of life – in fact it has benefited immensely from having Asia as a trade partner.

          Your first point was that income doesn’t capture inequality because there are “costs” to living in a rich country; my point was that those “costs” bring benefits. If you could plot quality of life percentiles (if there were such a thing), I suspect the distribution of the US vs the world would look much the same as Matt’s chart above. And if the best argument against this that you can come up with is “complexity” then I’m gonna have to direct you to #firstworldproblems.

        • Anarkist

          Miguel,

          “Your first point was that income doesn’t capture inequality because there are “costs” to living in a rich country; my point was that those “costs” bring benefits.”

          “Against the wishes of one long-dead Cold Warrior, Asia has in fact narrowed the income disparity over the last few decades, without the US having to sacrifice anything in terms of quality of life – in fact it has benefited immensely from having Asia as a trade partner.”

          Yes and at immense costs to the health of workers and to the environment, which GDP per capita does’t account for either. And how long can it be sustained? Its been less than 40 years since the National Security Memorandum 200 which I linked to, was published.

          I know what your point is. But as I said, some benefit far more than others, whilst for others they are counterproductive. Corporations receive far higher payoffs from roads, than workers as it expadite shipments of their products from low cost regions to wealthier consumers. Yes consumers gain from the transportation links, but doesn’t necessarily imply that the goods couldn’t have been produced cheaper locally without the subsidised roading. And the tradeoffs of real estate zoning and high urban real estate costs for the poor, because they’re forced to drive greater distances from work.

          Well, the problem of complexity does indeed apply to the Third World. Take the destruction of the Indus River Delta in Pakistan for example, due to misguided British attempts at encouraging “development”.

          “The destruction of the Indus delta is a direct consequence of the dams and barrages that have been built higher up on the river. These have diverted the river’s water into areas that were earlier rainfed, drastically reducing the quantity of water flowing into the deltaic channels leading and, thereby, increasing salinity.”
          http://www.downtoearth.org.in/node/29827

  • jh

    Any comment on this (Heinberg quote) Matt?
    I believe that if we have a free movement of labour, we will most of us be able to live at some low average standard of living. Those at the top of the normal curve (provided they have access to education) will always be relatively well off however.

    Richard Heinberg:
    The ideological clash between Keynesians and neoliberals (represented to a certain degree in the escalating all-out warfare between the U.S. Democratic and Republican political parties) will no doubt continue and even intensify. But the ensuing heat of battle will yield little light if both philosophies conceal the same fundamental errors. One such error is of course the belief that economies can and should perpetually grow.
    But that error rests on another that is deeper and subtler. The subsuming of land within the category of capital by nearly all post-classical economists had amounted to a declaration that Nature is merely a subset of the human economy money or technology. The reality, of course, is that the human economy exists within, and entirely depends upon Nature, and many natural resources have no realistic substitutes. This fundamental logical and philosophical mistake, embedded at the very heart of modern mainstream economic philosophies, set society directly upon a course toward the current era of climate change and resource depletion, and its persistence makes conventional economic theories utterly incapable of dealing with the economic and environmental survival threats to civilization in the 21st century.
    http://richardheinberg.com/221-economics-for-the-hurried

  • Miguel Sanchez

    “Yes and at immense costs to the health of workers and to the environment, which GDP per capita does’t account for either.”

    Right, because Asia is nothing more than 3 billion people working in sweatshops. Stereotyping much?

    “And how long can it be sustained?”

    Uhh, until the gap closes? Asia effectively shares the same technology frontier as the developed world, so they’re hardly in danger of hitting limits to growth any time soon.

    “Its been less than 40 years since the National Security Memorandum 200 which I linked to, was published.”

    Actually it’s been more than 60 years since it was written.

    On your other points: so we’re against cronyism, misguided central planning, and colonial oppression – check, check, and check.  But these problems don’t belong to the US alone (or at all, in the latter case), so I’m still struggling to see how this is supposed to refute Matt’s point about income distribution.