Posts tagged with: Income distribution

o-man-taller-facebookFor most of my life I was, at 5-foot-10, of exactly average height. But in the span of one day in 1989 I became freakishly tall.

While I hadn’t grown an inch upward, I had moved 6,000 miles eastward to Okinawa, Japan. Since the average height of native Okinawans was only 5-foot-2, I towered over most every native islander by 8 inches. It was the equivalent of being 6-foot-6 in the United States.

Unfortunately, when I would leave the towns of Okinawa and step back onto the military base I instantly shrunk back to average height. My height advantage only lasted as long as I got to choose my point of reference.

Where did the truth lie? Was I truly tall or only of average height? The answer was completely dependent on my point of reference. Height, after all, is just a statistical artifact.

While this example may seem silly and rather obvious, it highlights how we our choice of what is a relevant standard of comparison can shape our thinking on important matters of economic policy. Take, for instance, the issue of poverty and income inequality. As Robert Higgs explains,
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lego-people“Can you explain that important economic concept using Legos?”

Apparently, someone must have said that to Richard Reeves, an economist at the Brookings Institution economist, because he’s made a brief video using Legos to visualize social mobility.

There are two reasons I really appreciate this video. First, I love to see important economic issues explained in an accessible and entertaining manner. Second, as I’ve repeatedly said to anyone who will listen, social mobility — specifically getting people out of poverty — is infinitely more important than focusing income inequality, a topic that gets far too much attention nowadays.

The one drawback to the video is that it’s far too pessimistic. Yes, social mobility is still a huge problem. But the video makes clear, that social mobility is possible for almost all people. That has not been true for most of human history and it is not true in most parts of the world today.

Also, I am far less concerned with whether a person can go from the bottom quintile to the top as I am with going from the bottom quintile to the middle. Like many Americans, I was born in the bottom quintile and worked my way to the middle quintiles. The fact that I’m unlikely to ever join the top quintile is of absolutely no importance to may life. None at all. What we should care about is whether people can get out of poverty and flourish economically, not whether they can join Beyonce and Jay-Z in the billionaire’s club.

But those quibbles aside, I’m grateful this video is helping to spread the message about the importance of social mobility.

Earlier this month, I wrote a two part article for the Library of Law & Liberty, critiquing the uncritical condemnation of income inequality by world religious leaders.

In part 1, I pointed out that “while the Pope, the Patriarch, the Dalai Lama, and others are right about the increase in [global income] inequality, they are wrong to conclude that this causes global poverty—the latter is demonstrably on the decline. And that, I would add, is a good thing.”

F. A. Hayek

In part 2, drawing on the work of F. A. Hayek, I noted, “As societies learn to use their resources ‘more effectively and for new purposes,’ the cost of manufacturing luxury goods decreases, making them affordable to new markets of the middle class and, eventually, even for the poor.” I continue, “Such inequality not only accompanies the very economic progress that lifts the poor out of poverty, it is one essential factor that makes that progress possible.”

We may add to this two more ways in which focusing solely on income inequality can be misleading from article in the Wall Street Journal yesterday by Nicholas Eberstadt: increased equality in lifespan and education. He writes,

Given the close correspondence between life expectancy and the Gini index for age at death, we can be confident that the world-wide explosion in life expectancy over the past century has been accompanied by a monumental narrowing of world-wide differences in length of life. When a population’s life expectancy rises from 30 to 70, the Gini index drops by almost two-thirds—from well over 0.5 to well under 0.2.

This survival revolution—and the narrowing of inequalities in humanity’s life chances—is an epochal advance in the human condition. Since healthy life expectancy seems to track closely with overall life expectancy, a revolutionary reduction in health inequality may also have occurred over the past century. Improvements in global mortality for the poor have contributed to the very “economic inequality” so many now decry. This is another reason such measures can be deceiving.

The spread and distribution of education has had a similar impact. In 1950 roughly half of the world’s adults—and the overwhelming majority of the men and women from low-income regions—had never been exposed to schooling. By 2010 unschooled men and women 15 and older account for a mere one-seventh of the world’s adults, and about one-in-six from developing areas. (more…)

union-jack-flag-great-britain-x-nature-with-uk-for-2685143At the height of power, circa 1922, the British Empire was the largest empire in history, covering one-fifth of the world’s population and almost a quarter of the earth’s total land area. Yet almost one hundred years later, Great Britain is not so great, having lost much of its previous economic and political dominance. In fact, if Great Britain were to join the United States, it’d be poorer than any of the other 50 states — including our poorest state, Mississippi.

Fraser Nelson discovered that fact by using a “fairly straightforward calculation” (see the end of this article for an explanation, and what Nelson missed). The result, as Nelson explains, is that all but one income group in America is better off than the same group in Britain:
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Francis (1)“If there is one thing that religious leaders around the world seem to agree on today,” says Acton research associate Dylan Pahman, “it is the evils of income inequality stemming from a globalized economy.” But as Pahman points out, there is a connection between inequality and poverty alleviation that affirms the moral merits of economic liberty:

It would seem the consensus is that economic inequalities have increased worldwide, and this is a clear moral evil. But when we examine the numbers, a somewhat different picture emerges. Even as inequality has increased, extreme poverty has simultaneously decreased—a clear moral good. Considered in this light, and with the help of Nassim Taleb and (in Part Two of this post) Friedrich Hayek, I will examine the connection between inequality and poverty alleviation and argue that the data affirm, rather than refute, the moral merits of economic liberty.

It stands to reason that if religious leaders are so willing to condemn global capitalism for its apparent evils, they ought to be even more eager to praise its actual goods. I will recommend a different moral metric, drawn from St. John Cassian and St. John Chrysostom, that would support people of faith in being attentive to the plight of the poor while prudently engaging the economic realities at hand.

Read more . . .

Participant in the Doe Fund, New York City

Participant in the Doe Fund, New York City

No one wants to be poor. No one enjoys figuring out how to stretch meals to last just three more days. No parent wants to tell their child they can’t play a sport or get a new backpack because there is simply no money. No one wants to be evicted. Poverty in America is a reality; so what are we going to do about it?

The American Enterprise Institute has a few ideas. They’ve taken a look at where we are 50 years after the War on Poverty was declared. The conclusion is that we’ve not been successful in that war. Poverty in America—and What to Do About It is a compilation of essays on the topic.

Aparna Mathur says the talk of late about “income inequality” is misleading. We must address poverty, not differences in individual income.

We are now in the fifth year of an economic recovery that does not seem like a recovery to most people in the labor market. There are more than 10 million unemployed workers, of which nearly 4 million have been jobless for longer than 27 weeks. In addition, there are another 10 million who are either in involuntary part-time jobs, or are too discouraged to look for work. Therefore, I would argue that the focus on income inequality is somewhat misplaced. This is essentially a problem of poverty.

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Christian churches in the West have been focused on redistribution of income rather than the creation of wealth, says Brian Griffiths in this week’s Acton Commentary.

Through much of the post-war period in the West, the formation of economic policy was dominated by Keynesian activism on the part of governments seeking an increasing role in providing public services, reducing material poverty, and reshaping income redistribution.

In the United States, President John F. Kennedy launched the New Frontier program and his successor, President Lyndon Johnson, soon after embarked on what came to be called the Great Society. In both cases, emphasis was placed on increasing the role of the state in order to solve problems of poverty and destitution. In intellectual terms, the economist John Kenneth Galbraith made the case for trade unions and government becoming “countervailing powers” in capitalist economies in order to check the power of large corporations. In Britain, Harold Wilson nationalized various industries, developed a national plan, a comprehensive prices and incomes policy, and extended the scope of the welfare state. Across the Channel and Rhine, the Social Democrat Willy Brandt was a major influence in extending the role of government in social policy throughout West Germany.

The full text of the essay can be found here. Subscribe to the free, weekly Acton News & Commentary and other publications here.

social-mobility-01_500x260Earlier this year I wrote a series of posts explaining 12 principles that generally drive the thinking of conservative evangelicals when it comes to economics. Number 9 on my list was:

9. Social mobility — specifically getting people out of poverty — is infinitely more important than income inequality.

Social mobility is the ability of an individual or family to improve (or lower) their economic status. The two main types of social mobility are intergenerational (i.e., a person is better off than their parents or grandparents) or intragenerational (i.e., income changes within a person or group’s lifetime). Researchers at Harvard University recently released a study of intergenerational social mobility within the United States which controlled for five factors: racial segregation, income inequality, school quality, social capital, and family structure.

Can you guess which factor makes the most difference for social mobility?
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In 1820, America’s per capita income averaged $1,980, in today’s dollars. But by 2000, it had increased to $43,000. That economic growth has benefited the rich, of course. But it has also transformed the lives of the poor — and prevented many more from becoming or staying poor.

In this superb short video, the American Enterprise Institute briefly explains the moral value of economic growth.

Yahoo! Finance’s Stock Analyst, Kevin Chupka, recently interviewed Rev. Robert Sirico about the “Cure for Income Inequality” and the work of PovertyCure. Chupka begins by stating that “close to half the planet lives on less than $2 dollars a day” and that an alarming number of Americans are living below the poverty line. He then states that despite all the good intentions, decades of charitable giving hasn’t done much to end this problem. Chupka and Sirico discuss PovertyCure’s mission to “challenge the status quo and champion the creative potential of the human person;” looking for ways to engage the poorest of the poor in trade rather than simply giving them money and hoping for the best.

Read ‘Fighting poverty: We’ve been doing it all wrong.’ at Yahoo! Finance. (more…)