Posts tagged with: Income distribution

unbalanced“The bottom half of the world’s population owns the same as the richest 85 people in the world.”

The stat was quoted last month in a report by the development organization Oxfam, but similar claims have become common. You’ve probably seen this statistic—or one like it—before in articles about economic inequality and assumed they must be somewhat true.

But they aren’t. In reality, they are completely meaningless.

One of the problems is that the comparisons are based on net worth (assets minus liabilities). If you aggregate all the people who have a negative net worth into one category and call them the “bottom half” then you come up with some peculiar conclusions. As Felix Salmon says, “My niece, who just got her first 50 cents in pocket money, has more money than the poorest 2 billion people in the world combined.”

noun_86179_ccToday at Think Christian I reflect on President Obama’s State of the Union message last night. I think it was perhaps the best speech I have heard him give in terms of delivery and general tone. There are numerous things that one might quibble with in a speech of that length, of course.

My TC piece is an attempt to help us to put into proper perspective political promises and policy proposals. I look particularly at the question of economic inequality and the assumptions underlying the government’s redistributive actions.

As Danielle Kurtzleben puts it, “Obama is making a case that the economy’s distribution engine is broken, and that the recovery simply won’t fix it. His solution is for government to approach redistribution as a positive good rather than a necessary evil.”

coins_ladderOne holdover from 2014 into the new year is the cry for an increase in the minimum wage. President Obama pledged (in a December 2014 speech) to bump the minimum wage up to $9/hour nationally. Many believe that this move will help stimulate the still-sluggish economy.

Michael R. Strain, at  the American Enterprise Institute, isn’t wholly against raising the minimum wage, but he’s not wholeheartedly for it, either. He thinks we are asking the wrong question. Do we need to raise the minimum wage, or do we need to increase employment?

The labor market for young and low-skill workers is in terrible shape. More than 14 percent of workers aged 16–24 are unemployed. The situation is even worse if you look only at teenagers, over 1 in 5 of whom are unemployed. The unemployment rate for high-school dropouts over the age of 24 is 10.8 percent — a two-decade high — and only 4 people out of every 10 in that group have jobs. And there are still a staggering 4.1 million unemployed workers who have been looking for a job for six months or longer, many of whom are young or low-skill. (more…)

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,

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: