Notes on global income disparities
by Rebecca Wilder
On Angry Bear, Tom Bozzo authored The Rich *Are* Different, focusing on the makeup of earnings across US tax payer brackets. And Cactus authors Poverty and the Real Median Income, where he comments on the poverty share and median income across U.S. Presidencies.
So here is where I chime in on a global scale. Using the IMF’s World Economic Outlook database (October 2009), one sees how very skewed is average income around the world. And worse, the IMF forecast does not show the disparity improving much (if at all).
The charts above illustrate the frequency distributions for global per-capita income (income divided by population) across 182 countries (you can download my country-level data here, or get all sorts of data from the IMF here). The data are measured in PPP international dollars, which is intended to normalize for currency effects in a period.
Well, it’s pretty clear that the distributions are strongly positively skewed, i.e., with relatively few high income values. And furthermore, the non-normality of the global income distribution does not improve during the forecast, 2005-2014 (the IMF forecast ends in 2014).
The table below lists some simple descriptive statistics of the sample.
Admittedly, there are some “slight” improvements: the tails become less “fat”, and the distance from the top to the bottom narrows (if one can call dropping from 27,149% to 20,162% a meaningful change).
Income distribution is a serious welfare concern from the country level all the way up to the world – one that apparently is not expected to change anytime soon.
Rebecca Wilder cross posted at Newsneconomics
A skewed income distribution in and of itself is not necessarily a bad thing.
In theory, and generally in practice unequal income distribution leads to greater savings and investment and greater growth that makes everyone better off.
So we should have a theory of what is the opitimal income distribution.
But the case of the US in recent years is obviously a case of a non-optimal income distribution. Greater income inequality has not been accompanied by higher personal savings. Rather, it has been accompanied by a sharp drop in savings and a significant slowing of the real incomes of the bulk of the popuation.
Yet, the right continues to claim great sucess for their programs to increase savings in shap contrast to the facts that show otherwise.
What the left needs to do is not rant and rave about the skewed income distribution. Rather it should make the case that the sharp increase in unequality has made everyone worse off and that programs to reduce inequality would undo the damage of the past quarter century policies.
As long as the powerful think they are better off having 80% of $50 rather than having 60% of $100 we are unlikely to make much progress in reducing inequality. We have to show that they will do better in a more equal society.
Nice data, but should not surprise anyone who has traveled at all. Most of the worlds populations lives in tyrranies, under religous edicts, or totally disfunctional governments. Most live were human rights, private property rights, the rule of law, and basic liberties are extreamly curtailed or non-existant. The list is long – China, India, Pakistan, all of Africa north of South Africa, Indonesia…with the worst being the extreame tyrrannies (North Korea) or in the throws of war/anarchy (Somalia).
Until you change the governments and cultures of these places not much will change. China is a good example of a country slowly coming out from under a tyrannts yoke (Mao and his successors) by opening up some economic freedom. Wheather it can continue its grow while still running a political dictatorship will be interesting.
The worlds problems can only change if we eliminate the massively disfunctional and downright evil in some cases governments and cultures that exist around the world.
As for the US. Continued economic growth will continue to pull the poor along. And most can get out of the bottom with following simple rules that always work (finish HS – embrace education, live modestly, avoid drugs/crime, no kids until marraige and then wait until you can afford it)
Oh and leave high cost of living areas…
Islam will change
Will economic growth in the U. S. “pull the poor along”? That has not been the case for at least a generation, has it? The fruits of prosperity have been siphoned upwards, right?
“Well, it’s pretty clear that the distributions are strongly positively skewed, i.e., with relatively few high income values. And furthermore, the non-normality of the global income distribution does not improve during the forecast, 2005-2014 (the IMF forecast ends in 2014).”
I have never seen a national income distribution that was not skewed. And I have some trouble visualizing a vibrant society that would have a normal income distribution.
At the same time, increasing socio-economic inequality really is the “road to serfdom”, isn’t it? We have to address that problem.
“As long as the powerful think they are better off having 80% of $50 rather than having 60% of $100 we are unlikely to make much progress in reducing inequality.”
Such thinking makes apparent the falicy of the invisible hand concept based on everyone acting in their own best interest. It takes very broad and long term thinking to act effectively in your own best interest. Unfortunately it seems the greater the accumulation of money the shorter (and narrower) one’s thinking becomes such that they ultimately harm the future.
As to proper distribution, I posted here, based on Saez data that it appears somewhere between 10% and 15% is the optimal share of income to the top 1%. Anything out of that range and growth slows. This was based on what point of income share changed the relationship of personal consumption vs income for the 99%.
According to Dr. Stiglitz, the general populations of some nations receive as little as 5% of the value derived from the resources being extracted from their nations. He also explains that for every aid dollar spent by the developed nations, there is a return of 3 dollars.
(MAKING GLOBALIZATION WORK)
Min – Nope the poor live far far better today than they did when I was a kid in the 60s. or 70s or 80s heck anytime. The poor of today, 2010 in the US, are far better off than they were in 1990 by any measure you care to list.
Your bitch, and others on this board, is the fact that the rich have gotten even more prosperous. So what? I’m middle class, by 1960s standards I would be upper class, by 1900s I would be rich…
By a world looking view we have no poor at all…
Islam will change
The “bitch,” as you would call it, is not that the risch are more prosperous; but, how they gained their prosperity. It was not as if “They make money the old fashion way” as John Houseman would say because they didn’t. And “no” the poor are not better off now than they were in the fifties when poverty exceeded 20% up till today when it still is >20% before taxes and intervention. We just mask it better.
You absoultely nuts if you think the poor of today are not way better off than the poor of the 50s. In the 50s poor meant no running water, in alot of places no electricity, no phone, most would not have any acces to capital or be able to buy or afford homes or cars. Definitely no cell phones, computers, incredibly cheap and abundant food, and a plethora of state and federal programs to help you out. By every measure you can list the its far better to be a poor 18 year now than it was in 1955.
And since the bulk of the current crop of the rich got that way starting with little or nothing and worked there way there I’m not sure what your argueing against. Bill Gates is a perfect example at the extreame.
And like I said up stream, its real easy to get youself out of ‘poor’. It hasn’t changed in years.
Finish HS with the best grades you can muster.
No drugs/no crime
marry in mid 20s or later
No kids out side marraige
Works everytime. Most people won’t do it….but I’ve watched to many enlisted families break the poor cycle to believe it can’t be done. Just requires patience and self-discilpline…
Islam will change
rl – That’s becuase most of these countries are tyrranies or saddled with disfunctional cutlures or both. Most of Africa is a case in point. Its not the civilized western world that’s the problem here….
Islam will change
700+ military bases in 140 countries and 17 different intelligence agencies. You evidently have never spent any significant time in a third world nation. The developed nations have been pulling the strings in every possible way for hundreds of years and now you blame those who have been exploited. You need more information, lots more. A good place to start would be with a better understanding of how the IMF and WTO have created dependencies on dollar related assets. You might also begin to notice that the U.S. protects corrupt leaders while not “interfering” when it is good for business. And if populations are only receiving 5% of the value from their resources, guess who winds up with most of remaining 95%? If you guessed “stockholders”, you got it right. Do you really believe that is an accident caused by “dysfunctional cultures”. Do you know who appoints the heads of the IMF, WTO, and the World Bank?
Please explain to me how it is that the poor are not better off today than they were 50 years ago?
Also, what exactly do you mean by “the rich didn’t earn their money”? Certainly there are examples of this, but in a general sense I don’t think you can say this is true.
+1 on your advice for life success. Problem is everyone is watching MTV Cribs and wants to live like some kind of playa. Ironically, I bet 80% of those clowns end up bankrupt with a drug habit
One caveat, however, is that the gap between “doing OK” and “doing well” has grown exponentially in the last 30 years. There IS much more inequality due to changes in the economy. Liberals should rejoice, however, because the next 15 years of economic recession / depression a la Japan will fix a lot of that….
Please explain “the road to serfdom” comment.
Also, most of the difference in net wealth and income is due to the value of paper assets which, if the current administration would get out of the way, would implode, thus finally bringing us back to that ideal time for all liberal economists and sociologists, 1950, when “income and wealth inequality was much lower than it was today”
Pardon my ignorance, but is it “stockholders” who are keeping the 95% in Nigeria, Sudan, and Zimbabwe, or is it the corrupt politicians and the powerful families?
Buff is right that these societies are dysfunctional. It isn’t really the fault of the people who live there – they are just unlucky to born in the wrong place – but that does not change the fact these places are a mess.
The US and western powers have had their finger in the stew as well, but you can’t pin the blame on them alone.
Last, the real lesson here in my opinion is to be thankful we were born in more fortunate circumstances and to realize that things could change…
You evidently did not understand the import of this:
“According to Dr. Stiglitz, the general populations of some nations receive as little as 5% of the value derived from the resources being extracted from their nations. He also explains that for every aid dollar spent by the developed nations, there is a return of 3 dollars.”
This not a linear equation. The 3 to 1 return ratio represents the totality of all wealth flows between poor and wealthy nations. This is far more complicated than just bribing corrupt officials in order to receive favorable arrangements on resources. Negative externalities, negative interest payment flows, detrimental trade policies etc., all add to what results in a type of economic tyranny. The U.S. produces far less than it consumes and much of what it does produce comes from financial services (40%), so our “industrial policies” are about controlling the value of the dollar and thereby the values of key commodities. It could be argued that we endeavor to use our reserve currency responsibly, but it is difficult to ignore the 3 to 1 gain ratio. And the amount of wealth that the “corrupt politicians” end up with is only a minor factor, but a convenient delusion.
Your comment has some disingenuous context twisting too. I did not say for example that stockholders received all of the 95%, nor did I suggest that poor nations are functional.