Income inequality… gaining on Brazil

The United State's income inequality is nearing that of Brazil.  Certainly not a good sign for the largest economy in the world.

He calls himself the Naked Economist, University of Chicago professor Charles Wheelan has a very good article on Yahoo! Finance this week regarding the United States gap between the rich and the poor.  

 

In the article he reflects upon his experience traveling to Brazil, in which the disparity in wealth is essentially:

from the slums run by drug traffickers at one end to the
lovely apartments with bulletproof doors at the other — I'm convinced
that income inequality does matter.

Wheelan mentions the lucrative bonuses that were handed out in December
for CEOs, those who already own millions of dollars of stock in the
company they manage.  Another example of the worsening gap is the severence package
offered by Home Depot's Board of Directors to CEO Bob Nardelli upon his
resignation.  It totaled $210 million dollars despite his well earned
reputation as a poor CEO for Home Depot.

 

Professor Wheelan continues by looking at some statistics regarding
the tremendous gap and compares the United States to a few other
countries.

 

The most convenient statistic for measuring income inequality is
called a Gini coefficient, which measures a country's distribution of
income from 0 (absolute equality, with each person sharing the same
amount of wealth) to 1 (absolute inequality, with one person
controlling all of the nation's wealth).

 

Here's what that statistic looks like for a handful of countries, including contemporary and historic figures for the U.S.:

  • Japan: .25
  • Sweden: .25
  • India: .33
  • The United States 1970: .39
  • The
    United States 2005: .47 (Note that a small fraction of the increase
    over time is due to a change in the methodology for calculating the
    Gini coefficient; still, income inequality has climbed steadily by this
    measure over the past four decades.)
  • Brazil: .58

The fact that we are distancing ourselves to Japan, Sweden and India
is a sad reflection upon our leaders' actions as well as our societies
priorities.  Wheelan's believes there are two reasons for being
concerned about the income inequality.

 

The first being the broken socioeconomic ladder.  Increasingly, it
is becoming more and more difficult to climb out of poverty and
experience a stable life, let alone the million dollar salary.  If we
want to fix the ladder then we must provide our children with the means
to do so.  The ladder depends upon a viable economy, well paying jobs
in that economy and an education in order to be able to do that job. 

 

His second reason is that some studies show people are typically more
concerned about relative wealth rather than absolute wealth, bottom
line, motiviation. 

 

The point — and this is still a nascent field — is that a
nation may be collectively better off (using some abstract measure of
well-being) with a smaller, more evenly divided pie than with a larger
pie that's sliced less equitably.

If things we moved
towards a more economically equal society, with bigger steps than just
a minimum wage increase (great step and hopefully there is more to
come), than as that socioeconomic ladder's steps grew larger and
clearer those at the bottom would have a better chance at reaching the
top.


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