Income inequality has surged as a political and economic issue, but the numbers don't show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It's a fact that hasn't been noted often enough.
The finding comes from a recent investigation by Christoph Lakner, a consultant at the World Bank, and Branko Milanovic, senior scholar at the Luxembourg Income Study Center. And while such a framing may sound startling at first, it should be intuitive upon reflection. The economic surges of China, India and some other nations have been among the most egalitarian developments in history.
Of course, no one should use this observation as an excuse to stop helping the less fortunate. But it can help us see that higher income inequality is not always the most relevant problem, even for strict egalitarians. Policies on immigration and free trade, for example, sometimes increase inequality within a nation, yet can make the world a better place and often decrease inequality on the planet as a whole.
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Recently SoylentNews posted a story about an article written by Tyler Cowen on the apparent fall in global inequality.
Professor Daniel Little, Chancellor at the University of Michigan-Dearborn wrote a response to Cowen's article that I'd like to share with SoylentNews.
Cowen bases his case on what seems on its face paradoxical but is in fact correct: it is possible for a set of 100 countries to each experience increasing income inequality and yet the aggregate of those populations to experience falling inequality.
Incomes in (some of) the poorest countries are rising, and the gap between the top and the bottom has fallen. So the gap between the richest and the poorest citizens of planet Earth has declined.
But this isn't what most people are concerned about when they express criticisms of rising inequalities, either nationally or internationally. They are concerned about the fact that our economies have very systematically increased the percentage of income and wealth flowing to the top 1, 5, and 10 percent, while allowing the bottom 40% to stagnate. And this concentration of wealth and income is widespread across the globe.
The seeming paradox raised here can be easily clarified by separating two distinct issues. One is the issue of income distribution within an integrated national economy the United States, Denmark, Brazil, China. And the second is the issue of extreme inequalities of per capita GDP across national economies the poverty of nations like Nigeria, Honduras, and Bangladesh compared to rich countries like Sweden, Germany, or Canada. Both are important issues; but they are different issues that should not be conflated. It is misleading to judge that global inequality is falling by looking only at the rank-ordered distribution of income across the world's 7 billion citizens. This decline follows from the moderate success achieved in the past fifteen years in ameliorating global poverty a Millenium Development Goal (link). But it is at least as relevant to base our answer to the question about the trend of global inequalities by looking at the average trend across the world's domestic economies; and this trend is unambiguously upward.
The rest of the article is excellent.
The One Percent Are Literally Rich Beyond Measure
We already know that the top one percent of income earners [sic] are getting more and more money while things stall at the bottom. But even so, the sheer amount we think they have is probably an undercount because it's so hard to measure.
The wealth of the most well-off people is under-counted because they hide it in tax shelters, keep it in foundations and holding companies, and don't respond to questionnaires, according to a Bloomberg analysis of recent research. Economist Gabriel Zucman had initially estimated that the top 0.1 percent, who have at least $20 million in net wealth, held 21.5 percent of all wealth in the United States in 2012, but after estimating what is hidden in offshore tax havens, that number is more like 23.5 percent.
Survey data is also faulty because the sample sizes are so small. The Federal Reserve's Survey of Consumer Finances found that the one percent held 34 percent of wealth in 2010, but that's more like 35 to 37 percent, according to a new paper.
Given the under-counting of data, this likely means that findings that wealth inequality had been dropping are wrong. With preliminary adjustments, the Gini coefficient, a measure of income inequality, stayed basically the same over recent decades. "With a 'top heavy' adjustment, the decrease in inequality - present when we use all other adjustments - almost entirely dissipates," according to a paper Bloomberg cites from December.
(Score: 1, Insightful) by Anonymous Coward on Monday August 04 2014, @06:20AM
It kind of seems like they are being deliberately obtuse. Sure lots and lots of poor people are less poor and that is excellent. But the gap between the proles and the elites who share common culture/geography/government is getting wider, not more narrow. So within China the difference between their top 1% and their bottom 50% is a lot wider than it used to be, just like it is within the USA.
Local min/max is worse even if global min/max is better.
(Score: 1) by Ethanol-fueled on Tuesday August 05 2014, @04:56PM
What the income distribution around the rest of the world looks like matters a lot less to you when you're starving and angrily armed, or when you're rich and your fellow citizens are looking to publicly lynch you with torches and pitchforks.
Take away my job and my livelihood and tell me things are getting more equal around the world is like pissing on my head and telling me it's raining. There's a lot more wealth and livelihood to go around than there is the pathological greed and sociopathy which seeks to control all of it.
(Score: 0) by Anonymous Coward on Monday August 04 2014, @07:24AM
...if you really think that kind of statistic matters.
(Score: 1) by Wootery on Monday August 04 2014, @05:03PM
How would an influx of poor people help the statistics?
(Score: 3, Insightful) by Runaway1956 on Monday August 04 2014, @09:28AM
I'm all for bringing the third world nations into the first world. But, I'm not understanding why it's necessary to impoverish the first world nations to do so. For twenty years, all I've seen are more efforts to strip the United States and Europe of their wealth. That WAS what NAFTA was all about. And, that IS what "immigration" is all about today.
I'm sure that we could have found ways to enrich lives outside of the US without taking the wealth away FROM the US.
Ultimately, everyone is going to be impoverished, except the select ruling class.
(Score: 2) by geb on Monday August 04 2014, @09:51AM
First world and third world are not measures of how "good" a country is or how much wealth they hold. It's a cold war term for the major alliances. First world is the US and its allies, second world is USSR and its allies, and third world is any country that was unaligned for any reason.
People tend to use third world to mean an undeveloped hellhole because a lot of countries falling into that category were just too useless to be anybody's ally, but it's not a good description. For example, neutral Switzerland is a third world country.
(Score: 3, Informative) by Anonymous Coward on Monday August 04 2014, @01:08PM
Actually ... I know that the English wikipedia agrees with you, but in the French article, Sauvy and Balandier, the (French) guys who coined the term, are quoted (with sources, in French again) stating explicitly and repeatedly over time (quotes from 1956 and 2003) that they never meant to define this "Third World" as the unaligned ones. The term comes from a parallel with the Third Estate which before French revolution were the exploited ones (peasant, serf, ...) that wanted to be recognized as equals by the First (nobility) and Second (church) Estates (which was one of the things that led to the French revolution).
So the actual, original meaning of the term is to name undeveloped/under-development countries as a whole (and that is actually still the only meaning that I know of in French. For US vs. Russia we would use "The West" (or "Western block") and "The East" (or "Eastern block") ). Then it seems that someone (English speaking) twisted the original intent of the authors and used it to mark the parties during Cold War and that this meaning took some steam in English-speaking countries.
Basically, the sentence in en:wp "He conveyed the concept of political non-alignment with either the capitalist or communist bloc.[4]" is plain wrong, Sauvy never conveyed, or meant to convey, anything like that but that's apparently one of the accepted meaning in English (note that Third World == developing countries is also an accepted one across literature)
(Score: 2) by strattitarius on Monday August 04 2014, @08:54PM
I had never even heard of the link to the cold war before GP's post.
Slashdot Beta Sucks. Soylent Alpha Rules. News at 11.
(Score: 0) by Anonymous Coward on Wednesday August 06 2014, @04:27PM
I would give you mod points. I'm USian and English is my mother language (American English anyway). I use the term "Third World" similarly to the French definition. In fact, every time I look at my broadband choices (or the decaying US infrastructure in general), I tend to refer to myself as living in a second world country. And I'm definitely referring to corruption and lack of maintenance, not political ideology.
(Score: 1) by Anonymous Coward on Monday August 04 2014, @02:04PM
That's kinda because the first world steals a lot of that wealth from the third world nations. If they stop stealing, the third world countries become 'richer' and the first world countries become 'poorer'.
The IMF and World Bank are the major forces to blame here.
Some links?
http://blogs.ei.columbia.edu/2010/05/14/the-water-conflict-in-ecuador/ [columbia.edu]
or the newest:
http://www.aljazeera.com/indepth/opinion/2014/07/ukraine-imf-agriculture-2014731945562212.html [aljazeera.com]
(Score: 4, Insightful) by PizzaRollPlinkett on Monday August 04 2014, @11:11AM
The easy way to get income equality is to get rid of high paying jobs, and that's what's happening. It's a race to the bottom. That's not a good thing.
In the USA, here's how it works: A company pays someone $100k to do something. The company fires the person, and outsources the same job for less money. The person who got fired has specialized skills. But every company has fired the people doing that job. The only place to work is a consultant who lowballed the person out of a job in the first place. The consultant asks for less from the company, skims what they want off the top, and pays the worker what's left. But if you've trained your whole life to do a job, what choice do you have? You have to make a living, and $45k is better than nothing. You could retrain for a new job, but that costs money and takes time, and you have to eat.
Sooner or later, income reduction is going to catch up with America. It hasn't quite happened yet, but in the next few years, it probably will. You can only cut so much from a budget before you run out of things to cut.
(E-mail me if you want a pizza roll!)
(Score: 2, Redundant) by Phoenix666 on Monday August 04 2014, @02:51PM
The outsourcing (and its counterpart, H1-B insourcing) wave has been going on for a while. We've all seen it in tech as our jobs have been eliminated and/or we've been compelled to train our H1-B replacements. But I've seen it all around us in every sector. Even when I go to the hospital, every nurse is an H1-B from the Caribbean. Almost none of the doctors themselves are Americans. Now we read that basic legal and medical functions (like reading X-rays) are being outsourced abroad. So every aspect of the professional class is under the same pressure.
Now, I know for a fact that even 20 years ago at least half of the people in the top business schools were foreigners and planning to return to their countries of origin with their American MBAs. So I wonder, how long before shareholders and boards realize they can also outsource the CEO jobs and all the C-level jobs to H1-Bs as well? They'd save millions on those salaries. After all, those people have the identical education and skills as the Americans who currently hold those positions do.
Me, when that happens I'll laugh and laugh and laugh.
Washington DC delenda est.
(Score: 2, Insightful) by m2o2r2g2 on Tuesday August 05 2014, @03:24AM
"how long before shareholders and boards realize they can also outsource the CEO jobs and all the C-level jobs to H1-Bs as well?"
Ummm... boards are made up of C-level job people (or at least people identifying with that 'class'). They are not going to rock the boat and lose their ride.
As for investors, most are institutional and look only at the numbers on the financial statements and the share price. For any sufficiently large company, a saving of the C-level salary is still insignificant in size for them to care about.
So I am going with NEVER.
(Score: 3, Insightful) by naubol on Monday August 04 2014, @11:43AM
I assume 'most individual nations' was meant to be 'most industrialized nations'. It is possible that lower income inequality in industrialized nations would lead to better problem solving on all the other issues mentioned in the conclusion. There is no data presented to persuade either way from the summary.
Also, this is an atrocious bit of editorializing.
(Score: 0, Flamebait) by The Mighty Buzzard on Monday August 04 2014, @04:52PM
No shit, eh? I mean is this Soylent News or the Huffington Post? Sweet mother of fuck, this entire article is either flamebait or calling everyone who disagrees with the basic premise assholes. Well fuck that to either option.
My rights don't end where your fear begins.
(Score: 0) by Anonymous Coward on Monday August 04 2014, @12:15PM
being poor in a poor country is not as bad as being poor in a rich country.
also lately i feel "wobbely", compare it to being sea-sick.
is this the spire 1 mm thick and 1 km high representing the 0.1% starting to lose stability and threatening to fall over with no side support?
(Score: 2) by gallondr00nk on Monday August 04 2014, @01:40PM
You better tell someone. Western nations starting winding down the whole helping thing somewhere around the early 1980's.
Now in the UK, we have people actually dying on account of their welfare being stopped [theguardian.com]. It's widely believed these sanctions have a quota, and are often imposed on very arbitrary pretexts.
(Score: 2, Insightful) by Anonymous Coward on Monday August 04 2014, @02:11PM
The last source I will ever take seriously on matters of income equality is the World Bank.
Like taking tax advice from Wesley Snipes.
(Score: 2, Insightful) by mckwant on Monday August 04 2014, @02:42PM
From TFA:
"Each country's distribution is divided into ten deciles (each decile consists of 10% of the national population) according to their per capita disposable income (or consumption). In order to make incomes comparable across countries and time, they are corrected both for domestic inflation and differences in price levels between countries. "
Compress the data set, then distort it. Not sure what they were trying to prove, but I bet the numbers match....
(Score: 5, Funny) by VLM on Monday August 04 2014, @02:47PM
"for the world as a whole"
Doesn't matter. I don't live in the world as a whole or under a government of the world as a whole or a culture of the world as a whole.
Kind of like the observation that the worldwide average of gender is "in between". Well, that's nice, now what do you do with that data point? Oh nothing at all you say? Well then, lets acquire more useful gender data instead. Something that could possibly influence policy or opinion, or contain something meaningful. Gender vs income, or gender vs legal system, or something.
Yo, whats the weather forecast for tomorrow? Oh, tomorrow the average temperature of the universe will be about 2.73 kelvin. Uh, yeah, thanks, that's very interesting, now tell me something useful instead about the weather forecast for tomorrow?
(Score: 2) by egcagrac0 on Monday August 04 2014, @04:57PM
I know you're broke, but take comfort in the fact that the rich are getting incrementally poorer.
(Score: 1) by known on Tuesday August 05 2014, @12:13PM
Globalization = http://en.wikipedia.org/wiki/Pyramid_scheme [wikipedia.org] by MNCs