Worstall on income inequality

I'm not familiar with the data Tim Worstall cites, so I treat his claim with caution. But if the claim is supported by other data and by other investigators, it's quite surprising (from "America: More Like Sweden Than You Thought").

How we're supposed to read this is that the USA has a very uneven income distribution, that the poorest 10% only get 39% of the median income, that the richest 10% get 210%. Compare and contrast that with the most egalitarian society amongst those studied, Finland, where the rich get 111% and the poor get 38%. Shown this undoubted fact we are therefore to don sackcloth and ashes, promise to do better and tax the heck out of everybody to rectify this appalling situation.

But hang on a minute, that's not quite what is being shown. In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It's not worth quibbling over 1% so let's take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don't you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely . . . nothing.

Comments

[kyle8]

I am sure this will come under attack quite quickly. Intuitively, I am inclined to believe it, since socialist measures have never worked as intended and always contain perverse incentives.

Of course even if it is true, It would not dissuade the Socialists, you see to them its a rousing success. If the top income is 210% in the USA and only 111% in Sweden and Finland, that proves it! After all, the real object is equality not helping the poor. By that measure those countries are more equal since they are more equally poor.

[Tim Worstall]

The data comes from the Economic Policy Institute (Max Sawicky and Dean Baker etc). They quoted it to prove exactly kyleB’s explanation. I simply looked at the same data and saw the other fact contained therein.

[JorgXMcKie]

Some people (and since I am in academia I am exposed to rather a higher percentage than anyone who is not) are really more about punishing "The Rich" than helping the poor. I hear the "income gap" crap fairly regularly.

Try your imagination on this. Suppose income is distributed along a normal bell-curve (I have no idea if it is, but I wouldn't bet it is not). Which would you rather have, a 'taller' bell-curve, i.e. one with smaller standard deviations by a lot, with a lower median income (the situation in the US, probably, in 1960) or a flatter curve with MUCH higher s.d. and a median income way past the median 40 years ago? I swear, many of my colleagues would prefer incomes that looked like the 1960s even if it made more people poor. They also don't understand the difference in buying power and productivity in the US since 1960.

In addition, suppose the bell-curve IS normal. Then, if the median moves to the right (i.e. more people make more money) the the gap between 'poor' (bottom quintile) and 'rich' (top quintile) automatically increases. Too many of my colleagues are statistical ignoramuses.

Of course, many of them are pretty unwilling to admit that they are among 'The Rich' (even the one making 125K as a temp administator whose wife is a company exec making 350+K), and believe the problem is with the top 1%. Sheesh.

[Miko]

You're not exactly comparing apples to apples there. In the States the average poor person can't necessarily afford proper medical care because that 39% isn't enough to cover it, whereas in Finland or Sweden the 38% doesn't come into it, since necessary medical treatment already taken care of by the government. Unless I'm mistaken, unavoidable medical expenditures are the most common cause of bankruptcy in the USA.

A free education at a respectable university is not an inconsiderable asset either. And so forth.

In addition, I'm fairly certain that the poorest people in Finland or Sweden are a much smaller minority than in the US. Certainly those numbers would not otherwise gel very well with per capita GDPs of 91% and 96% of the US's respectively.