2013-10-22

Economic Inequality in America

Recently I've been seeing many facebook posts about a video describing the very lopsided distribution of wealth and income in the United States. The video is actually a year old but it has been given a new lease on life by upworthy and, at the time of this post, has more than 10,000,000 views.

The basic arguments of the video are:
* The US has very unequal distribution of wealth and income.
* Over time, wealth and income distribution is becoming more unequal.
* Most Americans aren't aware of how unequal and increasingly unequal wealth and income are in the US and they would prefer them to be more equitably distributed.

This has made for some good and spirited discussion among my friends. Many of my socialist-leaning European friends believe that it's a great travesty and that Americans are either ignorant about it happening or wrong in willfully letting it happen. Many of my libertarian-leaning American friends believe that it's a right and natural outcome of a meritocratic free market.

Regardless of the video and the data sources and the definitions it uses, I'm glad it has stimulated this discussion because it's not something I've really thought much about before. It leaves me with several questions:

* Is US wealth and income distribution as inequitable as the video makes it seem?
* How does the US compare with other countries? (The US looks OK in this World Bank data.)
* What should the US wealth and income distribution look like - and why?
* Is this even the right question? I've seen it argued that wealth and income mobility (the ability for someone in one group to move up to another group) is more important than a snaptshot or trend of distribution. This resonates with me as it seems to align with the American dream: that anyone, no matter where he comes from or what he has today, can make it big tomorrow.
* If mobility is the right metric to focus on, how does the US stack up there? (Not too well, it would seem from this Wikipedia article.)
* Or are there other metrics we should look at for an ideal future state and work backward from there?
* If indeed the US is out of whack with regard to the metrics we claim to hold dear, why is that so? And what can or should be done about it? What other approaches exist and what would be their tradeoffs?

What do you think about these issues? I don't have any conclusions of my own yet as I'm just starting to consider them.

7 comments:

George Webb said...

Ultimately I think that mobility is more important than equality. A society in which the sons of the poor have a very good chance of becoming rich, and vice versa, is far preferable to one in which relative wealth, however tightly clustered, is static across generation. Historically, the US has had a degree of income mobility (and, not coincidentally, physical mobility) that was unparalleled in the Old World, and which is in fact a defining characteristic of the New World compared to the Old. If we lose THAT, we've really lost something.

Bloggar said...

I'll add:
If a country has high social mobility does this not imply its also easy to drop down in wealth?

Bryan Hassin said...

George, take a look at the Wikipedia article I linked to about socio-economic mobility in the US; it paints a very different picture of how mobile we actually vs. what we like to believe. That's what has me most interested in furthering this discussion.

Bryan Hassin said...

Bloggar, I'm not sure, but I would think so. Even if the economy is expanding, these are relative measures so it shouldn't be possible for someone to jump up without knocking someone else down. For this reason, it seems quite intuitive that those in the top echelon today (and therefore with the greatest means to influence public and corporate policy) might actually be motivated to curtail mobility.

kb23 said...

Mobility seems like it would be a good metric. However, the reality of mobility includes the fact that our welfare system doesn't provide incentives to use it only as a safety net, and this leads to chronic reliance on it. For example, a family who really needs health care coverage may lose that by accepting a job without benefits. On a related note, I find it very interesting that those who work minimum wage jobs often rely on SNAP benefits (a.k.a. food stamps) to feed their families. How do we align incentives appropriately while still providing a safety net that works (assuming most people, like myself, believe in maintaining a safety net system)?

kb23 said...

Mobility seems like it would be a good metric. However, the reality of mobility includes the fact that our welfare system doesn't provide incentives to use it only as a safety net, and this leads to chronic reliance on it. For example, a family who really needs health care coverage may lose that by accepting a job without benefits. On a related note, I find it very interesting that those who work minimum wage jobs often rely on SNAP benefits (a.k.a. food stamps) to feed their families. How do we align incentives appropriately while still providing a safety net that works (assuming most people, like myself, believe in maintaining a safety net system)?

Bryan Hassin said...

I saw this infographic today, which paints a less drastic picture of income inequality in America, once adjusted for government redistribution: http://www.businessweek.com/articles/2013-12-19/graphic-redistributing-wealth-in-u-dot-s-dot-tax-system
Still, it concludes that inequality as measured by the Gini Index has increased 20+% since 1979.