Wednesday, August 30, 2006

The poorest Americans vs. the poorest Scandinavians

So the conventional wisdom says that while the rich are getting richer, the poor are getting poorer, at least in comparison to the rich. I can dig it, though I think that as long as the poor are better off in absolute terms (not relative to the rich), that's probably not as much of a problem as it could be. There are implications for democratic society in income inequality, but I don't think they are as dire for a society such as ours that has a strong middle class, etc.

Still, we could be doing better, it is supposed. Specifically, those who favor income equality look at Gini coefficients* and say "why can't we try to be more like Scandinavia? Look how low their Gini coefficients are!" Well, we could try to be more like Scandinavia, but if we're really trying to make our poor substantively better off, it might not be a good idea. This article has some interesting things to say about the actual income of the poor in the US vs. other rich countries: The most interesting being that the percentage of our median income recieved by the poorest 10% of our households (39%) is on par with Finland and Sweden (38%) and significantly higher than the UK and Australia. The only countries that beat us by more than 4% are Canada, Norway and Switzerland, while most of Europe hovers around 2% to 4% higher than us. The icing on the cake is that our per capita GDP is higher than any but Norway, so our poor are actually better off than those percentages indicate. And our GDP growth is unusually high, so we're getting richer faster. The reason our Gini coefficient is so high is that our rich are much richer than the rich in other countries. So our greater income inequality here is based almost entirely on the fact that our richest are so fabulously rich, while our poorest are just about average for the wealthiest part of the world.

Good news, that. We're going to want to continue looking into the possible ramifications of income inequality and what we can do to mitigate those, but at least we're in good company.

*Gini coefficients are a 0 to 1 measure of income inequality with a 0 being a country where everyone has the same income, and a 1 being a country where one person has all the wealth. We've got a .368, Finland has a .247, for example.


PubliusRex said...

Cato -

Do those stats include illegals?

Cato said...

That's an interesting question that I don't know the answer to. It certainly isn't clear from the article.

Orrin Johnson said...

Who cares about the "wealth gap?" Why is that a problem? I'll tell you why - it's because liberals who understand that our system is sooooo successful but inexplicably don't like it anyway have to make up a problem to complain about.

I am curious - why would a libertarian want to "mitigate" the "possible ramifications of income inequality" anyway? Income inequality and social mobility is preetty convincing proof of a meritocracy, which I'm pretty OK with.

Not only are those stats correct in that our "poor" are doing pretty darn well, but there is the big intangible of opportunity that isn't measured by the numbers. We have social mobility in this country that the socialist Europeans can't even dream about. Not only that, but does anyone think any European counry could be doing as well as they are without having the American economic juggernaught to prop them up? There's just no way.

For more American "poverty" stats, Check out this Heritage Foundation study on just how well off people below the poverty line are (something Darcy Burner called me a liar for pointing out, by the way.)

PubliusRex said...

I agree - from a public policy stand point, libertarians should not be concerned about wealth distributions. That sort of consideration doesn't belong in the realm of government.

Orrin - don't you realize that the meritocracy is a myth? You're only where you are because of the status into which you were born.

Cato said...


I was talking to my dad, a couple days ago, and he (drawing not from statistics but from a lifetime of experience) seems to believe that while we still have an unprecedented amount of social mobility compared to other nations and civilizations, it is getting less every year, and that our society *is* slowly stratifying. He blames ever more complicated government regulations that require experts to figure out. I tend to agree. Meritocracies require social mobility to function. If we get to the point where social mobility is threatened, for whatever reason, we need to take a good hard look and see what can be done about it. Anybody who spends any amount of time analogizing America to Republican Rome should worry if they see the middle class eroding and an underclass forming. I'm not saying that's necessarily happening, but if it is it's worth trying to stop it.

Orrin Johnson said...

Right - it's slowly stratifying because liberals and socialists increase government regulation and make the poor worse off. That's why their belief that they're "for the little guy" is so wrong and so destructive. That's why I WANT to see "wage gaps" because it's an indicator of freedom and mobility.

It's already happening, Cato. And "what can be done about it" is to not elect liberal policy makers (Republicans included) who live for government regulations and demand that Uncle Sam micro-manage our lives. That's why Democrats rarely get my vote, especially now that they've been taken over by the socialist Kossacks - if they had their way, we would have less social mobility, and our nation would be threatened.


Publius, you just want me to play to trailer park card. Done.

Derek said...

I'd agree that the overregulation of the markets are responsible for some of the wage gap. However, I'd argue that is not because regulation is intended to help the poor, but because regulation helps the rich/political donors (of both parties) stay rich.

On the meritocracy perspective, I think that those born to families of higher SES have greater opportunities to succeed. Lower SES is correlated to higher divorce rates, worse primary and secondary school performance, more violence, etc. None of which help an individual succeed. NOt to mention the inability to overcome obstacles.

IT IS POSSIBLE to overcome these obstacles, I know Orrin proves that. But Orrin also worked much harder to overcome those obstacles than say...Paris Hilton has. And Orrin isn't even close to Ms. Hilton's net worth or lifestyle.

I believe that everyone should have the same opportunities in life, and in the current system (social/governmental/etc). That is the only way that we can have a true meritocracy.

Plus there were a couple of gaps in your logic-
1. How is the "wealth gap" "pretty convincing proof of a meritocracy"?

2. What evidence do you have that our social mobility is much higher than in Europe? You assert it, but fail to support it.

Orrin Johnson said...

Even harmful regulation is intended to help the poor. Or improve employee safety. How odd that a big government proponent would be so cynical. If you fear THE EVIL CORPORATIONS are taking over the world via massive and intrusive regulation, perhaps you should join us in pushing for smaller government in general.

Why does it matter to me or anyone else how much money Paris Hilton has? Who cares? Her significantly greater wealth impacts my opportunities exactly zero. There is so much opportunity in this country that I could have done anything I wanted to, and still can, largely. Remember - her wealth is actually her family's weath, a family which has created more jobs than any government program could.

Everyone DOES have the same baseline opportunities in this country to do what they want. Some have a few bonuses, but NO ONE of any race, economic background, or gender is prevented from any of their goals except by their own poor choices. That's it.

That's as opposed to Europe, where people can't get jobs because no one can get fired from their old jobs, and the regulations are such that no new ones are able to be created. Those are distinctly leftist policies. What do you think all those people were protesting in the streets last year? Why do you think French racial minorities are still stuck in the ghettos with unemployment rates of over 50%?

Knowing that people I graduated from high school with (or didn't) are making vastly different incomes to me is proof of meritocracy. We ALL had the same baseline opportunities to do anything we wanted. Some people took advantage. Some didn't. We all reap what we sow.

derek said...


Somehow I'm not surprised that you ducked and distorted my point.

As I admitted candidly, most americans can do whatever they want. What I said, and my only point, is that those born to wealthier families have significantly more opportunities. Do you disagree with this statement?

If the rich kids have more opportunites to succeed, then the egalitarian promise of the country has diminished.

3 other points for the record:
1. The military industrial complex (sponsored by the federal gov't) employs many MANY MANY more people than hilton hotels.

2. If you'd ever listen to me, instead of attempting to demonize my opinions, you'd know that I AM in favor of minimizing the gov't. Publius and I had many discussions lamenting the 1937 supreme court term. I find wickard v. filburn stomach turning.

3. Saying that Europe is bad because there are no jobs because blah blah blah is fine and good...however, it doesn't prove your point in the least. Feel free at any point to start supporting your baseless attacks on "leftists."

Orrin Johnson said...

Paris Hilton's opportunities diminish mine or anyone else's zero. At all. How does the fact that some kids were richer than me in high school diminish the American promise? That's absurd. Is the answer to not allow the Hiltons' to provide for their children as much as they can (even if the result is a little questionable in their case...)?

Allowing the rich to continue to be rich INCREASES the opportunities for the less wealthy, even if it means their kids get to be ridiculous. We could make things more "egalitarian" by making everyone worse off. Communists think that's a good thing, as did the original founder of the ACLU. I, of course, do not agree.

If you think wealth disparity is a problem government needs to solve, you necessarily believe in a large, coercive government. This is the funadamental core of leftist socio-economic philosophy, and one that is on display in Europe. I'm not demonizing anything. Those are just the facts.

Because you DO seem to think wealth disparity is a problem that government should solve, I necessarily conclude that you are in favor of government that is coercive in that you want government to micromanage our pocketbooks.

If that's not the case, what do you suggest is the "solution?" I think ANY "fix" to the wealth gap diminishes ALL opportunities for ALL Americans, and I thus condemn such policy attempts. You cannot get to that level of government intrusion without embracing Wickard. You can't have it both ways.

Most of the "military industrial complex" is the result of PRIVATE innovation, which develops new and creative ways of more effectively and specifically targeting our enemies, while saving innocent lives. It is often highly productive, with benefits to society through their research that reach far beyond their military roots.

But having worked in the government side of the "military industrial complex," I can tell you that it is exactly the model of inefficiency we DON'T want to duplicate in the government at large.

The difference is that a robust military is absolutely necessary to protect our freedoms and our very lives. (Being killed by Islamo-fascists is the ultimate obstacle to economic opportunity.) Fixing the "wealth gap" via government intrusion is not.

The lack of social mobility in Western Europe has been a constant issue in the news, especially as related to the rise of Islamic Fundamentalism in those countries, as well as the overall poor performance of the European economies. It's simply self evident. There are all kinds of studies that massage statistics that come to a rainbow of conclusions (mostly by using the "wage gap" as a given undesireable outcome, or by adjusting the class distinctions, which are arbitrary anyway, so as to make mobility look like stability), but the bottom line is when new companies cannot be created, new people can't be hired, bad employees can't be fired, and unemployment rates hover in double digits, people can't get ahead.

And even if that weren't the case, freedom is its own goal, and that includes financial freedom. If you aren't free to fail, you aren't free.

derek said...


In re-reading my posts I think my snarkiness comes across badly in writing as you cannot see the big smile on my face as I am saying things. I hope that you, having argued with me in person enough, know that it is there. Nonetheless I will try to keep the snark down in this post.

I don't think that wealth disparity is a problem that the government needs to solve per se. Paris Hilton's wealth has nothing to do with your opportunities (assuming of course limitless opportunities) that is correct.

I think that the gov't (and society at large) should address the opportunity differences between the wealthy and the less than wealthy. This is primarily through education and the legal justice system. Society however needs to recognize the differences in opportunities and attempt to make society truly judge people on their merits and not other factors like SES and skin color (that goes for programs like AA too). I don't think this makes anyone worse only allows everyone the same great opportunities.

with regard to social mobility in europe. You say it is self-evident that there is little social mobility. the London School of Economics says that you are wrong.

"A careful comparison reveals that the USA and Britain are at the bottom with the lowest social mobility. Norway has the greatest social mobility, followed by Denmark, Sweden and Finland. Germany is around the middle of the two extremes, and Canada was found to be much more mobile than the UK." Press Release from the LSE.

I understand that some European countries (especially, but not only, France) has a problem integrating immigrants (especially muslims) into their society. Could this be what you are thinking of? If so, I think that is more a function of racism than gov't and social policy.

btw, nice attempt to smear the ACLU. Does that mean that I am a communist too, Sen. McCarthy??

Alright, Orrin. I'm out. Enjoy what remains of the summer! I'll see you in two weeks.

Orrin Johnson said...

Yes - I've read that study. As I said, it's a study which assumes wealth disparity equals lack of social mobility, ignores the non-citizen, multi-generational residents of European countries stuck in their ghettos, and which changes the class classifications to meet their pre-ordained outcome. A study which finds France has higher mobility than the US considering the unemployment and job creation differences is nonsensical, and has the scientific merit of an Al Gore movie.

I agree with you that education must be given priority, especially for the poor. I don't agree that race has any place in that calculus, as AA programs have been helping to keep poor minorities down for decades, something I've written about before. But pointing to wealth disparity as a per se bad thing is foolish, and reeks of a call to redistribute wealth.

No, it doesn't mean you're a communist. It means you work for what is at its essence a socialist organization that is to this day (even after the renunciation of communism by Nash) willing to sacrifice civil liberties like economic freedom for wealth re-distribution. McCarthy was a jerk and a psycho, but he wasn't wrong about the threats the Soviets in particular and Communism in general posed to our nation.

What do you mean by acting "through the legal justice system?" Are you saying you'd like to see a socialized system of access to lawyers? How do you reconcile that with a desire to have small, non-intrusive government?

derek said...

I don't think you've read the study at all. I come this conclusion because it doesn't talk about France at all. Not one word in 20 pages.

Secondly, it doesn't base its conclusions on wealth disparity in each of the countries. Instead it breaks people into 4 quartiles of wealth and measures the inter-generational movement between those quartiles.

Lastly, I'll take the supported conclusions of three scholars at the internationally renown London School of Economics over your unsupported assertions.

Also, please let me know where the ACLU advocates wealth re-distribution...

SirWhoopass said...

The study uses math. Orrin was a PoliSci undergrad and is now a law student. You didn't actually expect him to read something that involves math, did you?

The argument about generational mobility is based on table 2 (page 6). The footnotes indicate that their measure of generational income elasticity is not based on a regression alone, but the results have been "scaled" to correct for data anomolies (there is no uniform dataset across the various nations). Unfortunatley, no specifics are given as to how this has been accomplished. The details would seem to be in Blanden's thesis, but I cannot find a copy online.

Nonetheless, I wouldn't attriubte this to malice or some other attempt to deliberately make the US and UK appear worse. As best they can, I think the authors have accurately described the situation.

Notable, however, is any absence of factors for income gap. Income is broadly divied into quarters. Given the very narrow overall gap in Scandinavian nations, should it then come as a surprise that people are more likely to move into a different quartile than their parents were at? It is a much more difficult feat to move from the bottom quartile to the top in the USA than in Sweden.

But, what does that mean in absolute terms? The overall wage disparity in the USA means that moving between quartiles provides a larger change in wages. You need not move as far (in terms of quartiles) to get the same absolute change in income.

Orrin Johnson said...

I absolutely read it. The study purports to compare European social mobility rates in general with those of the US and the UK, only revealing their data set is more narrow than that later. The fact that they include no data on the French, while purporting to speak for "countries across Europe," (their phrase) is indicative of the sloppiness of the study. I pointed out the lack of precision in the standards of measurements before, but, as usual, Sir W. has pointed the fatal flaws in the study with greater aplomb and detail than did I. There are several other studies on the internet which come to similar conclusions, all of which share these basic flaws. If we were to base policy judgements on junk science of that type, we would get Garbage Out as a reward for the Garbage In.

I don't think there's malice per se, but I think the study was commissioned and undertaken with the expectation that it would support presupposed assumptions that favor a socialist point of view, not to honestly measure the comparative opportunities in those nations.

Believe which economists you will. But I can tell you which country I'd rather start a business in. Or be poor in. I know where the overall economy is the strongest, and the jobs are the most plentiful, and the society the most free, and it isn't anywhere on the East Side of the Pond.