I saw this article posted on /. of all places. Charles Wheelan writes about the rising gap between incomes in the US and brings up Brazil and their large income gap and the amount of violence in their society as an example of the ultimate negative implications of income inequality.
He invokes a stat called the Gini coefficient for measuring income equality. Which I hadn’t heard of before.
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
He states that income inequality might have advantages because it “motivates risk, hard work, and innovation” but that “income inequality doesn’t motivate anything good when there’s no hope of sharing in the pot of gold.”
I’ve spent enough time in inner-city schools to wonder if we’re really providing an opportunity for the motivated and gifted to make their way from the projects to Wall Street.
Yes, it happens — you can watch Will Smith do it at your local multiplex in The Pursuit of Happyness, which is inspired by a true story. But how often does it not happen?
I’m convinced that part of what’s going on in Brazil is that the socioeconomic ladder is broken. There’s no real path from favela to bulletproof apartment, and some people with guns have decided that they don’t want to play by the rules made by the people in those apartments.
He also points out an interesting psychological effect where people would rather have fewer resources as long as they have more stuff than their neighbors. So, the motivations for income inequality could actually motivate less advantageous situations for everybody.
In other words, we care less about how much money we have than we do about how much money we have relative to everyone else. In a fascinating survey, Cornell economist Robert Frank found that a majority of Americans would prefer to earn $100,000 while everyone else earns $85,000, rather than earning $110,000 while everyone else earns $200,000.
Think about it: People would prefer to have less stuff, as long as they have more stuff than the neighbors.