Monday, February 20, 2012

The income inequality story, followup

I received some angry feedback from a reader, who took great issue with this line in my last post:
One of the amazing things about all this is, that almost everybody is pretty much equal.  Look at how flat the line is up to about 95% (~ $200,000): for the vast majority of people, your neighbors, friends, family and community is making pretty much the same amount of money that you are. 
This, the reader said, was patently untrue and made me sound like some out-of-touch egghead.  Because for almost everybody, that line doesn't look flat at all, and $200,000 is an incredibly unattainable sum.

In my last post, I was focusing on the relationship between the super-rich and the rest of us.  And when you compare the super-rich and the rest of us, the first thing to catch the eye is that they are making exponentially more money than everyone else.  That was my point last time.

Now lets look at another graph of the same data:

This is the same graph as last time, just zoomed in on a more reasonable range (income = $0 to $200,000).  This lets you see more readily what percentile you are, if you are the vast majority of people.  And when you plot the numbers this way, my previous statement about equality rings fairly hollow.  

The trap I fell into was simple: when you are considering big numbers, it is easy to lose track of little numbers. As a scientist, I tend to care most about big effects, and so what caught my eye was the insanely rapid increase in order of magnitude of income in the top 10%.  But when you're having trouble making ends meet, an extra $1000 can mean a LOT.

What I began to do at the end of my last post (and what is more ethically informative) was to compare the actual income of people to the income they need to live a healthy life with the possibility of improvement.  How many times the living wage do people make?  Well, that varies from place to place; but I can select a few representative ones*.  Take a look:

I'm plotting the income curve from above, but divided by the living wage in a variety of places (see the legend for details).  This is much more informative ethically speaking.  Dollars mean different things in different places; the living wage is supposed to tell you just how valuable your income is.

The story this graph tells us is that between 20 and 30 percent of Americans earn less than a living wage.  That should mean that roughly 20-30% of Americans are struggling to make ends meet, cutting corners on food, housing, education and healthcare, and getting stuck in cycles of predatory debt.  Moreover, the graph reveals that income inequality is definitely alive in the bottom 90%, even if it's totally blown out of proportion in the top 10%.

It also tells us that eliminating poverty is a problem we can solve.  Look at how much money is in the system, compared to the living wage!  Speaking simplistically, to eliminate poverty all we have to do is fill in that hole on the left of the graph.  Obviously how to do that is a detailed policy and economics question - but the capability to do it is not what is holding us back.

Thanks for reminding me not to get hung up on the little picture (the top 1%), when it's the big picture that matters.

*Living wage numbers taken, once again, from at the Pennsylvania State University.

No comments:

Post a Comment