Do We Care About Income Inequality, or Absolute Well-Being?
I have a new column up at Forbes.com, and it addresses an issue that has bothered me for a while, specifically:
Do we really care about income inequality, or do we care about absolute well-being of our citizens? Because as I will show today, these are not necessarily the same thing.
What has always frustrated me about income inequality arguments is that no one ever seems to compare the actual income numbers of the poor between countries. Sure, the US is more unequal, and I suppose from this we are supposed to infer that the poor in the US are worse off than in “more equal” countries, but is this so? Why do we almost never see a comparison across countries of absolute well-being?
I have never been able to find a good data source to do this analysis, though I must admit I probably did not look that hard. But then Kevin Drum (in a post titled “America is the stingiest rich country in the world”) and John Cassidy in the New Yorker pointed me to something called the LIS database, which has cross-country income and demographic data. I can't vouch for the data quality, but it has the income distribution data and it struck me as appropriate to respond to Drum and Cassidy with their own data.
In short, Cassidy made the point that the Gini coefficient (a statistical measure of income inequality) was higher in the US than for most other wealthy western countries. Drum made the further point that the US is "stingy" because we do the least to coercively alter this pattern through forced redistribution.
But all we ever see are Gini's are ratios. We never, ever see a direct comparison of income levels between countries. So I did that with the data. I won't reiterate the whole article here, but here is a sample of the analysis, in this case for Sweden which has one of the lowest Gini ratios of western nations and which Drum ranks as among the least "stingy". This is the model to which the Left wants us to aspire:
I argue that the purchasing power parity(ppp) numbers are the right way to look at this since we are comparing well-being, and on this basis Sweden may be more equal, but more than 90% of the people in the US are better off. Sweden does not have a lower Gini because their poor are better off (in fact, if you consider the bottom quartile, the poor are better off in the US).
We are going to see months of obsession by the Left and Obama over income inequality -- but which country would you rather live in, even if you were poor?
Read the whole thing, there are lots of other interesting charts.
