Tuesday, February 1st, 2011

The value of the rich and the poor

Perhaps it’s unsurprising that the incomes of the rich converge around the world. The chart below —by World Bank economist Branko Milanovic– shows how the richest Brazilian or Russian is about as rich as the richest German or American.

That is clearly not true of the poor. Poor Russians live on less than half what poor Americans do. The poorest Brazilian must make do with about one 70th of the income of the poorest German. Just under half the Brazilian population is poorer than the poorest Germans.

This puts a different perspective on income inequality. Unless you are a banker, chances are you think income inequality in the United States is outrageous. The richest 1 percent of Americans pocket over a fifth of the  nation’s income, including capital gains. But in terms of the global distribution of income the United States looks like the epitome of egalitarianism.

This underscores how the biggest income gaps occur between countries, rather than within countries. The chart suggests that the richest 5% of Indians are only as rich as the 5% poorest Americans. (Though I believe this has changed. The data is from 2002. Since then a rash of rich Indians has joined the highest echelons of the world’s plutocracy.)  This means that one’s station in the world depends mostly on where one was born. As Mr Milanovic puts it in his new book, “most of one’s lifetime income will be determined at birth.”

I thank my colleague Catherine Rampell at Economix for the pointer.

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