Thursday, March 07, 2013

US wealth inequality

This is a great example of the visual presentation of quantitative information.

One quibble: I suspect that the top 1% individual discussed near the end has wealth equal to the average among the top 1%, which is strongly distorted by individuals at, e.g., the top 0.1% level. If they used threshold 1% wealth the result would not be as dramatic.

It's also important to note that there is a 30+ year lever arm influencing average wealth -- relatively modest disparities in annual income can, when combined with differentials in investment,  consumption, etc., result in substantial differences in accumulated average wealth.

See also Real wealth.


SethTS said...

I saw that this morning and was thinking of sending it your way. Great minds think alike :)

This video is great, but misses an opportunity to explain the income tax incidence issue: the whole '47%' thing. Maybe since this one was such a hit, they could make a sequel. I've toyed with reducing the tax thing to a 'two guys in a bar' type story, so far without success. Liberal guy: "incomes are waaay skewed", Conservative guy: "No! Try TAXES are waaay skewed". Explainer guy: "my CEO is so rich he got BOTH the biggest raise in the company AND the biggest tax cut. but the raise was so HUGE that he STILL wound up paying a little more in income taxes. But he calls me a 'lucky ducky' because i'm in the lowest tax bracket and saved $300 bucks on my taxes."

Somebody needs to make a viral version of this point -- "both the biggest raise AND the biggest tax cut". But I'm no comedy writer :(

Emil Kirkegaard said...

I saw this before you posted it too. I'm very interested in seeing comparisons to other countries. Also, do people from different countries differ in how they think wealth should be distributed? If so, how much?

esmith said...

The presentation is good, information being presented, not so much.

A few common mistakes:

* Ranking people without regard to age. Roughly 7% of all "people" in this chart are college students. They have never worked a day in their lives. If we had the distribution that, according to the video, most Americans consider ideal, an average college student should have somewhere around 1/5'th of the wealth of an average top-1% individual. Does that make any sense to anyone?

* Since the video mentions "311 million people", presumably we're looking at per capita wealth. That's going to be a big hit against young families: not only have they not worked long enough to amass wealth, but, say, the family with two parents and two children will be represented as 4 individuals with 1/4'th of household wealth each.

* The usual mistake of labeling people in the middle of the distribution as "middle class". When will people finally learn the correct definition of "middle class"? (Hint: one of the major criteria of belonging to the middle class is having a college degree. Only ~1/3 of all adult Americans - the top third of the chart - have college degrees.)

There is a lot of genuine inequality in the US (in most age brackets, mean net worth is about 5x of median net worth), but it's very hard to glean it from this presentation.

Robert Ford said...

Is the data effected by how much it costs to live wherever you live? i don't earn much but it's cheap as can be to live where i do. So i live comfortably...

David Backus said...

I'm with esmith: "There is a lot of genuine inequality in the US, but it's very hard to glean it from this presentation." I ran across a good link to age-related wealth and income recently, don't recall it off hand. Maybe someone else can post it. On cross-sections, this is the latest in a good series by Victor Rios-Rull and colleagues:

Once we have the data, the next step is to figure out why. There's little question that last 3-4 decades have been different from the previous three, but harder to say exactly why. For me, I don't want to weigh in on good or bad until I know why and what the alternatives are.

reservoir_dogs said...

It would be a very interesting exercise to plot the income distribution along with the wealth distribution. Clearly, someone with similar incomes near the top could end up with dramatically different wealth based on consumption patterns and investment acumen. What this means is that the one with the high wealth is a better investor. Since most people live a good life materially, including most of the poor, why not leave the money at the hands of a better investor. Better capital allocation makes us all better off.

Hamish Johnston said...

I would be interesting to compare the US to a third-world kleptocracy, I suspect the wealth distribution would be very similar.

Cornelius said...

Once the presenter made the mistake of confusing equitable with equal, I stopped watching. It's a common mistake and probably something left over from our more animalistic past, but I still refuse to engage people who start debates on earnings and wealth with that assumption. Unless someone accepts that an uneven distribution of earnings and wealth can be quite equitable, that person has nothing valuable to teach me; I've already read Marx.

LondonYoung said...

Why just the focus on the U.S.? Does something magic happen when a person sets foot on U.S. soil? (other than, as the AG points out, that the president is no longer authorized to kill you)

David Coughlin said...

My wife and I came from relatively modest backgrounds, and one of the fundamental conflicts that we have is saving. If she gets an extra hunk of money, she wants to go out and blow it. If I get a hunk of money, I want to find a way to save it and make it work for us.

Glenn Sullivan said...

Not sure what the fuss is about. What is surprising about the top 20% having 80% of the wealth? -- they created that wealth. (Note to academics: In most markets, the amount you earn is related to the amount of value you create for others. Create more value, earn more money.) This is just a Pareto distribution, more or less. The top 20% of baseball players hit 80% of the home runs -- you don't see Marxists posting videos about it.

Michael F. Martin said...

"relatively modest disparities in annual income can, when combined with differentials in investment, consumption, etc., result in substantial differences in accumulated average wealth."

It's called compound interest.

Hamming uses an analogy to compound interest to make the same point about professional success here:

What Bode was saying was this: ``Knowledge and productivity are like compound interest.'' Given two people of approximately the same ability and one person who works ten percent more than the other, the latter will more than twice outproduce the former. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity - it is very much like compound interest. I don't want to give you a rate, but it is a very high rate. Given two people with exactly the same ability, the one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime. I took Bode's remark to heart; I spent a good deal more of my time for some years trying to work a bit harder and I found, in fact, I could get more work done. I don't like to say it in front of my wife, but I did sort of neglect her sometimes; I needed to study. You have to neglect things if you intend to get what you want done. There's no question about this.

...of course if a person a small advantage in accruing knowledge that started early enough (from birth?) that might be difficult to catch

Surge said...

You should have watched a bit longer. The presenter makes the point that most Americans accept that significant inequality is proper, and I'm sure the reason is their concern with equity rather than with equality.

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