I have been blogging about how income inequality in the US far surpasses that in all the other developed richer countries. Typically, the richer, more developed countries have lower income disparities between the rich and the middle class/ poor but the USA is the exception. I place the fault for this income disparity in the US on the republicans. Their reliance on “trickle down economics” tax cuts has contributed to this sad state of affairs as well as as their penchant for Labor Union busting.
Make no mistake, President Donald Trump won the 2016 Presidential election because of the angst of many Americans which is a result of this income inequality. This is the major contributor to the average Joe workers having experienced stagnant wages for 3 decades and virtually no growth in their wealth. The sad truth is that the president is pitting these average Joe workers against the other (fill in the blank) with immigrants, our Black brothers and sisters, poor peoples being moochers.
The republican President Donald Trump and his sycophants entourage will be attending the International 2018 Davos Economic Forum during the week of January 24th, along with other world leaders where the subject of income inequality is bound to be raised as a subject for discussion. I can’t help but wonder if the US president will be able to explain why income inequality in the USA is so high when compared to other rich developed countries?
Here is the rest of the story…
Income Inequality by Region (Source: 10/16/17 On the Economy Blog By Federal Reserve Bank of St. Louis):
“When we dig deeper into the data, we observe that the countries with the highest income inequality are countries in Latin America and Africa. Advanced economies, on the other hand, display lower income inequality.”
“To examine these patterns further, we placed the countries shown in the figure into six regional groups and computed the average Gini coefficient for each group. The results are in the table below.”
|Average Gini Coefficient and GDP Per Capita By Region in 2010|
|Average Gini Coefficient||Average GDP Per Capita|
|Latin America and the Caribbean||48.82||$6,443.76|
|East Asia and Pacific||37.40||$9,672.39|
|U.S. and Canada||37.07||$47,910.68|
|Eastern Europe and Central Asia||30.65||$4,317.20|
|SOURCE: World Bank and authors’ calculations|
“Latin America and Africa have the highest inequality with a Gini of 48.82 and 44.26, respectively, whereas Europe and more advanced economies have lower income inequality. Consistent with the results of the figure, the table shows a negative correlation between the level of income per capita and the Gini coefficient to some extent.”
Income Inequality by Country
“When we analyze countries within each group separately, interesting patterns emerge. For instance, income inequality in the U.S. is large, despite the U.S. having one of the highest levels of income per capita in our sample. Specifically, the Gini coefficient of the U.S. was 40.46 in 2010, very close to the average Gini coefficient of African countries in our sample.”
“In contrast, Nordic countries —such as Finland and Sweden—have a similar income per capita as that in the U.S., but much lower Gini coefficients.”
“The lower inequality in these countries could be explained by a tax system that redistributes income across countries and includes generous transfers like social security, health insurance and unemployment benefits. In fact, poorly designed tax systems, tax evasion and tax avoidance are part of the reason why Latin American countries have the largest Gini coefficients.”
Why Does the U.S. Have High Income Inequality?
“The high income inequality in the U.S. can be explained by several factors. One is the redistribution and imperfect tax system we illustrated above. According to a 2013 paper, top tax rates in the U.S. have moved in the opposite direction from top pre-tax income shares for a few decades, supported by the belief that rewarding top earners might spur more growth and entrepreneurship.“
“Also, technological progress has increased productivity, which, in turn, has led to the relative price of investment falling. As that happens, firms might substitute capital for labor, causing the labor share to fall. The declines in labor share lead to higher inequality.“
“High income inequality has negative consequences for the political stability of a country and economic growth in the long run. Policies aimed at increasing the quality of the education system, as well policies that improve the redistributive role of the tax system, may help avoid the negative effects of income inequality.”
On January 22, 2018, Ivana Kattosova of CNN penned the following report, “The 1% grabbed 82% of all wealth created in 2017”
More than $8 of every $10 of wealth created last year went to the richest 1%.
“That’s according to a new report from Oxfam International, which estimates that the bottom 50% of the world’s population saw no increase in wealth.”
“”The billionaire boom is not a sign of a thriving economy but a symptom of a failing economic system,” said Winnie Byanyima, executive director of Oxfam International.”
“The head of the advocacy group argued that the people who “make our clothes, assemble our phones and grow our food” are being exploited in order to enrich corporations and the super wealthy.””
“The study, released ahead of the World Economic Forum in Davos, was produced using data from Credit Suisse’s Global Wealth Databook.”
“The report also highlights the detrimental effects of gender inequality with data that show more men own land, shares and other capital assets than women.”
“Rising inequality has been a major topic at Davos for years.”
“Oxfam said Monday that it is time for the global elite to stop talking about inequality and start changing their ways.”
“It’s hard to find a political or business leader who doesn’t say they are worried about inequality. It’s even harder to find one who is doing something about it,” said Byanyima.
“Many are actively making things worse by slashing taxes and scrapping labor rights,” she added.
“Oxfam said that governments should focus on policies that would lead to fairer distribution of wealth and stronger workers’ rights.”
“These could include introducing a living wage, supporting labor unions and tackling gender discrimination.”
“Governments also need to tackle tax avoidance and put limits on shareholder returns and executive pay, Oxfam said. The group argues companies should not issue dividends to shareholders unless they pay their workers a living wage.”
“Oxfam also said that tax policies should be used to reduce extreme wealth.”
This blog was updated on 1/25/18.