In the previous post, I produced an oversimplified model that showed why inequality in income is inevitable, and that raises the question, can something be done to modify that, and if so, is it desirable to do so? To answer that sort of question, first we should look at where the inequality is, because different countries have different economic policies. First, there has to be a measure of inequality, and economists have created something called a Gini index to measure this. This registers a country using values between 0 (everyone has exactly the same wealth) to 1 (one person has the lot). The journal Science produced maps to compare countries. The US had a Gini index of 0.4 in 2010. What does that mean? Apparently, the top 1% controlled nearly 20% of US income, but the 99% is also unevenly spread, as my crude model would have predicted. In 2012, the top 20% of Americans enjoyed over 50% of the US income, up from 43% in 1967, and this is presumably due to very many more higher incomes for the tech-savvy graduates of Silicon Valley and similar places. Thus this increase is in part due to more investment in education, and that does not seem wrong, at least to me. The middle 20% received about 14% of all income, and the bottom 20% about 3% of the income. That should not be a total surprise to those who followed the logic of my crude model.
Now, if we look at other countries, we see some odd results. One of the more common results in the Science article was “no data”. However, the countries with most equality tended to be Scandinavian countries, parts of the old Soviet Union (some “Stans”, Belorus and Ukraine) and some of the old “Iron Curtain” countries, such as what was Czechoslovakia, Hungary, and one or two others. The most uneven country was South Africa, with some African and South American countries running fairly close behind.
What can we conclude from that? The extreme value for South Africa probably lies in the historical tying up of the mineral resources such as gold and diamonds by a few hands. The second point is that for historical reasons there is more than one society there, and while efforts are being made to integrate these and give more opportunities to those previously deprived, in fairness there is only a limit to what can be done in a short time. Whether that limit has been reached is another matter. Equality does not depend on wealth, but probably more on social policy, thus Scandinavia has plenty of wealth, particularly Norway, but the money has been mainly put aside by the government, thanks to royalties on oil production and very progressive taxation. Similarly, many of the countries in South and Central America have been plagued by right wing governments, including dictatorships, and these are centres for much greater inequality.
This suggests at least two points. The first is that inequality is the greatest the further the society is away from general near equality. In other words, as my model suggests, the more time there is to develop free of external influences, the greater the inequality. The second is that the more progressive the taxation, the more equal the society. Unfortunately, that is not a free ride, as it often leads to a transference of wealth, when the rich simply pack up their bags and go to somewhere with a more friendly taxation policy. What to do about inequality, if anything, is quite a difficult question to answer.
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