Inequality: rich and poor

Economist Rebecca Wilder (http://www.roubini.com/author/rebecca_wilder) recently looked at the IMF’s World Economic Outlook database (October 2009), to see how unequal the world is, as measured by income.

She drummed up some charts that (quote): illustrate the frequency distributions for global per-capita income (income divided by population) across 182 countries (you can download my country-level data here, or get all sorts of data from the IMF here). The data are measured in PPP international dollars, which is intended to normalize for currency effects in a period.

Well, it’s pretty clear that the distributions are strongly positively skewed, i.e., with relatively few high income values. And furthermore, the non-normality of the global income distribution does not improve during the forecast, 2005-2014 (the IMF forecast ends in 2014).

The table below lists some simple descriptive statistics of the sample.

Admittedly, there are some “slight” improvements: the tails become less “fat”, and the distance from the top to the bottom narrows (if one can call dropping from 27,149% to 20,162% a meaningful change).

Income distribution is a serious welfare concern from the country level all the way up to the world – one that apparently is not expected to change any time soon.

What Wilder shows confirms what Branko Milanovic at the World Bank carefully documented in his book, Worlds Apart, back in 2005 and updated in 2007 – see my book, The Great Recession pp 255-6.  Milanovic showed that inequality of income and even more important, of wealth, was 20:80 (i.e. that 80% of world’s over 6.6bn population could be classed as poor) and the situation was getting worse, not better, even if you take into account the booming so-called BRICs (Brazil, Russia India and China).

Every year, Merrill Lynch, the now demolished global investment bank, publishes a world wealth report.  It regularly shows the increasing inequality of wealth, with the super-rich, representing just 0.13% of the world’s population, owning 25% of all financial assets (stocks, bonds and cash in banks)!  Most of these people did not get their wealth by clever deals or investments, or by hard work (God forbid!), but mainly by inheriting it.  They just make more money and own more wealth because they had it in the first place.

Indeed, the United Nations University development economics research project based in Sweden published in 2007 an even more devastating analysis.  The UN found that the top 10% of the world’s population owned 85% of all wealth, including property.  And one-quarter of these people were in the US alone.  The poorest 50% own just 1% of the world’s wealth!

And they say Marx was wrong about the ‘amiseration’ of the working class.