Tuesday, February 28, 2006

The Gini Coefficient and the Lorenz Curve

These are measures that economists use for income inequality in a society, but I'm not going to talk about them at. Just put them in the headline to scare you. Instead, I'm going to talk about the income inequality itself which really should scare you. Krugman gives us some worrisome data in his latest column where he first debunks the myth that it's education which makes some Americans earn so much than others:

So who are the winners from rising inequality? It's not the top 20 percent, or even the top 10 percent. The big gains have gone to a much smaller, much richer group than that.

A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?," gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.

Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over $6 million a year.

Did you get that? The ninety-ninth percentile, for example, means that a person whose income falls in that percentile is richer than 99% of people in this country.

So what this evidence suggests is that the super-rich are getting even richer, not that those who have a college degree are doing so wonderfully well. Elsewhere in the column Krugman points out that the earnings of the educated have risen over time but only moderately. No, it is not education that has created this increased income inequality in the United States. It is something else. What, exactly, is not clear, but I'd be willing to bet that it has at least something to do with the relaxing of various federal regulations that in the past were used to stop the monopolization of markets and the offshoring of corporations.

Why would any of this matter? Doesn't the cream always float on the top? Perhaps, but so does scum. In any case, very few people probably want to live in a banana republic where a handful of the very rich guard their properties with private police forces and ferocious dogs against the hordes of the starving, and that is where we will end up if we let the income distribution get more and more unequal. Crime and corruption will follow, and if we lose the middle classes democracy itself will be in peril.