0

It is very common in infographics such as the following:

enter image description here

to make a point about wealth inequality by showing a disproportionate amount of money owned by the richest people.

I am slightly skeptical that this is a good measurement of a skewed wealth distribution. In particular, the "what they would like it to be" almost looks paradoxical -- how can the third 20% own the same amount of wealth as the second 20% when by definition the second group earns more income?

I'm particularly curious what such a distribution with a stereotypically "utopian" income distribution, such a normal distribution with identical mean, median, and mode. How about a uniform distribution, with 1 person earning $1000, 1 person earning $2000, up to 1 person earning $10000?

Also, would a distribution graph with wealth on the horizontal axis and percentage of people on the vertical axis give a better picture of income skew?

Sorry if this question belongs more on Math StackExchange.

Source here.

  • 2
    I'm not understanding what you are skeptical of here. The first chart is based on economic data. The second and third abre based on survey results. They aren't expected to be economically correct. – DJClayworth Apr 3 '13 at 13:46
  • 4
    @EricDong, please fix the graphs too, the graphs display wealth, not income. – Kenshin Apr 3 '13 at 14:01
  • 2
    @EricDong It's not an issue whether an economist would consider the top graph problematic. The article shows the differences between what people think it should be (and they may be wrong about whether that is a good thing or not) and what it is. This site isn't for deciding if infographs make a good point or not, it's for deciding if they are true or not. – DJClayworth Apr 3 '13 at 14:02
  • 2
    @EricDong You fixed your question the wrong way. You ask about income distribution, but the source is talking about wealth distribution. – DJClayworth Apr 3 '13 at 14:05
  • 2
    What is the question? – Wertilq Apr 3 '13 at 14:46
5

There is some confusion about the question, so I'll try to answer

I am slightly skeptical that this is a good measurement of a skewed wealth distribution. In particular, the "what they would like it to be" almost looks paradoxical -- how can the third 20% own the same amount of wealth as the second 20% when by definition the second group earns more income?

Or in other words, Are wealth distribution graphs a good measure for wealth distribution inequality?

Yes, they are wealth distribution graphs, show exactly what you want to look at when you talk about wealth distribution. If you want to know how much wealth does the X percent have, look at the graph. The graph also shows the "ideal" wealth distribution, which is taken from a peer reviewed article:

http://pps.sagepub.com/content/6/1/9.short

The graphs doesn't show that the bottom and second bottom 20% percentiles have the same amount of wealth, but very close amounts of wealth, where the second bottom has slightly more the the bottom.

Beware, Here starts the ranty part of the answer.

With all due respect to wealth inequality, it doesn't give a good picture of a person's status, because it doesn't translate the wealth into commodities or services. People don't need money to live, they need food, shelter, education, medical care, safety and so on. Wealth inequality however doesn't tell us if the people in the bottom have those things or not. For example, Uganda's wealth is more evenly distributed that the USA's, but where are the people of the lowest percentiles better off, in Uganda or the USA?

You can see in the Wikipedia article on income inequality (which is sourced well, and organizes everything in a nice table with several different criterion to choose from) that countries like Ukraine, Belarus, Albania and Afghanistan all have more equal wealth distribution than the USA. The question that should be asked is where are people better off, not where are people more equal.

Wealth distribution doesn't tell us if the poorest have food, shelter, medical care etc. and can't really tell us anything about the quality of life of the people.

In other words, if the poorest people have food, housing, education medical care and opportunities in life, why should anyone care the the richest people are pooping in golden toilets?

  • Wealth distribution may not be able to tell that but it is an indicator. Just like your check engine light. And dismissing an indicator because it doesnt show the entire picture is exactly the type of tactic employed to block any changes to the Status Quo. – Stefan Apr 4 '13 at 15:11
  • Also please compare the US with countries on the same economical level. Like for an example all of the scandinavian countries. Still think people prefer the US? As it stands with the second part i cannot upvote this answer. – Stefan Apr 4 '13 at 15:13
  • @Strafan, I'm not a US citizen, more over, I believe that the poor in the USA don't have access to medical care, housing and sometimes even food. And you are right that the USA is forth last of the OECD countries, with only Chile, Mexico, and Turkey below it. However, I still don't believe that it's a good factor for the state of the people. – SIMEL Apr 4 '13 at 15:43
  • @Stefan, a. You can't exclude other countries from your sample size, if you are saying that wealth inequality is inherently bad, than it should always be bad. b. If you want to talk about hungry people talk about this, if you want to talk about inability to climb the social ladder, Homelessness, education or any other aspect, talk about this. Talk about the buying power of the people, don't tell me that a poor person doesn't have assets, tell me that they can't afford medical care, or food. Why do you need another parameter that doesn't really tell you anything by itself? – SIMEL Apr 4 '13 at 15:44
  • Because it is easier to measure. By itself it doesnt mean much, but like i said its an indicator. And if you compare countries that are roughly equal in term of development you can see that wealth inequality can be used as an indicator of more problems that need fixing. It is no coincidence that most first world countries with lesser inequality also have better health care and social systems than the US. Causation or Correlation is irrelevant. It raises a red flag. Is fixing the inequality going to fix the root issue? That is a different question. – Stefan Apr 4 '13 at 16:52
0

What you're referring to is defined as Gini coefficient, which measures how far the income distribution curve is from the utopian "line of equality" (uniform distribution). Value of Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality as in one person would earn all of country's money).

enter image description here

Not that in countries with progressive tax scheme, there is significant difference between pre-tax and post-tax Gini coefficient.

enter image description here

  • Hmm. Then my question might be, what would be the Gini coefficient of normally-distributed wealth, which fits most people's expectation of "utopia", i.e. huge middle class, very little rich, very little poor – ithisa Apr 3 '13 at 13:58
  • Your answer is regarding income, however the graphs in the question display "wealth" not "income". There is huge difference between wealth and income. – Kenshin Apr 3 '13 at 13:58
  • @Chris: yet question talks about income inequality – vartec Apr 3 '13 at 14:01
  • @vartec, the graphs in the question say "wealth" not "income" – Kenshin Apr 3 '13 at 14:01
  • 3
    @EricDong normally-distributed wealth which fits most people's expectation of "utopia" [citation needed]. – Stefan Apr 3 '13 at 16:06

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .