2005 September 24 Saturday
Income Inequality Continues Few Decade Rise

Writing for Forbes Dan Seligman reports that inequality in the United States has been rising steadly for almost 30 years and during every US presidency regardless of party in power.

The standard measure of inequality is the Gini coefficient, signifying the extent to which a society deviates from absolute equality. If everybody has the same income, the coefficient is 0; if the entire GDP belongs to one person, the coefficient is 1. In the U.S. the latest reported coefficient is 0.466. In case you are wondering, it rose more under Clinton--from 0.433 to 0.462--than under any of those other chaps. It rose by only 0.004 during George W. Bush's first four years. In case you are also wondering how many times Times editorialists complained about Clinton's inequality record, the answer is zero. The Washington Post has been equally tendentious, and at one point (Sept. 25, 1998) it ran a front-page story on the 1997 income report in which it stated firmly that the census data showed "income inequality did not increase," even though the data clearly pointed to a substantial one-year increase of 0.004. There was no correction.

Compare the total rise in income inequality of 0.004 during five and a half years of George W. Bush's presidency to the 0.029 rise under Clinton. Under Clinton inequality rose about 5 or 6 times faster, and as Seligman notes, yet the New York Times and Washington Post found nothing to complain about as long as a Democrat was in the Oval Office. There's a simple lesson here for rich people: support Democrats as Presidents since the liberal press will not complain regardless of how much richer you become.

But perhaps matters are not so simple. A Republican president is more likely to cut taxes. So while the press will complain during a Republican presidency the upper income will get to keep more of what they make (at least until the financial burdens of an aging population create big pressures for tax increases).

The slower rise in the Gini coefficient under Bush is probably a reflection of two macroeconomic changes. First the burst of the dot com stock bubble obviously hit stockholders most of all and higher income people owned more stocks. Also, the replacement of the stock bubble with the real estate bubble increased the wealth of a much larger portion of the populace than the stock bubble which preceded it.

The Gini coefficient rose under a succession of tax regimes and through many social policy changes. Seligman argues the best explanation for the sustained rise of the Gini coefficient over such a long period of time comes from Richard J. Herrnstein and Charles Murray's book The Bell Curve. The economic value of greater smarts keeps rising. Hence the smarter people make more relative to the rest. This makes sense. Advances in technology enable smart people to do more things. Smart people can coordinate and orchestra more complex arrangements of capital and labor. They can, just working on their own or with other like minds design and develop software, and create building designs, mechanical designs, and electrical designs. They can create complex contracts and negotiate agreements incomprehensible to lesser minds. They can navigate through complex government regulatory systems and find legal ways to circumvent governments.

The computer revolution has reduced the extent to which smarter people rely on the labor of lower IQ workers. For example, where in an earlier era higher IQ engineers also needed lots of moderately high IQ draftsmen to translate their designs into drawings today engineers increasingly can interact with design and engineering software and lay out their own designs in many cases more rapidly than it would take them to explain the designs to draftsmen. Or look at the white colllar workers who used to rely on typists who now type their own reports and documents. It is quicker to type up a report as one thinks of it than to write the report with pen and paper and then have someone else type up drafts. Successive drafts are easier to make if thinkers interact with computers directly.

Another factor at work that relates to IQ and inequality comes from increasing international trade. The liberal enforcement of taboos against discussions of IQ causes one glaring fact about rising trade to be missed: As a larger portion of the world's population gets drawn into a larger international economy the IQ of the average worker whose work gets traded has dropped. Why? Because most countries in the world have populaces with lower average IQs than the averages in the most industrialized countries. So upper class cognitive elite people in the United States and other already industrialized countries do not face as much competition from abroad due to international trade as the lower classes in those same countries.

Share |      By Randall Parker at 2005 September 24 09:40 PM  Economics Demographic


Comments
Kenelm Digby said at September 25, 2005 7:01 AM:

Randall,
What you have neglected to mention in your piece is the elevated IQ of East Asians vis-a-vis Whites, and the exrraordinary effect that is having now, and more forcefully in the future, on the disparaty of the wealth of nations.
One needs only look at the juggernaut of Chinese economic growth and its vast accumulation of capital.(East Asians, in effect, own the USA's entire capital stock).This extraordinary industrial and economic progress - which is really no more than 15 years' old is based on the export, for hard cash, of well-made, price competitive goods, not cheap tat as many think, but hi-tech electronic and mechanical equipment - which is invariably reliable and of high quality.
Many of the "newer" fields of hi-tech eg DVD players, plasma TVs, digital cameras, PCs, are mainly or solely made in East Asia, in fact if exports from East Aisa were halted tomorrow -as some wish- the western world would collapse overnight due to the shortage of hi-tech product.
All this is the fruit of elevated IQ.

Marvin said at September 25, 2005 7:18 AM:

Of course the research into development of DVD players, plasma TV, digital cameras, PCs, etc. was conducted mainly in the US and other western countries.

It is the low cost of labor in the east that caused much production to be shifted to Indonesia, Malaysia, Bangladesh, etc. In China there is the low cost of labor combined with a higher worker IQ, which is certainly an advantage. There is also much copying of western products and designs. Much of what comes out of China is indeed of inferior make, just ask anyone involved in skilled technical work.

Long term, China will maintain an advantage over its Asian rivals, due to higher worker IQ--until labor costs rise enough to cancel much of the edge. Infrastructural problems within the Chinese economic edifice will eventually become manifest and introduce some unwieldiness into foreign investment and trade. When China eventually begins to exert stronger military influence over the region, due to egregious nationalism and the need to compensate for internal instabilities, the flip side of the coin will be shown.

Invisible Scientist said at September 25, 2005 10:25 AM:

How about the IQ of the other nations like Korea, Japan, Philippines, Indonesia? Korea, Taiwan, Japan have high IQs like China, but how about the IQs of the more crowded countries like Philippines and Indonesia? Perhaps the IQ of the latter nations is lower, but I suspect that this is due to poverty, and not necessarily innate...

Hugh Angell said at September 25, 2005 12:30 PM:

A couple of points here. First of all we are, I believe, talking about income not net
worth. Real estate valuation rises would affect the latter but not the former for example
as would stock portfolios.

What is not taken into account I don't believe is age. Most people's incomes increase as
they age. We have ( amongst native born whites) a huge cohort of baby boomers moving in
their peak earning years, followed by a smaller cohort of their children. There is going
to be more 'income inequality' statistically.

We have also absorbed some 30 million immigrants, many of them poor, barely literate
Mexican and Central American Indians and Mestizos. Does any expect Juan Mower and the
Dishwasheros to earn 'average' wages in the US? The reason these people can find work in
the US is because they are willing to work for lower wages in undesirable occupations.
To them it is a good thing but to factor in their incomes with native born American
citizens and think one is performing useful economic analysis is ridiculous.

All the same I agree income disparity is increasing. That is happening for a number of
reasons. Some are the deline in union jobs. I recently saw a story where a UAW forklift
driver had to declare bankruptcy when, because of the loss of overtime, his annual income
had fallen from over $100,000 per year to 'only' $87,000! Of course that is an extreme
example but there is no getting around the fact that the largest employer in the US is
now Walmart and not AT&T where CWA lineman would make 3 or 4 times the salary of a Walmart
'associate'.

Another reason is the increasing stratification of hiring practices. No college degree you
cannot even apply even if the position does not require any education whatsoever. This is
unfortunate and unfairly promotes some and retards the ability of many capable people from
advancing. Is a company better off with an affirmative action graduate with a masters
degree in public administration from Negro State University vs. the white woman with a
real high school diploma from a decent high school and 10 years with the company? Guess
who is going to get the job at most large companies and government agencies? Guess who is
really going to manage the department?

As to the national IQ discussion. I don't think that matters too much as long as you have
a sufficient number of high IQ's to do the real heavy lifting. Lockheeds skunkworks didn't
need machinists with an average IQ of 120 to build the X-15 or SR-71. They did need Kelly
Johnson's genius level IQ though. On the other hand if Kelly Johnson was just an average
aeronautical engineer Lockheed's skunkworks would have been a failure even if every
machinist's IQ had been 140. Israel for example would not doubt have one of or even the
highest national IQ on the planet yet Finland or Switzerland, two countries of similiar
size have higher national incomes. Japan has a very intelligent, cohesive and disciplined
labor force yet for a dozen years now has enjoyed almost no real economic growth.

Other structural, social and cultural factors can facilitate or retard economic growth.
Britain was once the world's richest nation with a global empire yet once the socialists
got through with it they had reduced it to the status of 'sickman of Europe' while its
defeated former enemy West Germany had in 30 years risen from the rubble and become the
biggest economy in Europe. What did IQ have to do with any of that?

Jay Z said at September 25, 2005 4:45 PM:

This data is from the CIA. It's interesting to note that the U.S.
has a per capita GDP $10,000 higher than Japan and that many
of the Western European economies compare favorably.

1 Luxembourg $ 58,900 2004 est.
2 United States $ 40,100 2004 est.
3 Guernsey $ 40,000 2003 est.
4 Norway $ 40,000 2004 est.
5 Jersey $ 40,000 2003 est.
6 British Virgin Islands $ 38,500 2004 est.
7 Bermuda $ 36,000 2003 est.
8 San Marino $ 34,600 2001 est.
9 Hong Kong $ 34,200 2004 est.
10 Switzerland $ 33,800 2004 est.
11 Cayman Islands $ 32,300 2004 est.
12 Denmark $ 32,200 2004 est.
13 Ireland $ 31,900 2004 est.
14 Iceland $ 31,900 2004 est.
15 Canada $ 31,500 2004 est.
16 Austria $ 31,300 2004 est.
17 Australia $ 30,700 2004 est.
18 Belgium $ 30,600 2004 est.
19 United Kingdom $ 29,600 2004 est.
20 Netherlands $ 29,500 2004 est.
21 Japan $ 29,400 2004 est.

Kenelm Digby said at September 26, 2005 2:49 AM:

Speaking solely from personal experience every hi-tech item I have purchased from East Asian provenance has not only been very competively priced (and let's not forget affordable to the broad mass of lower income purchasers who a few years ago would have been priced out of the market for such intricately engineered goods), but of excellent quality and of enduring reliability throughout the years.
For example, on my wrist I wear a Seiko kinetic wristwatch, which combines the accuracy of quartz together with non-battery convinience of an automatic, due to ingenious miniature electrical generator.Solely in terms of utilty and accuracy it is altogether a superior product than a brand name Swiss product costing orders of magnitude more.It hasn't let me down once in 5 years (not tempting fate!).
In order to produce such intricate highly engineered products on a mass scale needs intelligence, diuscipline, good leadership and good organisation together with a certain entrepenuerial flair and self-belief.This the Eat Asians possess in abundance and will ensure their global economic dominance.

Jorge D.C. said at September 27, 2005 12:05 AM:

In order to produce such intricate highly engineered products on a mass scale needs intelligence, diuscipline, good leadership and good organisation together with a certain entrepenuerial flair and self-belief.This the Eat Asians possess in abundance and will ensure their global economic dominance.

You, Sir, are confused about what exactly produces global dominance: Discovery, invention and innovation.

The only way East Asians will be ensured of global dominance is if the white Western nations keep allowing Asian immigrants to fill up their elite schools and institutions with creatively challenged rote learners. In this way the Western intellectual vanguard will be completely rotted out from the inside (genetically).

An advancing East Asian managerial elite in the US, Europe and Australia is one more step toward the death of the West. If you think there are Asian equivalents of Aristotle, Da Vinci, Newton, Darwin, Franklin, Edison, Noyce then you are misinformed about the nature of race and the complexities of intelligence.

Asians are to be commended for their contributions to the world. But these do not include discovery, invention and innovation in anywhere near a critical mass. To give the world over to Asian domination would be to slam on the brakes in every field of endeavor.

PS There is not a single Asian nation that is not an economic basket case. The comments here seem to conjure up some mystical Asian society with its financial act together. Too bad it doesn't exist. What does exist are crony capitalist states wholly lacking in transparency that without a gigantic white western world of customers would be up the proverbial creek.

There is mass hysteria on the internet regarding the rise of China etc. Let's deal in reality: The day the world 1) speaks an Asian language as its lingua franca or 2) uses an Asian currency as its financial standard, is the day the world slips into an imaginary parallel universe.

Kenelm Digby said at September 27, 2005 5:21 AM:

Jorge,
At the end of the day there is only one economic indicator that actually matters, viz a nation's degree of foreign indebtedness (in hard currency or precious metals)and closely related to this the nation's deficit in foreign trade.
At bottom, all other indicators and indices are merely also-rans.(This corresponds very closely with profit-and-loss being the only judge of fitness worth noting in any corporation).
A cursory view of the relative financial health in foreign exchange of the USA and the main East Asian "tiger" nations is instructive.

John S Bolton said at September 27, 2005 10:32 AM:

What causes rising income inequality, and does it have bad effects, which are clearly evil on net balance? Rising income inequality would mean a rising inhomogeneity of the total population. Increasing wealth far above subsistence has tended to cause lessening income inequality, as in Japan. Extremes of inequality imply two populations, such as in Rhodesia, where one group was 30 points of IQ above the lower one. On egalitarian suppositions, immigration was not supposed to result in fast increasing inequality of incomes and wealth between groups. 'Hispanic''income per person' cannot have fallen to less than half that of the majority without greatly affecting the Gini #, or not? In the welfare society, rising income inequality caused by stagnation of median income, necessitates an increase in aggression on the net taxpayer. What an embarassment to humanity that on all the internet, only one or two people will even dare to mention that there is manifest evil in increasing the aggression on the net taxpayer. The contradictory nature of the demand for equality is again shown, where the insistence on one kind of equality leads to an increase in another kind of inequality.

Jorge D.C. said at September 27, 2005 1:47 PM:

At the end of the day there is only one economic indicator that actually matters, viz a nation's degree of foreign indebtedness

Wrong. The true measure of wealth of a nation is its people. The reason the US can sustain massive indebtedness without a bank run is the core reality that the US is the cradle of innovation for the entire world. And, as such, is capable of quickly reversing any debt situation.

No one bets against American dynamism in the long run. Admittedly, if the browning of America through mass immigration continues then that equation will necessarily change.

A cursory view of the relative financial health in foreign exchange of the USA and the main East Asian "tiger" nations is instructive.

Japan: King of foreign exchange and a crashed economy. Every other Asian "Tiger" is a boom-bust, non-transparent proportional democracy that btw owes a MASSIVE debt to the US security umbrella in southeast Asia.

Yes, the USA faces serious economic challenges. But it is madness to consider even a single Asian economy "strong" or "stable" in the long run. Or as you say "at the end of the day".

Get real.

kenelm Digby said at September 28, 2005 5:03 AM:

Jorge,
I really don't want to go into a long discussion about economics, it will take me thousands of words, but the upshot of my story is that ever since money was first "invented" by the Lydians in ancient Anatolia, when King Pactolus first stamped his likeness on a gold piece, this invention greatly facilitated trade and industry by virtues of the fact of its utility, scarcity and currency.
In the 18th century Adam Smith founded the science of economics with his seminal work "The Wealth of Nations", subsequently David Ricardo elaborated on Smith's work and formulated his theory of free trade that holds that free trade between nations ALWAYS acts to the maximum benefit of both participating nations.
All this was formulated before the invention of fiat paper money which essentially allows governments to create as much worthless paper as they see fit.The classical theory of free trade is predicated on the actual stock of money ie gold coins and bullion in the "deficit state" being reuced to the point at which the value of labor and goods and land in the debtor country is reduced vis-a-vis gold.
This is the ONLY way the theory can work.Don't kid yourself otherwise.
After the widespread adoption of paper money in the 1930s, the question has been further complicated somewhat, but the iron rule - that the standard of living of the debtor MUST decrease in relative terms to the creditor MUST stand true, or else the whole theory is predicated on a tautology.

Jorge D.C. said at September 29, 2005 4:55 PM:

Kenelm,

I am not trying to rewrite the laws of economics. I am saying that the key factor in a nation's wealth is the people themselves and not the policies.

When you concentrate strictly on balance sheets you miss the big picture. You might think Japan is the single greatest economic engine on the planet. I say Japan hasn't paid their own defense bills in 60 frigging years along with the rest of the Asian "Tigers" Korea, Thailand etc.

And please no posts about how formidable these countries' militaries are today. The bottom line is if a country's own military is not holding off the monsters of the world then that country is on the dole bigtime. And would-be defense funds are fungible and voila the balance sheet gets a big shot in the arm.

At some point the USA will not be providing a security umbrella in SE Asia. And financial reality will kick in.

Also you ignored my point about American resilience. Even after the gloomy numbers have been computed...Asian bankers still will not flee the USA in 2005. The reasons are many but at the core is the potential of the USA. We are not silly Argentina. If necessary we can solve our balance sheet problems quite quickly. This country is THE economic powerhouse in the world. And it's because of the people, the culture, the society, the rule of law...get it? That is the true wealth of a nation.

"At the end of the day" China, India, Japan are not good economic superpower replacements for Western societies (whose populations remain Western). Asia is hamstrung with a cultural of corruption and that is ultimately a deal breaker regardless of occassional boom times.

Google the corruption index rating of the world's nations and see the corrollary between transparency and economic power. And don't forget to take into consideration the non-monetary nature of weath such as whether or not when you step outside your door you're gonna take a beating. Which in Scotland is commonly the case apparently. Hahaha.

Kenelm Digby said at September 30, 2005 6:07 AM:

Jorge,
Having known many Scots in my lifetime, I can vouch that they are some of the warmest,friendliest,most intelligent people on Earth.It is the demon drink that makes them do it.
Don't forget Jorge the enormous contribution those of Scots blood have made to America.


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