Unfair income distribution hurts even the rich

Gini Index Map

In a previous post, I talked about the transition from hunter-gatherer societies, where hording was a threat to group survival and thus not tolerated, to settled agrarian societies, where it was possible to amass resources and thus have more than your neighbor. Having more translated into advantage and power. So long as everyone had enough, some people in a group having more was not a threat and was tolerated.

So today, how do we identify the threat when some people have too much and others not enough?

There are plenty of statistics that point to a few people having more than plenty in the United States. As stated in this New York Times article, the top one percent in the U.S. earns about 15 percent of income, and the top 10 percent earns roughly half of all income.

(For the sake of full disclosure, I fall in the top 10 percent of individual wage earners.)

How does the U.S. compare to other nations for income inequality? According to Gini Index, which measures income inequality in countries, the U.S. ranks 41st out of 136 measured countries for inequality. In other words, more than two-thirds of the world has a more equal income distribution.

Why might this be a threat? A recent report by the International Monetary Fund finds that, “longer [economic] growth spells are robustly associated with more equality in the income distribution.” The report acknowledges that short-term policy (program design in marketing speak) is uncertain business for maintaining economic growth. However, the report also states that, “Over longer horizons, reduced inequality and sustained growth may thus be two sides of the same coin.”

So, over the long run, more than two-thirds of the world has a better shot at sustained economic growth than we do in the U.S. As we all know, information technology and sophisticated supply chains make our world increasingly flat. Our diminished chances for sustained economic growth thus become a threat to our ability to thrive and compete with other nations whose economies are growing more consistently.

Sustained economic growth is in everyone’s interest in our current system, including the ultra-wealthy. Without that growth, their investments appreciate less, their dividends are smaller, and they are outpaced by the ultra-wealthy in other economies. Sure, our ultra-wealthy could invest their money in countries other than the U.S., but that reduction in available capital would further weaken our economy and erode the value of what they do have invested stateside.

Over time, our internal gap between haves and have-nots can and will open a gap between us and economies that have more equality.

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