The rich get richer, and the poor get the picture *

Money’s not supposed to be important, but we all know it is. The poor can’t do without it, the rich act as if they can’t either, and everyone’s after their share of the pie. And if you’re reading this, most likely you (like me) are among the word’s richest, even though you probably don’t feel like it.

So how well is the money getting shared around?

Inequality in the west

Andrew Leigh was Professor of Economics at the Australian National University before he became a Parliamentarian in the Australian Government. He has researched wealth inequality in Australia particularly, and around the world, and his soon-to-be-published book Battlers and Billionaires presents his updated conclusions.

One way to measure inequality is the share of total income the top 1% of the population receive. It turns out that in the last century when reasonable data can be obtained, western countries such as Australia became economically more equal until about 1980, but are now becoming more unequal again. As the graph shows for 6 western countries, the richest 1% used to earn 15-25% of the income (i.e. 15-25 times their “fair share”) a century ago (and even more before that). This fell to about 5% around 1980, but has now risen to 10-20%.

Global inequality

Using several different measures, studies show that among the most wealthy countries in the world, there is greatest economic inequality in the USA, and least in some of the Scandinavian countries (based on a radio interview with Andrew Leigh). Australia is towards the US end of the range.

Another measure with many more countries, shows the most equal countries are mostly in Europe, Afghanistan is surprisingly equal (in the top 10 most equal), USA is more than halfway down the list towards inequality, and the most unequal are mostly in Africa. Australia isn’t listed.

But these figures obscure the inequality between countries. The same data shows most western countries have no-one living on less than $2 a day, but many African countries, and a few in Asia, have between 50% and 95% of their population living on less than $2 a day.

Money won’t buy me love

Psychologists already know from studies that above a sufficient income to provide necessities, additional wealth does little to increase life satisfaction and happiness (see What makes people happy?). In fact, focusing on obtaining wealth can often make people less satisfied. But somehow we convince ourselves otherwise.

It is sometimes argued that if we encourage the rich, there will be a “trickle down” of wealth to improve the lot of the poor as well. But according to Andrew Leigh, this effect is very small – e.g. the poor are no better of in the USA than they were in the past, while the incomes of the rich have increased greatly.

Wealth and generosity

Wealth sometimes leads people to be very generous – in the USA in particular there seems to be a philanthropy culture among some of the rich. But not always.

In Australia at the moment, the super-rich are objecting to the Government’s attempts to extract a little more from our mining wealth. And because many of the rich (and many self-employed)pay relatively low percentages of their actual income in tax, we don’t have enough taxation income to fund a national disability insurance scheme which almost everyone supports, so it has to be funded by a levy on all wage earners.

Is it fair?

Fairness is a difficult concept to define, and in the end is a matter of opinion. Both unbridled capitalism and full socialism have been shown not to be very effective and acceptable forms of government, but it does seem that the democratic socialist societies of northern Europe provide greater equality than does the capitalism of the USA or the economies of the poorer countries.

Read more

• Andrew Leigh in 2013 and 2011 and graphs.
• Global Finance on global wealth distribution.

* Taken from the song Read about it by Midnight Oil – whose lead singer is now also in the Australian parliament.