Monday, January 31, 2011

The Haves and the Have-Nots

"It is easy to see that in such a world, most of one’s lifetime income will be determined at birth."

Some sobering thoughts on the the determinants of wealth:

The graph shows inequality within a country, in the context of inequality around the world. It can take a few minutes to get your bearings with this chart, but trust me, it’s worth it.

Here the population of each country is divided into 20 equally-sized income groups, ranked by their household per-capita income. These are called “ventiles,” as you can see on the horizontal axis, and each “ventile” translates to a cluster of five percentiles.

The household income numbers are all converted into international dollars adjusted for equal purchasing power, since the cost of goods varies from country to country. In other words, the chart adjusts for the cost of living in different countries, so we are looking at consistent living standards worldwide.

Now on the vertical axis, you can see where any given ventile from any country falls when compared to the entire population of the world...

Notice how the entire line for the United States resides in the top portion of the graph? That’s because the entire country is relatively rich. In fact, America’s bottom ventile is still richer than most of the world: That is, the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants.

Now check out the line for India. India’s poorest ventile corresponds with the 4th poorest percentile worldwide. And its richest? The 68th percentile. Yes, that’s right: America’s poorest are, as a group, about as rich as India’s richest.

Kind of blows your mind, right?

Indeed it does.

After traveling to many parts of the developing world, even as a grad student, it's hard not to feel incredibly rich. Unfortunately, we are more prone to compare our relative position against our immediate neighbors rather against an historical or global perspective. If you're reading this, chances are you're among the wealthiest people to have ever walked the earth.

For more on this, read The Haves and Have-Nots, the book by Branko Milanovic that the graph above comes from.

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