How special is American inequality?
Will Wilkinson writes:
I was surprised to discover that U.S. market income (i.e., pre-tax) inequality is lower than the U.K.’s, the same as Germany’s, and only slightly higher than Sweden’s…
Check the graph at the link. Will continues:
This is from Brandolini and Smeeding’s 2007 “Inequality Patterns in Western-Type Democracies: Cross-Country Differences and Time Changes” [pdf]. While the U.S. pre-tax Gini is still on the high side of the median of these 16 OECD countries, it is remarkable how much differences in tax and transfer policies push the U.S. to the top in inequality in disposable income. This is striking to me because, at a glance, it suggests that the U.S. is not all that distinctive in the way the basic structure of the economy affects the distribution of market income. Unions in Germany and the U.K. are rather more powerful than in the U.S., but (again, at a glance) appear to do nothing to reduce inequality relative to the U.S. Of course, eyeball empiricism isn’t dispositive. But it seems to me to fit pretty well with the weak effect of the relationship between declining unions and rising inequality found in other research, and suggests that the structure of basic American political-economic institutions is not especially conducive to inegalitarian outcomes.
My take: This is all well worth knowing, and it does help counter the view that growing inequality of income is a poliical conspiracy. But oddly both the critics and the defenders here are missing one major inequality-related difference between Germany and the United States, namely social norms. We have weaker families, weaker social pressures to conform, deeper bayous, and as a result more flat out lunatics, losers, and violent psychopaths. (Did I mention we also have more innovation?) That’s inequality too, though the usual political recipes aren’t likely to provide the cure.
Addendum: One very eminent source emailed me and he wishes to stress that the (relatively) high level of the European Gini stems from higher levels of unemployment, whereas the relatively high level of the American Gini stems from the rich being very rich. He points out that although the final Ginis may be similar, the underlying patterns are very different and it would be misleading to conclude that America and Germany have ended up at the same pre-tax point. This is absolutely correct, my apologies if the post created a misleading impression.