America's first-world inequality problem

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Article Highlights

  • the average person in the bottom 5% of the U.S. income distribution is still richer than 68 percent of people in the world

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  • global income inequality is a far more serious problem than income inequality within specific countries in the rich world

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  • those who care about social justice should focus less on narrowing income differences within a small group of global elites

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The National Basketball Association has an income inequality problem. The highest-paid players make upwards of $20 million per season, while the lowest-paid ones make a measly half a million. In the upcoming season, almost 30 percent of the total pie will go to the top 10 percent of players. And that’s just based on salaries; adding in income from endorsements would likely widen these disparities.

Of course, these facts probably don’t bother you too much. It’s understandably hard for most of us to get excited about income inequality among NBA players when even the poorest members of this group make many times what we do. It’s much more appealing to focus on the large and growing divide between rich and ordinary Americans, as many observers have done in recent years.

Yet in a global context, discussing income inequality within the U.S. and other rich countries is not much different from discussing income inequality among professional basketball players. It is, as the internet meme goes, a first world problem. Branko Milanovic, an economist who studies global inequality, calculates that the average person in the bottom 5 percent of the U.S. income distribution is still richer than 68 percent of people in the world. Indeed, it only takes $34,000 to place a person in the top 1 percent of the world income distribution. (All of these figures are adjusted to take into account cost-of-living differences across countries. For example, if another country’s cost-of-living that is half that of the U.S., incomes in that country are doubled before making any comparisons.)

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Much of the popular outrage about income inequality comes down to moral concerns about fairness and social justice. The basic idea behind these concerns is that luck – being born rich or privileged, or suffering misfortunes such as illness or disability – should not have a big influence over one’s opportunities in life. Rather, these opportunities should be shaped by one’s effort and choices.

But one’s nationality is determined largely by luck of birth. And the stakes are high. Milanovic reports that more than 60 percent of global income disparities can be accounted for by country of birth. Residents of the U.S. receive an enormous boost to income compared to residents of the Democratic Republic of the Congo (the world’s poorest country). That’s why so many undocumented immigrants show up at our border every day.

From the standpoint of social justice, therefore, global income inequality is a far more serious problem than income inequality within specific countries in the rich world. In fact, fixating on the latter, as we tend to do in our public discourse, can lead us to adopt policies that worsen global inequality. In a recent New York Times article, economist Tyler Cowen argued that many of the policies that reduce worldwide inequality, such as liberalizing immigration and trade, may actually exacerbate inequality within the U.S.

[READ: The New American Dilemma]

The good news is, as Cowen pointed out, that global income inequality has been falling. The bad news is that global poverty is still a very serious problem. The World Bank estimates that, as of 2010, 1.22 billion people were living on less than $1.25 per day, and 2.4 billion people were living on less than $2 per day. Not a single one of these individuals was living in the U.S. (Again, these figures take into account cost-of-living differences between countries.)

Some might reasonably object that income inequality within our borders is still relevant to policymaking. Most voters care more about their fellow citizens than they do about foreigners. (That fact is difficult to dispute, but it’s worth thinking through the ethical implications.) Maintaining open borders requires a critical mass of support among Americans, and that may require some income redistribution. Large and growing gaps between rich and poor domestically may lead to social unrest.

But these are all largely political concerns. They have little to do with the basic, universal principles of fairness that underlie the income inequality debate. That’s why those who care about social justice should focus less on narrowing income differences within a small group of global elites and more on policies that promote fairness worldwide. These policies might include removing trade barriers, substantially increasing the number of both skilled and unskilled immigrants that we allow into the country, and increasing or reallocating foreign aid to better target poverty.

More generally, it is important for Americans to maintain perspective when discussing domestic income inequality. The next time you find yourself getting upset about the vast income disparity between the average American and the 1 percenters, take a moment to reflect on the vast income disparity between the average American and the average Congolese. All of us in the American middle class have hit the luck-of-birth jackpot, and for that, we should be grateful.

 

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Sita Nataraj
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