income distribution how free markets create & divide wealth
TRANSCRIPT
Income DistributionHow free markets create & divide wealth
Top 1% pay more taxes 20% => 40%The bottom 90% pay less 50% => 33%BUT, the inequality gap rises!
Distribution of Income• Egalitarian Society-
– means a equal society– Free markets focus on efficiency not equality
• Free markets produce tremendous wealth but also a large gap between rich & poor– Inequality today is the highest since the 1920’s– Globalization & Technology have exacerbated this trend
Where do YOU want to live?
Country A
GDP per capita = $20,000 per year
Country B
GDP per capita = $60,000 per year
Which country do YOU want to live in?
Population = 100,000
Each person earns $20,000GDP = 2 billion or $20,000 per capita
Population = 100,000
400 people earn $15 million99,600 earn $1,000 per yearGDP = 6 billion or $60,000 per capita
Measuring Income Inequality• How do you best measure income inequality?
– Average income– Median income
• Lorenz curve precisely measures income inequality. – Straight line represents “perfect” income equality
Both flawed measures of income gap
Line of Perfect equality
Lorenz Curve A
Lorenz Curve B
Lorenz Curve
Line of Perfect equality
Lorenz Curve A
Lorenz Curve B
Gini Index Summary• Measures the distance from line of “perfect equality” to Lorenz Curve• Gini Index ranges from Zero to 1• An index of 0 (zero) means perfect EQUALITY
– on the line => 40% population has 40% of income• As the Gini Index moves from 0 1 inequality increases
Line of Perfect equality
Lorenz Curve A
Lorenz Curve B
Lorenz Curve Review
Gini Coefficient 0 - 1
Line of Income equality
France: .34
USA: .46
Gini Index by Country
USA = .46 Japan = .25
England = .36France = .32
Germany = .28
South Africa = .58
Sweden = .23
Brazil = .59
Practice Test
Wealth vs. Income• Top 1% has 21% of Income
• Top 1% has 40% of Wealth
Bottom 40% has less than 1% of wealth
Winner Take All Society?
Top 1% versus Top 0.1%
• Top 1%:– Income: Over $350,000 per year– 1.5 million households
• Top 0.1%:– Income: $1.4 million per year– Only 146,000 households
Top 1%
The Rich get Richer
