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DaVinci Coders
March 14th, 2013 at 9:55 am

U.S. wealth inequality is extreme by global standards

You probably took away a couple facts if you watched Poltizane’s viral video on U.S. wealth inequality. America’s rich claim an even more mind-bogglingly huge share of the nation’s wealth than they do of its income, and most people in this country would like them to have less of it.

 

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But how extreme is U.S. wealth inequality by global standards? Pretty severe, it turns out, but we’re probably not the worst in the world. The graph below is adapted from a 2007 paper for the World Institute for Development Economics Research. Using the best available figures, its authors did the tricky job of making  international comparisons of household wealth distribution around the year 2000. And as it shows, wealth — which is just a household’s assets minus its debts — was particularly skewed in the U.S. compared to many other developed or quickly developing countries. If anything, the difference may be worse today, as the U.S. housing bust demolished much of middle class America’s wealth, while leaving the rich relatively unharmed.

But take note: wealth is extraordinarily uneven all over the world, not just in America. In the study Politizane’s video cites, by economists Dan Ariely and Michael Norton, Americans said they would prefer the top fifth of households percent own just 32 percent of the wealth. At the time, Ariely and Norton referred to this as the “Swedish” model. But as Josh Barro pointed out, they were actually fudging a bit for effect by using Sweden’s income distribution. In reality, just the top 10 percent of Swedish households still lay claim to more than half the country’s wealth, as shown above.

Meanwhile, wealth is even more skewed in Switzerland and Denmark than in the U.S. The study’s authors also caution some of the more egalitarian seeming countries, such as Japan, may actually just be under-counting the rich in their national surveys.

Why is wealth inequality so skewed all over the world? Part of it is that income inequality has become a global problem, and that the rich inherently have more disposable income they can invest to build their bank accounts. But another aspect boils down to the nature of wealth accumulation: it takes time. Even outside the U.S., families often store their wealth in housing. And, to risk stating the obvious, it can take a while to save up for a down payment. Once a young family house a house, they need to start paying down their mortgage before they can actually claim to have “wealth,” since, again, wealth equals a household’s assets minus its debts. So these calculations are going to favor the middle aged and old by default.

This doesn’t change the fact that Americans are probably living far from the egalitarian ideal. We are, after all, at the extreme end of this chart. But the reality is that no matter where you are in the world, wealth is going to be concentrated with the wealthy.

Via The Atlantic

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