Income Inequality in Europe

By popular demand (well... one guy asked about it), here is a map of income inequality in Europe.



Just like the map of the US below, this uses the Gini index as a measure of inequality (based on this table). The general pattern seems to be an equitable core comprised of Scandinavia, Germany, France, and Central Europe, with modestly greater inequality towards the Anglophone, Mediterranean, and Slavic peripheries. Turkey (which is mostly in Asia, after all) has the highest Gini score - 43.6. Every other country is less inequitous than every single US state. In fact, the twenty countries with the lowest Ginis in the world are all on this map (except Malta, but only because it's too small to show up).

By the way, the colors in the map above are the same as in the US map from the previous post, but the scale is obviously different. Just for the sake of having an apples-to-apples visualization, this is what it would look like if the same scale were used as on the US map:

Is the US Becoming a Third World Country?

The simplest way to say whether a country is rich or poor is to add up its cumulative wealth, which is usually stated in terms of GDP. Sometimes this number is divided by the number of people in a country to say what the average wealth is: GDP per capita. And for a lot of purposes, including the overall economic strength of a country in an international context, that's a useful definition of wealth. But it's not a sufficient criterion for determining whether a society is wealthy. For instance, it's theoretically possible that a country could have a larger per capita GDP than any other country on the planet, but also for all that wealth to be controlled by a single autocratic leader to whom everyone else is enslaved. In the crudest economic terms, that society could be considered wealthy, even though all but one person would be utterly impoverished. So to determine whether a society is truly wealthy, some account needs to be taken of the distribution of wealth.

Here's a map I made of income inequality in the US.



This map is based on numbers from the US census (pdf). It uses the Gini index to measure income inequality. Gini

indicates how much the income distribution differs from a proportionate distribution (one where everyone would have the same income; for example, 20 percent of the population would hold 20 percent of the income, 40 percent of the population would hold 40 percent of the income, etc.). The Gini index varies from 0 to 1, where 0 indicates perfect equality (a proportional distribution of income), and 1 indicates perfect inequality (where one person has all the income and no one else has any).

So the higher the number, the more wealth inequality there is. For most advanced industrial economies, the Gini number is pretty low. According the the CIA World Factbook (table compiled here), the lowest Gini score in the world is Sweden's, at .23, followed by Denmark and Slovenia at .24. The next 20 countries are all in either Western Europe or the former Communist bloc of Eastern Europe. The EU as a whole is at .307. Russia has the highest number in Europe (.41); Portugal is the highest in Western Europe (.38). Japan is at .381; Australia is .352; Canada is .321.

And then there is the United States, sandwiched between Cote d'Ivoire and Uruguay at .450. Not counting Hong Kong (.523), the US is a complete loner among developed countries. In fact, as you can see from the map above, there is no overlap between any single US state and any other developed country; no state is within the normal range of income distribution in the rest of the developed world. Here's a list of the states with their Gini index numbers, and the country where income distribution is most comparable in parentheses:

Alabama - .472 (Nepal)
Alaska - .417 (Cambodia)
Arizona - .454 (Jamaica)
Arkansas - .460 (Ecuador)
California - .466 (Rwanda)
Colorado - .450 (Uruguay)
Connecticut - .480 (Venezuela)
Delaware - .434 (Guyana)
District of Columbia - .537 (Honduras)
Florida - .467 (Rwanda)
Georgia - .461 (Mexico)
Hawaii - .438 (Nigeria)
Idaho - .421 (Thailand)
Illinois - .462 (Malaysia)
Indiana - .432 (Guyana)
Iowa - .424 (Burundi)
Kansas - .441 (Kenya)
Kentucky - .460 (Ecuador)
Louisiana - .475 (Madagascar)
Maine - .428 (Singapore)
Maryland - .433 (Guyana)
Massachusetts - .461 (Mexico)
Michigan - .444 (Philippines)
Minnesota - .430 (Iran)
Mississippi - .471 (Nepal)
Missouri - .449 (Cote d'Ivoire)
Montana - .426 (Singapore)
Nebraska - .430 (Iran)
Nevada - .434 (Turkey)
New Hampshire - .417 (Cambodia)
New Jersey - .458 (Uganda)
New Mexico - .457 (Uganda)
New York - .495 (Costa Rica)
North Carolina - .458 (Uganda)
North Dakota - .434 (Guyana)
Ohio - .449 (Cote d'Ivoire)
Oklahoma - .460 (Ecuador)
Oregon - .444 (Kenya)
Pennsylvania - .455 (Jamaica)
Rhode Island - .442 (Philippines)
South Carolina - .462 (Mexico)
South Dakota - .439 (Nigeria)
Tennessee - .468 (Rwanda)
Texas - .474 (Mozambique)
Utah - .410 (Russia)
Vermont - .420 (Thailand)
Virginia - .456 (Uganda)
Washington - .443 (Kenya)
West Virginia - .447 (Cameroon)
Wisconsin - .424 (Burundi)
Wyoming - .413 (Senegal)

Obviously, the US is far wealthier than any of the countries to which states are being compared on this list; but it's striking to see the US fit a pattern which, outside of the US, is exclusively a phenomenon of the underdeveloped world.

But does that mean that the US is on the road to Third World-dom? Well, not necessarily - and not yet, at least. But it should give some context to comparisons of wealth between societies. For instance, the GDP per capita in the US is one of the highest in the world. But more of that wealth is concentrated in the hands of relatively few people, meaning fewer people (relative to that high per capita GDP) are well-off.

Matt Yglesias posted this chart the other day:

So even though a lot of wealth has been created since the 1970s, the typical family isn't much better off. And as Yglesias points out: "Another country with a lower GDP but less inequality could still be a country in which most people are richer than most Americans, and I believe there’s pretty compelling evidence that that’s now the case in a number of European countries."

I would add this: to the extent that wealth matters, it's because wealth increases the well-being of individuals. But there's undeniably a law of diminishing returns: a billionaire is not going to be a thousand times happier than a millionaire just because he has a thousand times as much money. In fact, I would argue that beyond some modest threshold - maybe below an income of $100,000/year - having more money simply doesn't affect one's well-being in any significant way. People certainly desire more wealth, mainly as a positional good - a billionaire has a higher status than a millionaire. But jockeying for positional goods is a zero-sum game; the billionaire's gain is the millionaire's loss, and so overall well-being is not increased by creating more wealth if that wealth just ends up getting shuttled up the income ladder into those stratospheric heights. In other words, if a country becomes wealthier because rich people are getting richer while everyone else treads water, that country is no better off than it was before. And if that's the case for a given country while more wealth is being created in other countries where it isn't being concentrated solely in the hands of the very rich, then that country's well-being, relative to other countries, decreases. That's what's been going on in the US for the last few decades. It's a sign of decline.

But not an irreversible one; the US doesn't have to become a third world country, where the majority of the population struggles to take care of basic needs while a minority controls a huge proportion of the nation's wealth. And an economic crisis, in large part brought about by wealthy elites mishandling their economic power, might be just the thing to start turning the trend around.

Wealth II

Here's more on wealth since 1500, from Visualizing Economics:



You can pretty clearly see that the story of the global economy from like 1750 to 1950 was really all about a redistribution of wealth from India and China to Western Europe and the US. Other regions of the world just didn't change that much one way or the other.

But it's also interesting how many trends have reversed themselves since ca. 1950. The dominance of the US and Western Europe has receded somewhat. Japan has about doubled its historical share of global wealth. China and India have halted their long slides (though they still have a long way to go to recoup their historical norms).

We'll check in in another 500 years and see how things are coming along.

UPDATE: I am told that - this being The Map Scroll rather than The Chart Scroll - good form demands that this post include a map. So, here is a moderately relevant map animation showing the changing map of Europe from 1519 CE to the present.

Wealth

Global Wealth in 1500:



Global Wealth in 2002:



These are from the UK's Daily Mail. They're cartograms - and we loves the cartograms! - showing the relative wealth of nations in 1500 and in 2002; the larger the nation, the more wealth it had.

One thing I find interesting is that wealth at both times in history was tripodal. In 1500, the 3 big axes were Western Europe, India, and China; in 2002 it's the US, Western Europe, and East Asia. That might be a coincidence, or it might be the case that there's some reason that that's a more naturally stable way for wealth to tend to become distributed across the globe. Maybe the geography of the world is such that there tend to be dominant powers that exert enough power to dominate roughly 1/3 of the planet, beyond which further concentration of wealth sets off negative feedbacks, like the way growth in predator populations eventually starts to induce a negative feedback when they start eating all the prey and running out of food. But I lean toward coincidence.

Also: West Africa wasn't really doing too poorly for itself in 1500. Nigeria (or whatever turn-of-the-16th Century conglomeration of tribes and city-states and kingdoms constituted the area corresponding to modern Nigeria (you see how much I know about African history)), for instance, was about on par with the middle-range European nation-state of the time.

Plus: you might expect wealth to serve as a decent proxy for military power. But, while Mexico is clearly not the equal of Spain in 1500, the disparity is hardly so severe as to account for the fact that, just a few years later, Cortes would march into the Aztec capital with like a couple of drinking buddies and a mule and conquer the whole freakin civilization. So clearly other factors were involved. (And indeed, here are three suggestions.)

And finally: has Russia ever made good on its enormous resource potential?