Income Inequality and Prosperity

In his recent State of the Union Address, President Obama focused on the high and increasing level of income inequality in the US, emphasizing the importance of fairness in our economic system and fiscal policy. He would hardly be the first one to raise the issue of socioeconomic disparity, which has been the source of much debate and discussion since the recession began in 2007. Pandering or not, he’s tapping into a very real concern among both academics and the public (although polls differ on the level of worry among the American people as a whole).

Regardless of your thoughts on the president or his sincerity, income inequality is a problematic, if once underrated, development. Overall, America is a very wealthy country, the richest in the world by a wide margin; our GDP per capita, though not the highest, is among the top ten. Few countries have access to as many luxuries and material goods as our consumers do.

Yet our society is also one of the most unequal in the world, and this inequality has been increasing for several decades, with current trends projecting an ever wider gap. Though most countries, including famously egalitarian ones like Sweden, are seeing inequality grow, few are at America’s level.

Of course, most would argue, as I once did, that a large wedge between rich and poor isn’t problematic if most people can afford a comfortable standard of living. After all, what does a middle-class person care if his CEO or neighbor makes a thousand times more than him? Indeed, that’s long been the mentality of most Americans, and it’s the reason why our society is far less concerned about economic equality or ostentatious displays of wealth relative to others. 

The problem is that high levels of socioeconomic inequality correlate with various social problems, regardless of overall or per-capita wealth. Furthermore, countries that have long-term inequality tend to be less stable and prosperous economically. If too much income is concentrated at the top, then the widespread consumption that drives our economy no longer exists.

The consequences can be seen in a report in Sociological Images titled “Income inequality is bad for society. Really bad,” which draws much of its data from the book, The Spirit Level: Why More Equal Societies Almost Always Do Better, by Richard Wilkinson and Kate Pickett. The following graphs highlight the relationship between income disparity and various social conditions among several developed countries (I’m assuming they’re using the Gini Coefficient, which is the most common means of measuring the share or wealth within a society).

Keep in mind the extreme position of the United States, and the fact that these measurements are done per capita, which adjusts for our large population.

Infant mortality:
Homicide rate:
Rate of incarceration:
Child well-being (based on data from UNICEF):
As I’ve stressed many times before, I’m well aware that correlation doesn’t equal causation – it could very well be that other factors account for this social dysfunction. But the fact that there seems to be some sort of relationship should at least give us pause and merit some consideration. If we do assume some sort of connection, the logical question would be why and what do we do about? Is the cost of addressing this inequality too great or politically untenable? I’m happy to see the topic receive well-needed attention and discussion. 

2 comments on “Income Inequality and Prosperity

    • I’m honored you care enough to keep up 🙂 I’ve been quite motivated to write recently, as you can see, so sorry if I’m overwhelming. Much appreciated though!

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