The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [61]
In the rich OECD nations, the issues are different. All have less unequal income distributions than nonmembers of the rich club. Having said that, there are some important differences between them, both in terms of the current degree of inequality and their recent trends.
The northern European countries and Japan have the most equal distributions of income, and have seen the least increase in inequality over time. Just four though—Denmark, France, Germany, and Switzerland—have experienced a decline in inequality since 1990.21
The United States is at the other extreme. It has the most unequal distribution and has seen the biggest increase in inequality in recent times. The United States, closely shadowed by the United Kingdom and Korea, is so unequal that it bears comparison with developing countries.
Other European countries are in between these two in the extent of the inequality in incomes and in the recent trend.
There are several ways to measure inequality numerically. The most thorough is using a measure such as the Gini coefficient, an index running from zero (fully equal) to one (all the income goes to the top people), which is calculated in a way that takes account of the middle sections of the income distribution. It is therefore a good measure of the kinds of change in income taking place in India and China where, as discussed above, there has been a big increase in incomes in the middle. The Gini coefficient has two drawbacks: the calculations have not been done for all countries and all time periods of interest; and it is not intuitively easy to understand. So I will discuss here a much simpler measure, the ratio of incomes of the top and bottom tenth in the income distribution. In the rich countries, most of the action has been at the two extremes, so this will not misrepresent the trends in inequality.22
The OECD nations differ from each other a great deal in the extent of income inequality using this measure. Japan and the Scandinavian countries stand out as the most equal. The best-off tenth of households have earnings from work just two or three times those of the worst off. For most other European countries this ratio is in the range of three to four—Austria, Belgium, and Germany are just below the bottom of this, and the United Kingdom, along with Australia, Spain, and Portugal at the top. The United States, Korea, and Singapore stand out clearly as demonstrating the greatest inequality, with the highest earners making five times more than the lowest earners. Adding income from other sources, notably investment income, makes the pattern all the starker—the unequal countries are far more unequal when all sources of income are taken into account. The inequality of wealth, difficult to measure and to compare between countries, is even more extreme.23
It is worth dwelling on what has happened in America, not only because many people wrongly imagine that it is representative of a general, international trend, but also because it highlights some of the important issues I want to discuss in this chapter. There has been a dramatic increase in inequality in the United States since around 1990, taking the contrast between rich and poor to an extreme not seen since the Jazz Age of the 1920s. The return of the kind of ostentatious wealth described by F. Scott Fitzgerald has been a uniquely American experience, albeit extended by globalization to a small international elite in both legitimate and illegitimate businesses. But it has had a much wider moral and political impact, shaping the debate now under way about fairness.
The comparison of the nineties and noughties with the 1920s is not an exaggeration made just for effect, but literally true. Economists Thomas Piketty and Emanuel Saez have gathered data on the share of total income going to