Branko Milanovic — A la recherche of the roots of US inequality “exceptionalism”

It has been long argued that American income inequality was, in the past 40 years or so, exceptionally high compared to other OECD countries. The latest results available by Luxembourg Income Study that harmonizes income concepts across countries show inequality in disposable (per capita) income in the US to be 41 Gini points, that is, higher than in any other similarly rich country (Germany’s Gini is 32, British 35, Italian 35, Dutch 28). So, this part is not controversial.

What is more controversial is technical (as opposed to substantive) explanation for this “exceptionalism”. Some people have argued that US market income inequality (that is, inequality before government redistribution through social transfers and direct taxes) is not much higher than elsewhere and that the entire explanation has to do with an insufficiently redistributive state. In simple terms, the argument is that the market generates same inequality in the US and Sweden, but Sweden redistributes much more though pensions, unemployment benefits, social assistance etc., and also taxes the rich more, so in the end disposable (after transfers and taxes) income inequality in Sweden is less than in the United States.

Janet Gornick, Nathaniel Johnson and I have recently looked at this more carefully. Without going through all explanations (which can be found in the paper here), we conclude that this is not entirely true: US market income inequality is generally greater than in other rich countries and the American state redistributes less. So, we argue, both the underlying (market) inequality is high and redistribution is relatively weak.

But one can go further than that, and ask the following question: what part of redistribution is “weak”: is it that US transfers are small and not sufficiently pro-poor, or is it that US direct taxes are not sufficiently progressive?
Now, I look at that issue in the following way....

Global Inequality
A la recherche of the roots of US inequality “exceptionalism”
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Reuters — UN report slams US for criminalizing poverty as destitution grows

The report concludes that the persistence of extreme poverty in the US is a political choice made by people in power. It also criticizes US policy for making healthcare a privilege rather than a right.

Deutsche Welle
UN report slams US for criminalizing poverty as destitution grows

Reuters

Mark Gongloff — All The Wealth The Middle Class Accumulated After 1940 Is Gone

The middle-class share of American wealth has been shrinking for the better part of three decades and recently fell to its lowest level since 1940, according to a new studyby economists Emmanuel Saez of the University of California, Berkeley, and Gabriel Zucman of the London School of Economics….

In this case, "middle class" is defined rather expansively as the bottom 90 percent of all Americans. "Wealth" is the total of home equity, stock and bond holdings, pension plans and other assets, minus debt. As such assets are mostly owned by mid- to higher-income households -- and considering most Americans define themselves as "middle-class" -- it seems reasonable to use the bottom 90 percent as a proxy for the "middle class."…

Debt has been the big force driving net wealth lower for the middle class, according to Saez and Zucman. Brief bubbles in stock and home prices in the 1990s and 2000s only temporarily offset the steady, depressing rise in mortgage, student-loan, credit-card and other debts for the bottom 90 percent.

The Huffington Post
All The Wealth The Middle Class Accumulated After 1940 Is Gone

Mark Gongloff