Is U.S. inequality special?

In this post, Greg Mankiw argues that the U.S. is not the only country to see an increase in inequality over the past 40 years. Referring to a plot of the top income shares in the U.K., Mankiw notes:

“The figure suggests that the explanation of growing inequality over the past several decades cannot be U.S.-specific but must have broader applicability... You find a similar U-shaped pattern in Australia, Canada, Ireland, and New Zealand but much less so in France, Germany, Japan, and Sweden.”

Mankiw uses the impressive “Top Incomes Database,” compiled by (among others) Thomas Piketty and Emmanuel Saez. It is a fantastic resource; it enables you to plot data on income shares and inequality for a wide-range of countries over more than one-hundred years. Perusing the data, one finds that, in fact, many countries have seen an increase in inequality. But Mankiw seems to be implying that, since this is a global phenomenon, that shifts in U.S. policy aren’t driving the increase in inequality.

Using the database, I generated the following graphs: (1) comparing the U.S. with other rich English-speaking countries; and (2) comparing the U.S. with rich, but non-English speaking countries. I chose the countries Mankiw cites as examples in his post. The data covers the period between 1950 and 2007:*

As Mankiw notes, the changes in the top share of incomes for other rich English-speaking countries largely track those of the U.S. It is worth noting the discontinuous jump in the U.S. series in the mid-1980s, coinciding with the reform of the tax system during the Reagan administration.

In contrast, the rich non-English-speaking countries do not see much of a change in their top income shares. For example, the share of the top 1% in France was 8.98% in 1950 and 8.94% in 2007. The corresponding numbers for the U.S. are 11.60% and 18.29%. It takes a lot of motivated reasoning to detect an upward trend in the non-English-speaking countries.

To explain the difference between the two groups, Mankiw offers the following idea:

“Might the rising share of the top 1 percent be related to the increasing use of English as a global language?”

I’m not exactly sure what this means or what the causal mechanism here would be. I would suggest a simpler explanation: English-speaking countries have tended to follow an economic model (often referred to as the “Anglo-Saxon Model”) that is more market-driven and relies on a smaller welfare state than the rest of Europe. Thus one should expect those countries to have higher levels of market-income inequality. Further, like the U.S., these countries have reformed their tax systems and de-regulated much of their economy, leading to even greater inequality. So while it’s true that increased inequality is not solely a U.S. phenomenon, it does not follow that policy changes aren’t an important part of the explanation. In fact, countries that have followed similar policies to the U.S. have seen increases in inequality, while those that haven’t, well, haven’t.

*I chose the years based on data-availability. I encourage people to play around with the database if they are curious about other countries, years or variables.

It is also worth mentioning that the data presented here is pre-tax gross income. Given that other countries have more progressive tax/transfer systems than the U.S., this is likely an underestimate of the difference in inequality between the U.S. and the rest of the rich world.

The other 33 percent*

Last month, the New York Times article that looked at the cost of junk food as compared with healthy food - pointed out the difference between the two dining options was more often time and convenience than money. The conclusion was dangerous close to "poor fat people are fat because they are lazy."
As Ezra Klein pointed out yesterday, there is a very recent study that amends this slightly. The new study concludes "fat people are lazy because they have poor impulse control and are worse at delaying gratification." It essentially found that the heavyset set has gotten heavier but many of the 67% of Americans that are not obese have stayed trim. This is because the obese crowd relies on foods that can be eaten quickly rather than making meals from scratch.
What struck me about these findings was how a culture so laden with cooking shows was not producing even more at-home cooking. Perhaps we should abandon the "Ace of Cakes" or Paula Dean for a 21st century Julia Child who's focus is more on frugality and DIY meals rather then peddling pre-made foods or indulging in the rich foods for everyday occasions.
Still, as a social worker friend of mine pointed out, often extreme eating problems are related to emotional eating. I think rather then pointing to low self-esteem, our culture's current food problems point to a culture of entitlement. The belief that we each deserve everything we want and we deserve to get it in the quickest, easiest way possible is rampant. It's effected our waistlines, our personal debt and deeply impacted achievement in our school (see: give every child a blue ribbon, since mine deserves to feel like a winner rather than competing for an actual rank).

*According to the CDC in 2011 33.8 % of adult Americans are obese.

The power of oops

More and more companies are learning the power of straightforward PR tone. Netflix was the latest to adopt this approach today when announcing that due to the public outcry they were not going to spin off a DVD mail service called Quikster.

I attribute the power of the oops to the same trend that spawned transparency groups such as WikiLeaks and FactCheck.org. Information is too immediate, prevalent and accessible to be overly controlled with your message, especially when it comes to crisis management. Many people in the world have access to news from whatever source they want.

During the BP oil spill, the company tried to use the "honest oops" but it didn't work to save their image. Here are some tips on how to pull off a successful corporate oops.

1. Don't wait to address the issue - make a statement as soon as you can


2. Offer action or a change that will effect those effected by your mistake


3. Send the "oops" message from the very top person in your company

Comedy aside: Eddie Izzard has a bit about the Queen of England on this topic not being able to communicate in this way when managing the news of Diana's death. It's a bit dated but hilarious.

Art & Infrastructure Mash-up

There is power from keeping ones voice soft and calm during an argument. Being quiet but holding your ground causes the other person to feel a bit ridiculous shouting at you and often they run out of steam. According to this article, Caracas, Venezuela got a similar result when using mimes as traffic cops. Apparently, the silence professionals are making an impact by injecting the unexpected as well as modeling quiet on the busy streets.

So here are some more suggestions on other ways to inject art into our societal infrastructures:

Playgroup meets courthouse: Would our trials go smoother if everyone started the session with some cookies and juice, wore name tags and had the freedom to pull down a nap mat from the wall if they got tired or cranky? All "it's mine" toy disputes are still decided by the judge.

Tax paperwork meets photojournalism: Similar to a nonprofit appeal, tax payers would get vivid and real photographs of the public spaces and families that are going to benefit from their tax money.

Opera meets utilities: Could mournful arias play anytime you used water or electricity in excess as a reminder of the dwindling resources? You could even add some triumphant fanfare when the offending appliance was turned off. The only downside is it could make showers even longer...

Punch & Judy meets political debates: Why no one has thought of this yet I do not know.

Comic strips meet public policy: All new bills and laws must also be rendered in comic strip form and distributed to everyone effected by them.

That used to be you

This evening, I attended a talk through the Hudson Union Society given by Thomas Friedman and Michael Mandelbaum about their recent book That used to be us: How America fell behind in the world it invented and how we can come back.

Those of you who read Friedman’s New York Times column, may be familiar with some if the main points of the book. Namely that there is a global trend towards overpopulation, increased communication and dwindling resources. And that while many predict China may be on the rise to power and the US has mismanaged its economy and slowed on innovation, America should look back at its successes in the past and return to the policy that made it strong while keeping up with communication and green technology.

The book ends with Freidman and Mandelbaum’s ideal 2012 presidential platform. They are advocating that an independent candidate take up issues of investment in infrastructure and education, spending cuts to Medicare and Social Security and tax increases – perferably related to fuel usage.

Of course in a situation like this, topdown change often has the greatest impact. However, I would like to take one of the major questions of the evening and apply it to the individual, in particular the 9.1% of Americans that are unemployed. The question to ask is “What were you doing in the past that worked?” When you think about the good things you’ve done it can focus your energy towards repeating those habits and outcomes. There is something very powerful about putting a positive spin on your assessment of the past. Understanding what you have done well can help you make decisions on where you can add the most benefit. Yes, top down change is going to be necessary to change the direction the US is headed, but bottom-up change and a need for individual innovation and reinvigoration is also going to be crucial to our recovery. This isn’t about glossing over what may have gone wrong – but if you’ve had success in the past chances are you can pinpoint what went right and harness that into more future success.