Did you hear the news? The Income gap between the rich and poor has widened. The Organization of Economically Developed Countries came out with their list based on 2008 incomes and it "isn't pretty" for the United States. Now, I've seen how some of the rest of the world lives, and I've seen how those "below the poverty line" in the United States live, so I was curious what it actually meant. I'll get to their recommendations to "fixing it," later.
Evidently, the average income of the top 10% of Americans is $114,000/year. Now, I'm not sure how this works, but according to the CIA, 30% of Americans are in the top 10% of income earners, while only 2% are in the bottom 10% making $7,800/year. But if one goes with OECD data, that puts the average income at $60,900/year. That's not bad for an economy that produces $47,200/year in actual goods (GDP per capita). Of course, if we only count the workforce, we produce $95,257/year in actual value, and that is pretty impressive. But the disparity between the top 10% and the bottom 10%, according to the OECD is 14.6x.
The OECD didn't make it easy to find the data, and they didn't examine disparities in places like China or North Korea, but it appears even the CIA finds that information difficult. Still, the OECD did find some "shining examples" of places that do it better, like Download OECD-France Inequality, Download OECD-ItalyInequality, & Download OECD-Spain Inequality. Since these are in the top 10% of economic powers, perhaps we should do what they are doing to alleviate this disparity. France has a disparity of the top 10% and bottom 10% of only 7x while Spain is at 10.9 and Italy is at 10.1.
How could they possibly achieve such numbers? The Average income (using the same formula above) is $42,574 in France, $33,106 in Italy, and $25,349 in Spain. While OECD didn't give the data to figure out what the bottom 10% in the US earn per hour, it works out to $8.49/hr in France, $3.40/hr in Italy, and $3.24/hr in Spain. The French produce $73,158/workforce member, while the Italians produce $71,245 and Spaniards produce $59,290.
We can reduce the disparity in income here too, if we did what they did. According to the CIA, the US tax burden is 14.7% as opposed to France 48.4%, Italy 46.7% and Spain 35.7%. Take a look at your gross income on your paystub. Are you willing to take half of that so we can all make the same amount?
What else would income parity mean? It would mean that if you went to college for 7 years, got a medical degree, and a speciality, working 100 hours a week, you'd make the same amount as the High School dropout that served you fries at McDonald's? It would mean that the guy that was serving his 4th combat tour in Afghanistan earned the same as the guy dodging hamburger buns at the cafeteria. This experiment has been tried, and is still being tried in some places. It's called communism, or in its less severe form socialism.
The Chinese government is a hybrid Communist/Free Market Economy. How is that income parity working for them? With the introduction of Free Market reforms and the re-acquisition of Hong Kong from the Brits, the Chinese Economy is on fire, growing regularly in the double digits. Guaranteed jobs aren't so guaranteed with a 6.1% unemployment rate, but the real telling fact is that the poverty rate is set at $90/year, and still 2.8% of the urban (at least 22.8 Million) population alone is below that. There are another 21.5 Million Chinese in the country living on less than $91/year and another 35.5 Million on $91-125/year. And in a country where the government still owns the majority of the means of production, taxes are 20.9% of GDP. That's 79.8 Million Chinese living on less than $126/year. That's more than half the people that pay taxes in the US. It's more than half of the total US workforce.
According to the US Census Bureau, the poverty rate for a household of 2 adults and a child under 18 is $17,752, not including any government assistance, foodstamps, or welfare, and not including any capital gains or dividends. They estimate 46.2 Million live below that rate, including all members of that household where they live. That's up from 43.6 Million in 2009, but only 58% of the number of people living in China on less than $126/year.
According to the Download Census Income 2010, there were only 97.2 Million Americans that worked full time in 2010. 137.6 Million Americans that worked in 2010. Down significantly in all catergories (full and part time, male and female from 2008 highs, and below 2001 levels.) According to the US Census Bureau, recent recessions include 3/2001 to 11/2001 with a poverty rate of 11.7%, 1/1980 to 7/1980 with a poverty rate of 13% and 12/69 to 11/70 with a poverty rate of 12.6%, contrasted with a current poverty rate of 13.7%. Even if I disagree with the definition of the "poverty rate" it seems the Nation is experiencing it more now than at the end of previous recessions.
But what of our Northern neighbors? Aren't they more civilized? More fair? Their top 10% earned $23,400/year less than did ours while their bottom 10% earned only $600/year more than did ours. They did achieve a "better" income disparity rate than did we: 10.1x the rate of the bottom 10% by the top 10%. The average income up North was $46,500/year, or $14,500 less than the average American. Of course their tax burden as a ratio of GDP is 38.2% compared to ours of 14.7% while their debt burden remains 84% of GDP compared to ours of 62.9% per capita. And we have the largest Public Debt in the world, short of the EU, which is a conglomeration of nations, not including what one government borrows from another inside our own Nation.
And while our official "poverty rate" is 15%, the more disparate income levels of Spain includes a poverty rate of 19.8%. I can't define exactly what constitutes the "poverty rate" here or there, but I know we earn more on average than just about everyone, and I know our "bottom 10%" earn more than the average in many parts of the world, including "equality" based China. I'd rather be "poor" here than average elsewhere.
If equalizing the income disparity means that we ALL get paid less, then I'm out. If it means that we get taxed more, I'm out. If it means that each of us has less chance to earn more, I'm out. If it means that our poor earn less, I'm still out. It sounds nice that we could all earn as much as the President, but if that means the leader of the free world earns the same as the burger flipper at McDonald's, I think we're better off letting the Free Market determine our worth. I don't want the guy with his finger on the nuclear button having the educational background and work experience of a burger flipper. I don't want my brain surgeon having the incentives of a retail clerk. I don't want my home-builder having the motivation and skills of a 7-11 cashier.
And if Warren Buffett wants to pay more taxes, all he has to do is write a check. The IRS never rejects money. If he thinks his Secretary deserves more money, he can give him a raise. If he wants income parity, he's welcome to give me 49% of his salary, and I'll hire the tax attorneys necessary to decrease my own tax burden. If the POTUS thinks he should pay more taxes, he can do the same.
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