Friday, June 24, 2016

Productivity has increased dramatically and in a short time frame

More than 700 years of income inequality in the UK measured via income share of the top 5% and Gini, 1980-2010 by Max Roser.

Click to enlarge

Excellent charting of what is a difficult to measure concept.

What is missing is the productivity dimension. Yes, income inequality is blessedly dramatically lower today than it was a hundred years ago. But that just measures the relative difference at the whole society level.

A hundred years ago, if you were in the bottom quintile, maybe the bottom two quintiles, you were border line starvation and even the middle income quintile was financially perilous. When everyone was working at such lower income, absolute income was a greater issue than relative income. It is only since we have become so prosperous so quickly that we have focused (mistakenly) on income inequality rather than what has always been the real root issue, productivity.

I think what these charts bring to the fore is that a hundred years ago poverty and income inequality were tantamount to starvation whereas today, definitional poverty and income inequality are really measures of relative discomfort.

And it is the rapidity of the spread of prosperity which is perhaps most remarkable of all. From top of mind, the bottom income quintile in the US in 2016 have a capital and durable goods consumption profile equivalent of that of the middle income quintile in 1970. There are a lot of people who are alive today with happy childhood memories of being middle income quintile in 1970.

Looking internationally, Mexico today has an average per capita GDP about where the US was in 1950 (from memory). Again, most of us today know someone who can remember the 1950s.

The only point here is that the income in individual and national productivity has increased dramatically and in a short time frame. It is disorienting and easy to lose perspective. Yes there are still poor countries and poor people within countries but what those terms actually mean in real life circumstances are far different from what they meant fifty and a hundred years ago.

No comments:

Post a Comment