Happy new year.

As you are interested in income and wealth distributions, I’ve posted a short comment on the subject. It’s called “La Vie en Rose: the Irvine Index”. You can find it at:
http://aussiemagpie.blogspot.com/

I am still studying some material, so a more elaborate article is cooking.

Magpie’s Asymmetric Warfare
http://aussiemagpie.blogspot.com/

I don’t have much stuff yet, though.

Marco

By all means post the URL to your blog post.

Interesting subject. Allow me a couple of observations:

First observation:

I haven’t read Bartels’ “Unequal Democracy”, so I don’t know which sources were used in the book. Judging by the NYT article, where the table above appears, it seems the data comes from the US Census Bureau.

If so, then I suspect the data is part of the American Community Surveys. These studies, as their name indicates, are based on samples. If a sample fails to include extremely wealthy individuals (say, Bill Gates or Warren Buffett), the results (especially those of the upper echelons in the income scale) will be underestimated.

But, perhaps much more importantly, the American Community Surveys do not include capital gains as part of their income definition; while I believe it does include all government transfers (food stamps, unemployment, and such).

In this the ABS’s Survey of Income and Housing is quite similar: it is also based on a sample and does not include capital gains (although it does include profit/loss from unincorporated business and net investment income, plus government transfers, i.e. pensions and allowances).

Why they exclude capital gains, while including most other forms of regular income? I don’t really know for sure. But I suspect this distorts the final result, in both the US and Aussie cases, regardless of political party.

Second observation:

Does it really matter? I suggest a different way to look at this question: any attempt to reduce inequality will likely face enormous political opposition. At least, this has been the historical experience. This, I would think, suggests a part of the population cares about maintaining high inequality levels.

Why should those at the bottom of the scale be indifferent?

Besides, this situation did not simply arise, for no particular reason. I suggest that its causes may conceivably be quite relevant.

I am sorry for the self-promotion, but I am writing some material about this topic and I hope to be posting it in my own blog shortly. If you are interested, let me know and I will give you my URL.

Cheers,

Marco

You do, however, raise a good question when you ask does it really matter. While the instinctive reaction of many people is that increasing income inequality is not fair, this is not necessarily a rational position. In an earlier post I referred to Dan Ariely’s excellent book Predictably Irrational. One of the points Dan makes is that humans are much better at making relative judgements than absolute (How much is a 4 cylinder car worth? Who knows, but it’s less than the 6-cylinder). As a result, although most of the 10th percentile of Australian income earners have food, clothes and shelter, unlike countless people around the world, they will tend to judge their circumstances in comparisons to other Australians. So, even though you can certainly argue that increasing income inequality shouldn’t matter, in practice is does tend to affect people’s happiness. Although, the solution may be for everyone to read a book like Affluenza rather than closing the gap.

@Bast: Although you’re right that the fortunes of many of the richest will have taken a downturn recently (some former Lehman Brothers employees, for example), it’s probably not something that you’d pick up in data like this: the 90th percentile is far too low. All the CEOs would be well and truly above the 99th percentile.

Income inequality in Australia not increasing as much as the US….