110 So what if few get rich faster ?

Posted on May 11, 2012 by

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In 1992 DENG Yiaoping famously said: “To get rich is glorious” (致富光荣)[1]. It reflected the “spirit of the times” that affected or infected the REAGAN and THATCHER years. The metaphor was that of a tide that raised all boats – does it matter than some are raised early or faster?

If a few get rich faster than the rest, income inequality rises. Income inequality is conventionally measured by the Gini coefficient[2] (GC). A “high” coefficient means that income is skewed toward the “few”. In 2005 the EU GC was 31[3], as against 46.9 in the US, and (roughly speaking) China. Recently US[4], China, and India have all experienced steep increases in the GC – this perception of rising inequality may be lead to political instability.

The GC is an abstract value – people don’t get a full feel for what it means. I’ve come across a study, recently[5],  highlighting the very real impact of changing inequality. Assume that as GDP increases, salaries all grow accordingly. One takes “median income” as the reference, for this is a good indicator of how the “middle class” fared. Compare now this “growth path” with what actually happened between 1975 and 2009 in the US. Here is the resulting graph from pg. 71:

Whether it is a “tax” – an indicated or not is a matter for discussion. Had all incomes just grown at the overall average rate, however, median family income today would be 14% higher. We are talking here of “family income”. Personal income has fared worse, and families have managed to keep up with the standard by adding a second income[6].


[1]           http://en.wikipedia.org/wiki/Deng_Xiaoping See also: Ezra P. VOGEL (2011): Deng Xiaoping and the transformation of China. Belknap, Harvard University Press, Vambridge Mass.

[5]           Josh BIVENS (2011): Failure by design. The story behind America’s broken economy. IRL Press, Ithaca, N.Y.

[6]           See: Elizabeth WARREN – Amelia WARREN TYAGI (2003): The two income trap. Why middle-class mothers and fathers are going broke. Basic Books, New York.

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