Rick Kahler: Income inequality perceptions driven by several factors

2012-02-05T04:30:00Z Rick Kahler: Income inequality perceptions driven by several factorsRick Kahler Rapid City Journal
February 05, 2012 4:30 am  • 

I am not sure if there is an Occupy Windhoek movement, but there should be. Windhoek is the financial capital of Namibia, which has a Gini Index rating of 70.7, giving it the largest gap in the world between its wealthiest 1 percent and the rest of its citizens. The Gini Index is a measure of statistical dispersion. A value of zero represents absolute equality, while 100 indicates absolute inequality (such as one person having all the income).

Based on the Occupy Wall Street folks, one would expect the U.S. to be close behind Namibia in income inequality. This is from an Occupy website: "We are getting nothing while the other 1 percent is getting everything. We are the 99 percent."

But according to the CIA World Factbook 2011, the U.S. Gini Index rating is 45.0, exactly what it was in 1929.

That puts us slightly above the global median, which is 41.0. The worst 30 countries have ratings of 48.0 to 70.7.

We're not in the top 30, however. Sweden leads that group, with a rating of 23.0. Six of the top 10 countries with the least income inequality are in Scandinavia and Eastern Europe.

Interestingly, the most economically free economy, Hong Kong, has an index of 53.3 and Singapore, the second most free, is 48.1. It makes intuitive sense that the high tax/big government Scandinavian countries have more income equality than capitalistic countries like Hong Kong, Singapore and the United States. Still, having a free economy and a lower income inequality ranking is not unobtainable. Australia, New Zealand, Switzerland, Canada, Ireland and Denmark all have economies ranked more free than ours and also have better income inequality index ratings.

Worldwide, it's true that the top 1 percent own a disproportionate share of the wealth. One percent of the world's population own 40 percent of the global assets. The richest 10 percent own 85 percent, while 50 percent of the population own less than 1 percent of the global assets.

This is hardly a "99 percent vs. 1 percent" division marked by an arbitrary line. Instead, income comparisons are a scale. Those whose income level puts them at 92 percent, say, are hardly in the same boat as those at 4 percent or 5 percent.

What is the real motivating factor behind the erroneous OWS claims that "We are getting nothing while the other 1 percent is getting everything"? Anger and fear, certainly, over a perception that the economy is out of control and wealthy Wall Street types are to blame. Envy is probably a factor, as well. Research shows that the more we envy someone, the greater our pleasure at his or her downfall.

But is it a surprise or inherently wrong that the upper percentiles of income earners receive a disproportionate share of the wealth? It would seem reasonable that someone who works harder, risks more and makes timely and smart decisions will make and acquire more than someone who doesn't.

What is ironic is that the success of the top earners does not take anything away from those who earn less. In the U.S., the top 1 percent pay the highest percentage of taxes on their earned income, thus contributing heavily to our capitalistic system. Interestingly, if you have an individual income of more than $34,000, you are in the world's top 1 percent and are among the globally "rich."

Envy of the rich is almost universal. It also can be motivating. Contrary to common perception, 85 percent of the top 2 percent didn't inherit wealth but are first-generation millionaires or billionaires. Perhaps envy didn't drive them to try to tear down what others had achieved. Instead, it motivated them to build their own success.

Rick Kahler, CFP, is a fee-only financial planner and author. Find more information at www.KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com or 343-1400, ext. 111.

 

Copyright 2015 Rapid City Journal. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

(3) Comments

  1. Paleo1
    Report Abuse
    Paleo1 - February 08, 2012 4:28 pm
    What Kahler read on the website about the 99% is not meant to be taken literally. He is trying to make the Occupy movement look silly by explaining that those kinds of numbers don't work, but he is only making his own argument look idiotic. Kahler goes on to say that 85% of the top 2% didn’t inherit wealth but are first-generation millionaires or billionaires. Ironically, that takes us back to 1%approximately, doesn’t it? Then Kahler goes on to say that the OWS people most likely envy the rich. They are not envious, Kahler. They are fed up. The Occupy people are tired of watching billionaire criminals buy everything including our politicians and get away with it, among other things. The whole gist of this article is about income inequality factors and the perceptions that are driven by them. I would have to wholeheartedly agree that misperceptions are often driven by income inequality. The rich often project ridiculous generalizations onto the poor such as the ones that this article is riddled with.
  2. bman123
    Report Abuse
    bman123 - February 06, 2012 9:46 pm
    After working for a few large corporations you begin to see why people hate some CEOs. Higher health plans, if you can even afford them, no pensions, low wages, high commodity prices...a typical family of today is a lot different than say one in the 1970s. I think the sad ones will be the twenty somethings living with their parents - large student loan debt, dwindling job prospects, US economic slow growth - decade of the forgotten.
  3. Drummerboy
    Report Abuse
    Drummerboy - February 05, 2012 11:16 am
    Good article, Rick. I think what bothers a lot of people is not that some people are rich or have become rich through sound choices and hard work. I think what angers people are policies and practices that make the already rich even richer at the expense of those who aren't rich. How rich does someone have to be before they are satisfied. How many beach houses and jet planes does someone need? Apparently making 50 times the amount of the average worker isn't enough, Now CEOs typicaly make 400 times as much. I think people just want to feel that they have a chance to succeed. Over the last 30 years or so, it has become more and more difficult to change ones economic status. Utimately, we need to decide which is better, a society in which a few people can become obscenely wealthy and the majority of the rest of the people struggle, or one where the obscenely wealthy are satisfied just being fabulously wealthy so that a larger percentage of the population can live well also and have a chance at wealth themselves.
Add Comment
You must Login to comment.

Click here to get an account it's free and quick

Activate subscription button gif

Market and Stocks

Poll

Loading…

Fur-Ever Wild was just approved to keep wolf cubs and fox kits at a wildlife education center in Deadwood. Do you agree with the South Dakota Animal Industry Board's ruling?

View Results

Recent Blog Posts

Static for Blue Jay Wireless

The state Public Utilities Commission provided an unusually cool reception Tuesday to an application by Blue Jay Wireless. The suburban Dallas…

May 27, 2015 8:06 am(0)

Tractor Supply Co. hosting event for pets

Rapid City's Tractor Supply Co. at 3440. E. Mall Drive is hosting a pet event on Saturday, May 30, to encourage adoptions and support local an…

May 26, 2015 1:38 pm(0)

STARFOX

STARFOX

STARFOX = A Nintendo super hero

May 26, 2015 8:28 am(0)

Bosworth trial takes break until Wednesday

Circuit Judge John Brown told the jury on Friday afternoon that the trial of Annette Bosworth will continue on Wednesday at 2 p.m. CT. The pro…

May 26, 2015 8:03 am(2)

Osu Sensei

Osu Sensei

The one thing that is constant in our job is that you meet quite a few people every day. It may be only a handful others it may range into 20 …

May 23, 2015 1:00 pm(0)