Analytical take on the topic of inequality

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Inequality 101
KAPOW! – 10 “killer” slides in 10 minutes
11th October 2020
ONLY FOR
RECKLESS USE
OFFICIAL
1 2 3 4 5 6 7 8 9 10
10 10

2. 2

3. 3
These slides were spun up from a number of solid reads
1 2 3 4 5 6 7 8 9 10
10 10
Hugh’s Killer
Idea’s (HKI) Book
Rating
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4. 4
1 2 3 4 5 6 7 8 9 10
Yes. It’s Quiz time! ☺
• Today, 0.9% of the world’s population (~70 million people) each have
more than $1 million in personal wealth. What percent of the total
global wealth (~$280 trillion USD) do they own?
❑ A: ~44% ❑ B: ~59% ❑ C: ~85%
1
• In the USA, for the bottom quintile (lowest 5th) of income earners,
how have their earnings changed over the last three decades (data
from 1979-2007)?
❑ A: <-30% ❑ B: ~0% ❑ C: >30%
2
• In the USA, what is the probability of being in “the rich” favored top
fifth of income earners over one's life?
❑ A: ~1% ❑ B: ~20% ❑ C: ~75%
3
You can find the answers at the top of the next slide! 10 10

5. NOT EXHAUSTIVE
Term Description
• The movement of people (the change of position or social status) through a social stratification. Often refers to the ability of one
generation to move to a higher (or lower) level of income stratification (e.g., ability of a child born into the bottom quintile of income
earning families to move out of the bottom quintile).
• Differences; the quality of being unequal. Often spoken about as either inequality of income (money received on a regular basis for
work or through investments), wealth (accumulated valuable possessions or money), or opportunity (fairness or level playing field).
It is a rather pejorative term, that can provoke emotion.
• A measure that describes the size and direction of the relationship between two or more things. Causation means the action of
causing something (A causes B). Importantly correlation does not necessarily mean causation.
• Statistical measure of the degree of inequality. Often used to represent the income or wealth inequality within a nation or group of
people. A Gini coefficient of zero expresses perfect equality, where one expresses maximum inequality.
• A measurement of prices in different countries that uses the prices of specific (a basket) goods to compare the absolute purchasing
power (the amount of goods and services that can be purchased with a unit of currency) of the countries currency.
• A country’s economic output per person (calculated as total GDP divided by the population #). GDP refers to the total value of
goods produced and services provided in a country during one year. While an imperfect measure, it is a rough and ready way to
understand economic performance.
• Ratio between the output volume and the volume of inputs. A measure of how efficiently production inputs such as capital (e.g.,
tools) and labor are being used in an economy to produce a given level of output.
• Usually refers to the 1% of a population that have the highest income for that year or period of time, or highest wealth.
• Occurs when a person who is actively searching for employment is unable to find work. It is often used as a measure of the health
of the economy. The unemployment rate is commonly used, and is the # of unemployed divided the # in the labor force.
• Inputs needed for the creation of a good or service. These include land, labor, capital and entrepreneurship. They are often
referred to as physical capital and human capital.
• A person not having enough paid work or not doing work that makes full use of their skills and abilities.
Inequality
Social mobility
Gini coefficient (or Gini index)
Correlations (& causation)
GDP per capita
Purchasing Power Parity (PPP)
Top 1% (top 10%, top 20%)
Productivity
Factors of Production
Unemployment
Underemployed
1 2 3 4 5 6 7 8 9 10
And for this wicked problem, a glossary (I know, dry) might be in order
10 10
Answers to Quiz! Q1. A: ~46%. Q2. C: More than 30%. Q3. C: More than 75%.

6. $ 2,400,000
$ 361,020
$ 174,000
$ 125,105
$ 85,950
$ 53,007
$ 35,000
$ 19,002
$ 8,600
Top 1%
Top 5%
Top 0.01%
Top 10%
Bottom 20%
Top 20%
Top 40%
Bottom 40%
Bottom 10%
$ 25,000,000
$ 11,099,166
$ 2,584,130
$ 1,219,126
$ 558,190
$ 201,311
$ 67,469
$ 6,368
-$ 467
Annual Income
Segments Total Wealth
1 2 3 4 5 6 7 8 9 10
Before we start this journey together, it might not be a bad idea to place
yourself on the income and wealth distribution
Comparison of USA Income and Wealth Segments, #’s are approximate
$43,206
$2,920
USA World
14x
USD, PPP, 2019, per adult
Median Income, USA vs World
$69,117
$7,087
USA World
10x
USD, PPP, 2019, per adult
Median Wealth, USA vs World
10 10

7. Bottom Middle Top
The ‘majority in the
middle’ make almost
no economic profit
10,000
-10,000
5,000
-5,000
180
Radically unequal distributions are very common in nature and
society (with business and industry being just one example)
Average annual economic profit generated per
company, 2010-14, $ million
Average annual economic profit of firms within each
industry, 2010-14, $ millions
SOURCE: McKinsey & Company
Economic
Profit
Avg.
The value exponentially
accrues to the top
quintile
1,000
0
1,500
2,500
-1,000
-500
2,000
500
Multi Utilities
Marine
Construction Materials
Electric utilities
Oil, Gas &
Consumable Fuels
Airlines
Gas Utilities
Metals & Mining
Construction &
Engineering
Road & Rail
Food Products
Chemicals
Machinery
Software
Tobacco
Technology Hardware, Storage & Peripherals
Automobiles
Diversified Telecom Services
Internet Software & Services
Wireless Telecom Services
Aerospace & Defense
Auto Components
Media
1 2 3 4 5 6 7 8 9 10
“There are many instances of power laws in large data sets from economics, demography, and nature. The distribution of earthquake magnitudes follows such power
laws, and so does the distribution of income for pro footballers, or book sales, for that matter. Another example is Zipf’s Law, which notes that the most frequent
word in English (“the”) occurs approximately twice as often as the second-most frequent (“of”), three times as often as the third-most (“and”), and so on.
Remarkably, this example of a power law holds for any language.” – Chris Bradley, Strategy Beyond the Hockey Stick
“Most professional golfers have never won a single PGA tournament in their entire lives, while just three golfers – Arnold
Palmer, Jack Nicklaus and Tiger Woods – won more than 200 PGA tournaments between them. Moreover, there are
similarly skewed distributions of peak achievements in baseball and tennis, among other endeavors.” – Thomas Sowell
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8. “The Strange Country of Extremistan.
Consider by comparison the net worth of the thousand people you lined up in the stadium. Add to them the
wealthiest person to be found on the planet – say, Bill Gates, the founder of Microsoft. Assume his net worth to
be close to $80 billion—with the total capital of the others around a few-million. How much of the total wealth
would he represent? 99.9 percent? Indeed, all the others would represent no more than a rounding error for is
net worth, the variation of his personal portfolio over the past second. For someone’s weight to represent such
a share, he would need to weigh fifty million pounds!
Try it again with, say, book sales. Line up a thousand authors (or people begging to get published, but calling
themselves authors instead of waiters), and check their book sales. Then add the living writer who (currently)
has the most readers. J. K. Rowling, the author of the Harry Potter series, with several hundred million books
sold, will dwarf the remaining thousand authors with, say, collectively, a few hundred thousand readers. Try it
also with academic citations (the mention of one academic by another academic in a formal publication), media
references, income, company size, and so on. Let us call these social matters, as they are manmade, as opposed
to physical ones, like the size of waistlines.
In Extremistan, inequalities are such that one single observation can disproportionately impact the aggregate,
or the total.”
- Nassim Taleb, The Black Swan
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10 10

9. “The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from
inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent
of the American public out there with little or no net worth. I create nothing. I own.” – Gordon Gekko, Wall Street 1987
The distribution of wealth is just another example of this, with the
top 1% owning almost half
56.6%
1.8%
32.6%
15.5%
9.8%
38.9%
0.9%
43.9%
100%
Wealth by segments Total global wealth
$1M+
$100k-1M
$10k-100K
<$10k
100% $360.6 trillion
“While more than half of all adults
worldwide have a net worth below
USD 10,000, nearly 1% of adults are
millionaires who collectively own
44% of global wealth.” - Credit Suisse
Wealth and Population of Billionaires, trillion, 2019-20
Global Wealth by Population Group, 2019
9.7
11.2
2019 2020
16%
2470 2816
# # of Billionaires Globally
Wealth of the Richest Person vs Wealth of Countries, billion, 2020
209 205 197
165
Luxembourg
Jeff Bezos Poorest 39
Countries
Croatia
Jeff Bezos has as much wealth as ~100m of the <$10k population;
and about 5% of the total wealth of the African continent
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10 10

10. “A study of capuchin monkeys (the kind you’ve seen grinding music from an old-timey street organ)
suggests that this talent for social accounting is also ancient. Like humans, monkeys become distraught
when they get the wrong end of a deal. Primatologist Sarah Brosnan designed a simple exchange game
with the capuchins. First, she would give a monkey a small stone. She would then hold out her hand, and
when the monkey gave the strong back, she would give it a piece of cucumber. When they played this
exchange game, the monkeys would consistently trade stones for cucumbers. In the critical part of the
experiment, Brosnan would include two monkeys in the game, so that they could watch each other’s
transactions. First, Brosnan would play with one money and exchange the stone for a cucumber slice.
Then she would play the same game with the second monkey, but instead reward the exchange with a
grape – considered by the monkeys to be a much better snack than a cucumber. Brosnan now went back
to the first monkey and tried the original game again to determine whether it would make the “rational”
choice (in a narrow economic sense) and take the cucumber, since some food is better than no food. Or
would it do the more socially intelligent thing and protest, giving up nutrients in order to enforce a code
of fairness? This time the shortchanged monkey was having none of it: it looked at the cucumber slice,
then threw it back at Brosnan. This sequence was played out dozens of times with many different pairs of
monkeys. Sometimes the subject would simply toss the cucumber away, and at other times it would fling
it back in the experimenter’s face. Sometimes the monkey would not even return the stone. Why pay for
inferior quality?”
- Keith Payne, The Broken Ladder
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And while this might provoke feelings of a lack of fairness …
10 10

11. 1 2 3 4 5 6 7 8 9 10
… and a lot of squabbling and division on both sides of the political
& economic spectrum …
More on the Left
Areas More on the Right
Select notable individuals • Joseph Stiglitz, Paul Krugman, Thomas Piketty • Edward Conard, Jordan Peterson, Thomas Sowell
How to think about the top
1%
• Taking advantage of the system and have benefited from crony capitalism
and inherited wealth. A select group who have “rigged the game” and
essentially steal wealth from the middle and lower classes. They succeed
only because of or even at the expense of the rest.
• A national treasure, comprised on a large # of risk takers with very high
human capital that have been rewarded for their investments. A very high
turnover group, with American’s having a one in nine chance of spending
time in this group at some stage of their lives.
How to think about income
tax
• Increase the tax on the rich (top 20%, and in particular top 1%) and
redistribute this to the poor (bottom 20%). Spend extra effort ensuring that the
rich do not avoid or evade paying their “fair share”.
• Lower the margin tax for the top end. The top 20% already pay for between
75-90 of all taxes, and the current tax rates on the 1% stymies investment
and risk-taking which grows the economy, creates jobs & helps the poor.
How has inequality changed
over time
• Inequality is becoming worse. And yes, while there were some improvements
over the 20th century we have started to go backwards and fast. If left
unchecked, societies will continue to divide and fracture, and become
increasing unstable. For example, between 1980 and 2014, the wealth of the
top 1% in the USA grew from 23% to 37% of total wealth. We need to act now
with urgency.
• Globally, inequality is falling. With the great economic strides forward in the
last two centuries, most people have been pulled out of extreme poverty.
While inequality is a growing issue in advance countries, this is being driven
by the nature of the global economy – with large markets meaning more
upside and global competition from developing economies putting huge
downward pressure on low-skilled, low paid workers.
How to think about social
mobility
• The USA is no longer the land of opportunity. Social mobility is declining and
is far worse in the USA than other European countries. Most people in society
are not getting a fair go when it comes to bettering their lives or the lives of
their children.
• Globally GDP per capita and average wages have been increasing.
Furthermore, the best driver of social mobility – education – has been
growing rapidly (with less than 10% of the world’s population still illiterate).
Social mobility in the USA by and large is comparable to Denmark.
How to think about the
middle class
• The middle-class is being hollowed out. Middle-income earners have not
experienced real income growth in decades and median household income
has been falling for them. The decline of the unions has been a factor in
stopping middle-income wage earners from being able to demanding a large
share of profits. Moreover, new jobs have been created largely in low-wage
areas of the economy while millions of good manufacturing jobs have
vanished.
• Wages for the middle-class have been growing, but just not anywhere near
as much as the top end. This is largely due to the growing return on
productivity and human capital (education). Furthermore, the household
income data should be viewed with skepticism as the number of people per
household has changed drastically over time (e.g., 2015 US Bureau of Labor
Statistics show that there are now more than 36 million people in the top
quintile than in the bottom quintile).
How to think about
unemployment
• Unemployment has been growing. This is in line with the rise of technology
displacing workers as well as jobs (in particular good manufacturing jobs)
going overseas to China and other developing economies. The problem is
only going to continue to grow. A universal basic income or more robust
unemployment insurance could be appropriate to stem the suffering.
• Unemployment in the USA in 2019 was 3.7%, below the historical average of
5.8% since 1948. Furthermore, the employment rate (% of 15-64 years old's
working) has grown from 67% in 1980 to 70% in 2017. Moreover, since 1975,
the total # of jobs in the USA has essentially doubled from ~60m to ~120m.
Skilled-immigration, increasing levels of education, and lowering tax on the
top 20% support in creating jobs and putting upward pressure on wages.
10 10

12. 1 2 3 4 5 6 7 8 9 10
“There is a fundamental asymmetry in burdens of proof. No matter how much empirical evidence
of skewed distributions of outcomes is presented as evidence against the invincible fallacy, there is
no corresponding burden of proof on the other side to present even a single example of the equal
representation of various social groups in any given endeavor. In what country, or in what kind of
endeavor, or in what century out of the vast millennia of human history, has there ever been a
proportional representation of various groups in any activity where people have been free to
compete? One can read reams of arguments that statistical disparities imply biased treatment
without finding a single empirical example of the even distribution of social groups in any
endeavor, in any country or in any period of history.
Equally missing in most “social justice” arguments for a redistribution of wealth is the question of
the extent to which such a redistribution is actually possible, in any comprehensive, long-term
sense. Certainty there have been many examples of times and places where money or other physical
wealth has been confiscated by governments or looted by mobs. But physical wealth is a product of
human capital - the knowledge, skills, talents and other qualities that exist inside the heads of
people - where it cannot be confiscated.”
- Thomas Sowell, Discrimination and Disparities
10 10
… the Power Law is very common, and there are few remedies (said
differently, inequality does not = consequences of inequality)

13. “Progress is no more automatic than equality, whether for races, nations or other social groupings. We cannot argue as if good things happen automatically, and bad
things are somebody’s fault.” – Thomas Sowell
On a global
scale, things
have been
improving
drastically
over the last
200 years
Mean years of schooling
2017, # of years
Life expectancy at birth
2017, # of years
Mortality rate of children <5
2017, %
Average Income,
GDP per capita PPP
Details
However,
there are
still
substantial
and glaring
inequality in
living
conditions
43.0%
1800 2017
3.9%
-91%
1
8
2017
1800
+740%
29
72
2017
1800
+149%
1,000
15,469
1800 2017
14.5x
Iceland Somalia
0.2%
12.7%
-98%
1.5
14.1
Burkina Faso Germany
840%
52
84
Sierra Leone Japan
+62%
661
116,936
Qatar
176x
1 2 3 4 5 6 7 8 9 10
Saying all that, it is important to not forget that the last 200 years saw
miraculous improvements in living conditions (but more for some)
Global Average, 1800-2017
Best and Worst Performer by Country, 2017
10 10
Central. Afr. Rep.

14. 39 38 40 38 37
29
41
46
69
78
81
1700
1650 1900
1550 1600 1750 1800 2000
1850 1950 2020
0.05% p.a.
0.48% p.a.
85 84 84 83 81 79
56 56 56 55 54
Sierra
Leone
Sweden
Hong
Kong
Switzerland
UK
Australia
Chad
USA
Nigeria
Lesotho
Central
African
Republic
73
World
Avg.
And just to beat the poor dead horse, life expectancy (to pick one
indicator using more recent data) has almost tripled over the last
few centuries however the variation today is still large
Life Expectancy over time, 1550-2020 Life Expectancy by Country, 2020
1 2 3 4 5 6 7 8 9 10
“Reducing mortality has resulted from three forces. First, there have been improvements in the standard
of living most notably in the quantity and quality of food consumed. Preindustrial populations were
often so chronically malnourished that people died from diseases that would not be serious problems
among a better-fed population. As people became richer, they were less hungry and thus more resistant
to disease. In addition to better food, other advances in living standards, such as improvements in
housing and more frequent washing of clothes, reduced the toll taken by disease. A second factor in
lowering mortality has been improvements in public health measures such as the securing of clean
water and food and the draining of mosquito-infested swamps. A third force in lowering mortality has
been the role of medical treatments in curing diseases.” – David Weil
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15. “A 2002 study for the World Bank across a wide sampling of economies, however, finds strong evidence that ‘growth is good for the poor’. It shows that the income of the poorest 20 percent
of an economy tightly correlates to the economy’s per-capita income – with an astounding 88 percent correlation. The study finds that the relationship ‘holds across regions, time periods,
growth rates and income levels, and is robust to controlling for possible reverse causation from incomes of the poor to average incomes’.” – Edward Conard, Unintended Consequences
1 2 3 4 5 6 7 8 9 10
And generally speaking, economic growth (from the market system) has
been positive sum, and therefore good for the “poor”
Those living in extreme poverty has gone from
more than 8 in 10 to less than 1 in 10, $1.90 per
day, 1820-2015, %
84%
10%
16%
90%
Not in
extreme
poverty
1820 2015
In extreme
poverty
The global population has seen both a rise in
GDP per capita and incomes, 1981-2015,
billions of people
1.9
0.7
0.7
1.2
0.4 1.5
0.4
1.4
1.1
2.6
1981 2015
4.5
7.4
Above 10$ a day
1.9-3.2$ a day
3.20-5.50$ a day
5.50-10$ a day
Below 1.90$ a day
GDP per capita,
2017 dollars
$x
$3,815 $15,172
Furthermore, it appears that as income has grown for
countries so to has the income of the poorest fifth, Avg
income per capita, 2002, examples post a decade of growth
$12,000
$7,000
$9,000
$4,500
$1,500
$800
$6,500
$800
$6,500
$5,000
Avg. Bottom
$10,000
$2,500
Avg. Bottom
USA, 1994 South Korea, 1988
Rwanda, 1983 Brazil, 1993
Poland, 1989 Mexico, 1989
10 10

16. “Then came the bonuses. Shortly after the bailout money began to flow, news accounts revealed that
some of the companies now on the public dole were awarding millions of dollars in bonuses to their
executives. The most egregious case involved the American International Group (A.I.G.), an
insurance giant brought to ruin by the risky investments of its financial products unit. Despite
having been rescued with massive infusions of government funds (totaling $173 billion), the
company paid $165 million in bonuses to executives in the very division that had precipitated the
crisis. Seventy-three employees received bonuses of $1 million or more .. Something was wrong with
this picture. Although the U.S. government now owned 80 percent of the company, the treasury
secretary pleaded in vain with A.I.G.’s government-appointed CEO to rescind the bonuses. “We
cannot attract and retain the best and the brightest talent,” the CEO replied, “if employees believe
their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.” ..
[Barack] Obama identified the real source of bailout outrage: ‘This is America. We don’t disparage
wealth. We don’t begrudge anybody for achieving success. And we certainty believe that success
should be rewarded. But what gets people upset – and rightfully so – are executives being rewarded
for failure, especially when those rewards are subsidized by U.S. taxpayers’.”
- Michael Sandel, Justice
1 2 3 4 5 6 7 8 9 10
And while it might sound plausible that the “system is rigged” and
the rich take care of themselves at the expense of the poor ...
“It was rightly perceived to be grossly unfair that many in the financial sector walked off with
outsize bonuses, while those who suffered from the crisis brought on by these bankers went
without a job; or when government bailed out the banks, but was reluctant to even extend
unemployment insurance for those who, through no fault of their own, could not get
employment after searching for months and months.” – Joseph Stiglitz, The Price of Inequality
10 10

17. 1.00
0.73 0.62
0.03 0.02
USA Japan South
Korea
Kenya Malawi
Output per Worker
Factors of Production
Productivity Human Capital
Physical Capital
1/3
2/3
1.00 1.04 0.96
0.23 0.21
Factors of Production
Relative to US, 2009
Productivity
Relative to US, 2009
0.18
0.33
0.50
0.70
0.93
Middle
20%
Second-
richest
20%
Second-
poorest
20%
Poorest
20%
Richest
20%
… there is often (not always) good reasons for disparities. For
example, wage inequality is largely driven by avg. output per worker
0.16
0.28
0.42
0.64
0.94
Richest
20%
Second-
richest
20%
Poorest
20%
Middle
20%
Second-
poorest
20%
1.00
0.70 0.64 0.14
0.09
1.00 1.16
0.92
0.02 0.03
1.00 0.98 0.98
0.73
0.57
Comparison of USA to other countries on the elements of output per worker
“Japan has significantly higher levels of physical capital per worker and almost the same level of human capital per worker as the
United States. In terms of factor accumulation, Japan is better off. But comparing productivity, we find that Japan is at only 70% of
the U.S. level and thus is significantly poorer than the United States … Kenya and Malawi have roughly equal levels of factor
accumulation, but Kenya is 61% more productive and thus has much higher income per capita” – David Weil
47%
53%
x Relative importance of factor (sum = 100%)
10 10

18. While a # of commentators (and a range of analysis such as The Great
Gatsby Curve) state that the US is no longer the land of opportunity…
Social Mobility
Chances of moving up or down the family income ladder by
parents’ quintiles, 100%, USA
14% 19% 24%
40%
9%
20%
24%
24%
23%
17%
18%
23%
23%
19%
27%
24%
20%
20%
10%
43%
25%
14% 9% 8%
5th
3rd
3rd
1st
4%
2nd 4th 5th
2nd
4th
1st
Parents’ Income Quintile
Adult
Children's’
Income
Quintile
1 2 3 4 5 6 7 8 9 10
40
25 60
8
35
20 45
4
55
5
1
30
2
3
7
50
6
Inequality (Gini Coefficient)
Germany
Intergenerational earnings elasticity
Denmark
South Africa
United Kingdom
Sweden
Norway
Japan
Australia
Ukraine
Finland
Canada
Argentina
Brazil
France
New Zealand
Switzerland
Slovenia
Italy
United States
Peru
China
Chile
Singapore
Spain
The Great Gatsby Curve
“A University of Michigan study that followed a given set of working Americans from 1975 to
1991 found that 95 percent of the people initially in the bottom 20 percent were no longer there
at the end of that period. Moreover, 29 percent of those initially in the bottom quintile rose all
the way to the top quintile, while only 5 percent still remained in the bottom 20 percent.
Since 5 percent of 20 percent is one percent, only one percent of the total population
sampled constituted “the poor” through the years studied.” – Thomas Sowell
“There’s no use in pretending. In spite of the enduring
belief that Americans enjoy greater social mobility that their
European counterparts, America is no longer the land of
opportunity.” – Joseph Stiglitz, The Price of Inequality

19. 19
… the authors of the Gatsby Curve now state there is “almost no
differences in upward mobility between Canada, Sweden & the U.S.”
Resulting income of the Adult by Quintile
24%
25%
1st
51%
28%
14%
23%
20%
3rd
6%
19%
18% 18%
3%
16%
5th
2nd 4th
25%
12%
Danish Adult Raised by Poorest Quintile Families
African American Adults Raised by Poorest Quintile Families
White American Adults Raised by Poorest Quintile Families
Mobility of poor white Americans is almost identical to the
poor in Denmark (less so for poor African Americans), 100%
“U.S. upward mobility appears to be available to those with the aptitude and determination to earn it .. Nor has American income mobility declined relative to other
higher-wage economies. In fact, income mobility in America is virtually identical to the most mobile high-wage economies, even those of Scandinavia, for
all but the poorest minority children who face an entirely separate set of challenges” – Edward Conard, The Upside of Inequality
“The probability that a child from a low-income
family (e.g., in the bottom 20%) reaches a fixed
upper income threshold (e.g., $100,000) … has
increased.” – Raj Chetty and Emmanuel Saez
“A recent Brookings Institute study on U.S.
mobility found lack of mobility among the
American poor was largely confined to poor
African American children” – Ed Conard
High Levels of High-School Drop-outs and Single
Parenthood are Likely Key Factors, 100%
50%
12%
52%
Resulting income of the Adult by Quintile
4th
25%
9%
26%
55%
1st
28%
2nd
12%
12%
3rd
7%
5%
6%
3% 1%
5th
African American Adults Raised in 1st Income Quintile Families
All Adults Raised by Single Mothers in 1st Quintile Families
All Adults Raised in 1st Quintile Families Who Have Dropped Out
of High School
1 2 3 4 5 6 7 8 9 10
10 10

20. This is also highlighted by recent OECD analysis that looked at the # of
generations it would take to shift from low-income to the mean
2
3
4 4 4
5 5
6 6
7 7
9 9
11
Finland
Denmark Australia Japan South
Africa
Canada France India
USA UK Germany China Brazil Colombia
4.5
OECD
Avg.
# of generations to move from low-income families to mean income, by select countries, 2018
1 2 3 4 5 6 7 8 9 10
10 10

21. This is a good reminder that we need to be extra careful with statistics
(especially those used when talking about inequality)
1 2 3 4 5 6 7 8 9 10
0
0.4
1.0
0.2
0.8
0.6
Belgium
New Zealand
Denmark
Austria
Germany
Japan
Ireland
Spain
Switzerland
France
Canada
Sweden
Norway
Finland
USA
Greece
Netherlands
Italy
UK
Portugal
Australia
Low High
Percent
of
national
income
spent on
foreign
aid
Income inequality
… inequality drives spending on Foreign Aid, or inequality causes …
Norway
Japan
Sweden Netherlands
Finland
Belgium
Denmark
Austria
France
Germany
Spain
Switzerland
Canada
Ireland
Greece
Italy
Australia
New Zealand
UK Portugal
USA
Low High
Better
Worse
Index of
health
and
social
problems
Income inequality
… health and social problems (as outlined in the book The Spirit Level)
1998 2000 2010
80 drownings
02 08
04 06
100 drownings
120 drownings
140 drownings
0 films
2 films
4 films
6 films
Swimming pool drownings Nicholas Cage
Nicholas
Cage
Swimming
pool
drownings
Just like you cannot say the films Nick Cage appeared in caused changes in the #
of people who drowned by falling into a pool (or ice cream sales caused changes
in Shark attacks) you cannot say ..

22. Also, while many refer to the top 20% of income earners as “the
rich”, 75% of Americans will find themselves there (at some point)
1 2 3 4 5 6 7 8 9 10
Chance of Entering Top 20%, Top 10% or Top 1% of
Income Earners at Some Stage of Life, 1975-91
Chance of
entering Top 1%
Chance of
entering
Top 10%
Chance of
entering
Top 20%
75%
51%
11%
“Internal Revenue Service data show that half the people who earned over a million
dollars a year, at some time during the years from 1999 through 2007, did so just once
in those times. This does not imply that all the others in that bracket made a million
dollars every year. Another study, also based on tax data, showed that, among
Americans with the 400 highest incomes in the country, fewer than 13 percent were in
that very high bracket more than twice during those years from 1992 to 2000. The
highest incomes are usually very transient incomes, reinforcing the conclusion that
these are transient capital gains rather than enduring salaries.
All of this distorts the implications of income statistics that treat annual earnings and
multi-year capital gains as if they were the same. Talk of how much of a country’s
income is received by the top ten percent, or by the top 400, proceeds as if this is a
given set of people. But because of the high turnover rate in high income brackets,
there can be thousands of people in the “top 400” during just one decade. During the
period from 1992 to 2014, for example, there were 4,584 people who were in the top
400 income earners, according to Internal Revenue Service data. Of these, 3,262 were
in that bracket just one time during those 23 years …
Such data are also relevant to the oft-repeated claim that “the system is rigged” by the
wealthy. That claim certainly fits the prevailing social vision. But if the question is
whether it also fits the facts, then it can be tested like any other hypothesis. In light of
this data, if the top 400 income recipients in the United States rigged the system, and
71 percent of the people in the “top 400” are in that category just one time during a
period of more than two decades, why would anyone rig the system in such a way that
they themselves would be unlikely to remain in the topmost income bracket? It would
have to be some of the most incompetent rigging imaginable”
- Thomas Sowell, Discrimination and Disparities
10 10
“Static inequality is a snapshot view of inequality; it does not reflect what will
happen to you in the course of your life. Consider that about 10 percent of
Americans will spend at least a year in the top 1 percent, and more than half of all
Americans will spend a year in the top 10 percent. This is visibly not the same for
the more static – but nominally more equal – Europe. For instance, only 10 percent
of the wealthiest five hundred American people or dynasties were so thirty years
ago; more that 60 percent on the French list are heirs and a third of the richest
Europeans were the richest centuries ago. In Florence, it was just revealed that
things are even worse: the same handful of families have kept the wealth for five
centuries.” – Nassim Taleb, Skin in the Game

23. “The book, Capital in the Twenty-first Century, makes aggressive claims about the alarming rise of
inequality, adding to it a theory of why capital tends to command too much return in relation to labor
and how the absence of redistribution and dispossession might make the world collapse. Piketty’s theory
about the increase in the return of capital in relation to labor is patently wrong, as anyone who has
witnessed the rise of what is called the ‘knowledge economy’ (or anyone who has had investments in
general) knows.
Clearly, when you say that inequality changes from year one to year two, you need to show that those
who are at the top are the same people – something Piketty doesn’t do (remember that he is an
economist and has trouble with things that move). But the problem doesn’t stop there. Soon, I
discovered that – aside from deriving conclusions from static measures of inequality – the methods he
used were flawed: Piketty’s tools did not match what he purported to show about the rise in inequality.
There was no mathematical rigor …
We’ve made a big deal out of Piketty here because the widespread enthusiasm for his book was
representative of the behavior of that class of people who love to theorize and engage in false solidarity
with the oppressed, while consolidating their privileges.”
- Nassim Taleb, Skin in the Game
1 2 3 4 5 6 7 8 9 10
Moreover, a lot of the literature on the topic is very noisy
10 10

24. Headline: Inequality is on the decline globally, but is growing in high-
income countries. Moreover, is a really difficult challenge to tackle (1/2)
1 2 3 4 5 6 7 8 9 10
Plutarch, the Greek philosopher, stated that “an imbalance between rich and poor is the oldest and most fatal ailment of all republics” and Fernand Braudel,
the French historian, adds: “in no society have all regions and all parts of the population developed equally”. Since humans started walking this earth some
200,000 years ago almost everywhere you look in the world – from nature to enterprise - unequal distribution occurs with inevitability that parallels death
and taxes. Put another way, we cannot and do not all fly like “Sully”, shoot basketballs like Jordan, or sing like Beyoncé (and would we want that anyway?).
Furthermore, we are not even equal to who we are a different stages of our life much less when compared to others at different stages of their lives. As
Churchill said: “things are what they are, and their consequences will be what they will be. Why, then, should we deceive ourselves?”
However, there is something deeply moving, something deeply emotive about the topic of inequality – whether that is in income, wealth or social mobility –
and the aspiration to correct it. Whether you look to our distant capuchin monkey relatives (if you haven’t see Frans de Waal’s TED talk “Moral Behavior in
Animals” it is well worth a watch) who will throw a tantrum if they see their fellow monkeys receiving grapes for the same task that they are being rewarded
with cucumbers for; or more recently in the 20th century to the heady visionary rhetoric under the banner of social justice and radical egalitarianism that led
to such catastrophic tragedies under the communist and socialist branded totalitarian dictatorships; it is a topic that moves the spirit. And while disparity is a
challenge (especially given the fact we all come into the world with widely ranging interests, and capabilities), it is a truly wicked problem that is very difficult
to ameliorate, with no “silver bullet” or easy fix.
Today, I propose that we explore a few areas of inequality: context (where are we today, and how is that different from where we have been historically);
challenges (what are some of the challenges when it comes to inequality) and potential interventions (what if anything could be considered).
1. Context
1.1. Is the world more unequal today? No. Global inequality fell during the first part of this century, with a decline in the relative wealth of the top 1%, top
10%, and the growth in the share of wealth going to lower and middle-income countries. Furthermore, between-country inequality (rather than within-country
inequality) is now the most important source of inequality, accounting for ~60% of overall world inequality.
1.2 Are the richer (OECD) nations generally, and the US specifically, becoming more unequal? Yes. Over the last three and half decades there has been
growth in the wealth and income share captured by the top 1%; and the Gini-coefficient has gone up.
10 10
1

25. Headline: Inequality is on the decline globally, but is growing in high-
income countries. Moreover, is a really difficult challenge to tackle (2/2)
1 2 3 4 5 6 7 8 9 10
2. Challenges
2.1. Do people feel that inequality is a growing problem? A large number of people feel that their countries are heading down the wrong track, and that their financial situation is
worse than it was a few decades ago. This is very much in line with the perception that societies are polarizing.
2.2. How bad is inequality in the US? While there is inequality, the US is not a bottom performer. However, inequality within the US is rather stark across a range of indicators and
segments.
2.3. Have incomes been falling for workers in the US? For most workers, incomes have been rising. Between 1979-2007 the bottom quintile of wages earners experienced a 32%
rise in income, however this was left in the dust by the top 5% that saw a 69% increase. In particular for the lowest 5% of earners, there has been a decline in wages. This is
largely due to the growing global competition for low-skilled workers who command less than a dollar per hour wages.
2.4. How has the US been performing relative to peers? Well. While the US might be more unequal than it’s peers, it outperforms them on many indicators, including GDP per
hour worked, annual hours worked per worker and the unemployment rate.
3. Potential interventions
3.1. Will improvement in education help to lower inequality? Increasing the amount and quality of education in the USA will go a long way (especially early age pre-kindergarten
interventions). Education is by far the best tool we have to increase social mobility and given the growing competition for low-skilled, low wage work (and the downward pressure
this is applying to wages); education will be key to increasing the volume and pay of jobs (there are over 120m adults in the USA with a high school diploma or less).
3.2. Should we not just tax the rich and be done with it? If only it was that simple. Increasing the tax rate might not actually generate more tax revenue. One example of this is in
the 1920s, when the USA reduced its income tax for the highest income bracket from 73% to 24% and ended up increasing the total tax revenue collected. Furthermore, it could
reduce the total amount of money being saved and then invested in innovation (the top 20% save about 40% of their incomes – a much higher rate than other quintiles), which
spurs future job creation. While I’m with Warren Buffett when it comes to changes to the tax system (including the exploration of increasing tax for the top 0.1%-0.01%, potentially
even indexed to inequality), a focus on increasing the effectiveness of current government spending may indeed have more bang-for-buck than tax increases.
3.3. Would increasing immigration help reduce inequality? Increasing immigration of highly skilled workers would allow the US to benefit from highly educated individuals who
would likely contribute to innovation and accelerate growth.
3.4. Could a Universal Basic Income (UBI) be part of the answer? Potentially. The proposal for a form of UBI – a certain amount of money paid to every citizen - has been around
for many years. Most recently Andrew Yang (Yang2020) has campaigned on a policy (called The Freedom Dividend) of $12,000 USD per adult per year for citizens over 18, no
questions asked. This policy would bring every American to the poverty line ($11,770).
And while inequality is another wicked problem, I hope you leave this with less “what” to think about inequality and “what” can be done about it; but more “how” to think about this
thorny issue. So say the next time you read that “the rich” are taking from “the poor” – you can question whether this indeed is the case (it might well be) or is it more akin to
saying Jordan took an unfair share of points scored in the NBA. Or when you read about the intrenched 1%, you might ask – who exactly are we referring to when we say the
1%? – because depending on the year, that could be you as well (remember you have an 11% chance).
10 10
3
2

26. It appears that global inequality has been declining with the drastic
rise in GDP per capita and fall in those in extreme poverty …
Share of Global Wealth by Countries, 2000-19 (with 2024
forecast), %
6% 7% 7% 10%
14%
21% 22%
28%
80%
72% 71%
62%
2019
2000 2014 2024
Lower-
income
High-
income
Middle-
income
“Global inequality fell during the first part of
this century when a narrowing of gaps
between countries was reinforced by declining
inequality within countries.” – Credit Suisse
Changes in Global Wealth Inequality by Wealth Gini, Top
10% and Top 1%, 2000-19, %
“The conclusion to be drawn is that – according to the latest and most reliable source data – global wealth gaps have generally narrowed over the last two
decades.” – Credit Suisse
2020
2000
50
2005 2010 2015
40
30
60
70
80
90
100
-4%
-7%
-4%
Gini Top 10% Top of 1%
1.1
10 10
1 2 3 4 5 6 7 8 9 10

27. Even with the large drop in the # of low income countries, the main
driver of inequality is now between countries (not within)
1990
Low
income
Not
categorized
Low-middle
income
High income Upper-middle income
Economic prosperity in GDP per capita, 1990-2020
2020
0.4 0.4
0.3 0.3
0.1
0.3
0.5
1880
1820 1940
Inequality btw
Countries
0.6
0.5
0.4
1992
0.8
Inequality within
Countries
0
World Inequality between and within Countries, 1820-
1992, %
1.1
“First, although inequality has increased since 1820, most of that increase took
place before World War II. The rise of inequality between 1820 and 1950 was
seven times as large as the rise between 1950 and 1992. Following 1980, world
inequality declined. A second important point .. is that in the world today,
between-country inequality is the most important source of inequality.
Specifically, between-country inequality explains 60% of overall world inequality.
Finally, even though between-country inequality dominates today, it has not
always done so. Quite the contrary: in 1820, within-country inequality
accounted for 87% of world inequality.” – David Weil
10 10
1 2 3 4 5 6 7 8 9 10

28. Please click →
https://www.hughskillerideas.com/kapows
To Read the rest & hang out with
these legends (I wish), please visit
Hugh’s Killer Ideas. Peace.