Is Income Inequality a Zero Sum Game?

In this post are three charts from a recent UN Report on Income Inequality in the world. There are two sets of questions that should be asked about those charts. First, besides the raw numbers what are they actually showing? And second, if they are true, how should we respond?

The report is a good thing - for what it does. It's limitations should be noted, it includes very little longitudinal data and there are some parts of the earth where data is not adequate. But the numbers are probably close to right. Indeed, the US and the rest of the developed world has a large percentage of the assets in the world. But the risk is that if the readers of the report think in the same UN mindset that the framers of Kyoto did, we will come up to the same idiotic standard of a fixed pie. Kyoto should have been opposed because the people who framed its answers framed them as if the world were a static place.

There are a couple of things we know about changes in income over time, both in the US and around the world. Most of the differences in wealth can be explained by educational levels. Those countries that invest(ed) in education for their population are either growing toward wealth or already have it. As Gary Becker constantly reminds us "Human Capital helps to determine wealth." That is a simple statement but an important one.

Second, the allure of great wealth in some arenas (or at least high salaries) has deflected some away from more social occupations. Richard Posner speculates that we've lost some quality in places like public service because the pay does not compare to areas like law or banking or even some high tech jobs.

Finally, the picture in the world map is that wealth also clearly equates with secure property rights. As the gold and green countries begin to make changes to assure those rights, and if they invest in education, they will soon be in the realm of the wealthy and we will all be better for it. Some have looked at the tremendous investment that China is making in education at this point. I applaud them for it, and rather than bewailing those efforts, I respond by believing that in a competitive world the pie is never fixed and if we as Americans continue to underproduce in key areas of human capital development (read education) we will be the poorer for it.