How free markets create & divide wealth Income Distribution How free markets create & divide wealth

Distribution of Income Egalitarian Society- equal society Free markets focus on efficiency not equality Free markets produce tremendous wealth but also a large gap between rich & poor record gap between the rich and poor in USA today Globalization has exacerbated this trend

The Rich get Richer

Wealth vs. Income Top 1% has 21% of Income Top 1% has 40% of Wealth Bottom 40% has less than 1% of wealth

Do we need a more Progressive Income Tax? Tax Rate Single 10% $0 – $8,350 15% $8,351– $33,950 25% $33,951 – $82,250 28% $82,251 – $171,550 33% $171,551 – $372,950 35% $372,951+

Where do YOU want to live? Country A GDP per capita = $20,000 per year Country B GDP per capita = $60,000 per year Which country do YOU want to live in? Population = 100,000 Each person earns $20,000 GDP = 2 billion or $20,000 per capita Population = 100,000 400 people earn $15 million 99,600 earn $1,000 per year GDP = 6 billion or $60,000 per capita

Measuring Income Inequality How do you best measure income inequality? Average income Median income Lorenz curve precisely measures income inequality. Straight line represents “perfect” income equality Flawed measures of income gap

Lorenz Curve

Gini Index Summary Measures the distance from line of “perfect equality” to Lorenz Curve Gini Index ranges from Zero to 1 An index of 0 (zero) means perfect EQUALITY (on line) As the Gini Index moves from 0  1 inequality increases

Lorenz Curve Review France: .34 USA: .46 Line of Income equality Gini Coefficient 0 - 1 USA: .46

Gini Index by Country Sweden = .23 Germany = .28 England = .36 France = .32 USA = .46 Japan = .25 Brazil = .59 South Africa = .58

Gini Coefficient of WEALTH = .82

Income Distribution Rising Why Now? http://www.pbs.org/newshour/businessdesk/2012/03/author-charles-murray-on-bubbl.html