wsj: 3x the income share is remarkable similarity

Today’s Wall Street Journal carries an opinion piece by Allan Meltzer based on a 2006 study by Roine and Waldenstrom. The piece reprints a graph showing the income share of the top 1% in several countries between 1900 and 2000. (The graph is quite interesting in itself.) Meltzer’s interpretation: “…the share of income for the top 1% in these seven countries generally follows the same trend line.” The pullout quote: “The remarkable similarity in income distribution across countries over the past century means domestic policy has less effect than many believe on who gets what.” The remainder of the piece is pretty much the same stuff we always see in the WSJ: additional taxes on the rich will reduce investment and therefore jobs and income for the other 99%, therefore it’s really in the best interests of the whole country for the obscenely rich to be left alone to become even richer.

I’m not interested in refuting the obviously self-serving argument about the “job creators,” but the interpretation of the graph is important. First, while there is an overall trend line, dispersion around it is substantial. Even during the time period of the least dispersion (the postwar era, about 1945-1975), the difference between the share of income held by the top 1% in the top country (the Netherlands) and the bottom (Sweden) is about 5 percentage points, which is hardly negligible when it’s percentage of national income! Second, since about 1980 the dispersion between countries is quite marked, with the US share climbing from about 8% to about 17% (reading from the graph) between 1980 and 2000 and large increases in the UK and Canada but much less increases in France, Sweden, Australia, and the Netherlands. Thus by 2000 the difference between the share claimed by the top 1% in Sweden (5%) and the US (17%) is a factor of greater than three! The conclusion, then, ought to be just the opposite of Meltzer’s: even in the era of globalization and the decline of the state, nation-to-nation differences persist and even increase. Thus this is evidence that national policy can make a difference in income inequality.

Author: andrewperrin

University of North Carolina, Chapel Hill

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