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July 24, 2005

Comments

ashish

The study says: “The rich are getting richer while the poor remain poor. If you doubt it, ponder these numbers from the US, a country widely considered meritocratic, where talent and hard work are thought to be enough to propel anyone through the ranks of the rich. In 1979, the top 1% of the US population earned, on average, 33.1 times as much as the lowest 20%. In 2000, this multiplier had grown to 88.5. If inequality is growing in the US, what does this mean for other countries?”

I don’t know how the study reached that conclusion. The mulitipler can increase from 33.1 to 88.5 even if poor are getting richer, because rich could be getting richer faster! The correct conclusion is that gap between rich and poor is increasing!

I don’t know whether you know that in US wage earners have to pay 15% in social security and medicare taxes (7.5% out of their own pocket with equal contribution by the employers). This can reduce the incentive to work hard for the poor. Also, employers are forced to give healthcare to the employees. And then there is minimum wage act. There are so many restrictions on entering various professions requiring permits, licenses and state-mandates exams etc. For example, you require a license to drive a taxi or to open a hair cutting salon. All this reduces work opportunities for the poor people. Also, public education system in US is under the control of teachers lobby. Poor people have no choice to move to a different public school if the school in their district is not performing well. Various vouchers initiatives have failed. High property, sales and import duties cause goods and services to become costly. All this may be holding poor people back. I say give everybody freedom to make their economic decisions and they will prosper!

Ashish

Satya

Yes, in terms of absolute income, the rich are getting richer faster than the poor and it is the gap between the poor and rich that has been increasing. The Economist in one of its articles in its recent survey on Amercia points out that "Since 1979, median family incomes have risen by 18% but the incomes of the top 1% have gone up by 200%. In 1970, according to the Census Bureau, the bottom fifth received 5.4% of America's total national income and the richest fifth got 40.9%. Twenty-five years later, the share of the bottom fifth had fallen to 4.4% but that of the top fifth had risen to 46.5%."

It seems, in terms of the share of national income, the poorest have gotten poorer.

The entire Survey on America by The Economist is very interesting and argues that there are signs that social mobility in America is dwindling.

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