Not all inequalities are equal.
Inequality, it’s true, has been a flashpoint of debate recently – and when people argue about it (it’s good, it’s bad, it’s a figment of some French economist’s imagination) they usually don’t make a distinction between the two kinds of economic inequality.
Wealth. Income.
That is, it’s nice to have a carload of cash in the bank, and it’s nice to have a paycheck with lots of zeroes, but they are not the same thing.
And the numbers seem to show – whatever you think about the issue – that one kind of inequality is much more pronounced than the other, according to the Federal Reserve Bank of St. Louis.
A couple of Fed economists have done the math so you don’t have to.
Bottom line? Wealth inequality is much more dramatic in the United States than income inequality.
St. Louis Fed research director Christopher Waller and researcher Lowell Ricketts started with 2010 data that showed median household income to be about $46,000. (For the math phobic, that means that half the households were above that number and the other half below.)
Then they looked at the top 10 percent of households – their median income was $203,900. And they looked at the bottom 10 percent of households, whose median was $9,900.
The ratio of those two: 21.
Waller and Ricketts called that a “substantial divide between the rich and the poor.
Fine. Then the duo looked at wealth – net worth of households. And the median net worth of all households was $77,300. (Remember: half under, half above.)
And they did the same comparison as before between the top 10 percent and the bottom 10 percent. Median of the top: $1.194 million, divided by the median of the bottom, which was $3,100.
That ratio was 385. So the ratio of wealth is a lot higher than the ratio on income.
The two economists emphasized that some wealth inequality is simply a function of age: young adults often start with debts, then build wealth through middle age. Then, as they retire they start spending what they accumulated.
So some inequality – they did not guess how much – is built into demographics.
In their paper, the Fed authors say that “While this natural inequality doesn’t account for the entire wealth disparity across the population, it is important to understand that some inequality isn’t inherently bad.”
In other words, there’s inequality and there’s inequality.
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