Inequality and Prosperity

By Dan Mitchell on July 19, 2024 @ International Liberty

After yesterday's column about China's economic challenges, I was planning on writing today about the results of this week's high-level policy meeting in Beijing.

Sadly, no bold reforms were proposed. That lack of action may be worth a column in the next day or two, but I was so disappointed by the lack of reform (or perhaps relieved if the government was thinking about bad changes) that I'm going to write about something else.

So let's instead expand upon a column from earlier this week, when I shared some charts that were part of my presentation to students about growing inequality in China.

I explained that this was not a problem because it was accompanied by big increases in income and huge reductions in poverty.

Earlier today, in a lecture to the same Chinese students, I made the same point but used a different country as an example.

Courtesy of Our World in Data, here's a look at inequality in both the United States and Sweden.

When I presented this chart to my Chinese students, I asked them which country had a preferable distribution of income and the overwhelming answer was Sweden.

But I then showed them a chart comparing income (by decile) in Sweden and America.

Lo and behold, the data shows that poor people have roughly the same incomes in the two countries but that every other group in the United States has higher income. In most cases, much higher income.

I then asked the students to revisit the question and tell me which nation had the better distribution of income.

Much to my dismay, a few of them still thought Sweden was better even though 80-90 percent of households were worse off than their American counterparts.

I'm obviously not a very good teacher.

P.S. I also shared this chart showing that people of Swedish ancestry in America earn for more income than Swedes who are still in Sweden.

My lesson for the class was that America's medium-sized welfare state and medium-level taxes produced better outcomes than Sweden's large-sized welfare state and high-level taxes.

P.P.S. But I told them there were many things to admire about Sweden, including private retirement accounts and school choice.