Is the US Becoming a Third World Country?

The simplest way to say whether a country is rich or poor is to add up its cumulative wealth, which is usually stated in terms of GDP. Sometimes this number is divided by the number of people in a country to say what the average wealth is: GDP per capita. And for a lot of purposes, including the overall economic strength of a country in an international context, that's a useful definition of wealth. But it's not a sufficient criterion for determining whether a society is wealthy. For instance, it's theoretically possible that a country could have a larger per capita GDP than any other country on the planet, but also for all that wealth to be controlled by a single autocratic leader to whom everyone else is enslaved. In the crudest economic terms, that society could be considered wealthy, even though all but one person would be utterly impoverished. So to determine whether a society is truly wealthy, some account needs to be taken of the distribution of wealth.

Here's a map I made of income inequality in the US.



This map is based on numbers from the US census (pdf). It uses the Gini index to measure income inequality. Gini

indicates how much the income distribution differs from a proportionate distribution (one where everyone would have the same income; for example, 20 percent of the population would hold 20 percent of the income, 40 percent of the population would hold 40 percent of the income, etc.). The Gini index varies from 0 to 1, where 0 indicates perfect equality (a proportional distribution of income), and 1 indicates perfect inequality (where one person has all the income and no one else has any).

So the higher the number, the more wealth inequality there is. For most advanced industrial economies, the Gini number is pretty low. According the the CIA World Factbook (table compiled here), the lowest Gini score in the world is Sweden's, at .23, followed by Denmark and Slovenia at .24. The next 20 countries are all in either Western Europe or the former Communist bloc of Eastern Europe. The EU as a whole is at .307. Russia has the highest number in Europe (.41); Portugal is the highest in Western Europe (.38). Japan is at .381; Australia is .352; Canada is .321.

And then there is the United States, sandwiched between Cote d'Ivoire and Uruguay at .450. Not counting Hong Kong (.523), the US is a complete loner among developed countries. In fact, as you can see from the map above, there is no overlap between any single US state and any other developed country; no state is within the normal range of income distribution in the rest of the developed world. Here's a list of the states with their Gini index numbers, and the country where income distribution is most comparable in parentheses:

Alabama - .472 (Nepal)
Alaska - .417 (Cambodia)
Arizona - .454 (Jamaica)
Arkansas - .460 (Ecuador)
California - .466 (Rwanda)
Colorado - .450 (Uruguay)
Connecticut - .480 (Venezuela)
Delaware - .434 (Guyana)
District of Columbia - .537 (Honduras)
Florida - .467 (Rwanda)
Georgia - .461 (Mexico)
Hawaii - .438 (Nigeria)
Idaho - .421 (Thailand)
Illinois - .462 (Malaysia)
Indiana - .432 (Guyana)
Iowa - .424 (Burundi)
Kansas - .441 (Kenya)
Kentucky - .460 (Ecuador)
Louisiana - .475 (Madagascar)
Maine - .428 (Singapore)
Maryland - .433 (Guyana)
Massachusetts - .461 (Mexico)
Michigan - .444 (Philippines)
Minnesota - .430 (Iran)
Mississippi - .471 (Nepal)
Missouri - .449 (Cote d'Ivoire)
Montana - .426 (Singapore)
Nebraska - .430 (Iran)
Nevada - .434 (Turkey)
New Hampshire - .417 (Cambodia)
New Jersey - .458 (Uganda)
New Mexico - .457 (Uganda)
New York - .495 (Costa Rica)
North Carolina - .458 (Uganda)
North Dakota - .434 (Guyana)
Ohio - .449 (Cote d'Ivoire)
Oklahoma - .460 (Ecuador)
Oregon - .444 (Kenya)
Pennsylvania - .455 (Jamaica)
Rhode Island - .442 (Philippines)
South Carolina - .462 (Mexico)
South Dakota - .439 (Nigeria)
Tennessee - .468 (Rwanda)
Texas - .474 (Mozambique)
Utah - .410 (Russia)
Vermont - .420 (Thailand)
Virginia - .456 (Uganda)
Washington - .443 (Kenya)
West Virginia - .447 (Cameroon)
Wisconsin - .424 (Burundi)
Wyoming - .413 (Senegal)

Obviously, the US is far wealthier than any of the countries to which states are being compared on this list; but it's striking to see the US fit a pattern which, outside of the US, is exclusively a phenomenon of the underdeveloped world.

But does that mean that the US is on the road to Third World-dom? Well, not necessarily - and not yet, at least. But it should give some context to comparisons of wealth between societies. For instance, the GDP per capita in the US is one of the highest in the world. But more of that wealth is concentrated in the hands of relatively few people, meaning fewer people (relative to that high per capita GDP) are well-off.

Matt Yglesias posted this chart the other day:

So even though a lot of wealth has been created since the 1970s, the typical family isn't much better off. And as Yglesias points out: "Another country with a lower GDP but less inequality could still be a country in which most people are richer than most Americans, and I believe there’s pretty compelling evidence that that’s now the case in a number of European countries."

I would add this: to the extent that wealth matters, it's because wealth increases the well-being of individuals. But there's undeniably a law of diminishing returns: a billionaire is not going to be a thousand times happier than a millionaire just because he has a thousand times as much money. In fact, I would argue that beyond some modest threshold - maybe below an income of $100,000/year - having more money simply doesn't affect one's well-being in any significant way. People certainly desire more wealth, mainly as a positional good - a billionaire has a higher status than a millionaire. But jockeying for positional goods is a zero-sum game; the billionaire's gain is the millionaire's loss, and so overall well-being is not increased by creating more wealth if that wealth just ends up getting shuttled up the income ladder into those stratospheric heights. In other words, if a country becomes wealthier because rich people are getting richer while everyone else treads water, that country is no better off than it was before. And if that's the case for a given country while more wealth is being created in other countries where it isn't being concentrated solely in the hands of the very rich, then that country's well-being, relative to other countries, decreases. That's what's been going on in the US for the last few decades. It's a sign of decline.

But not an irreversible one; the US doesn't have to become a third world country, where the majority of the population struggles to take care of basic needs while a minority controls a huge proportion of the nation's wealth. And an economic crisis, in large part brought about by wealthy elites mishandling their economic power, might be just the thing to start turning the trend around.