from a recent post to Quora <http://www.quora.com/> —
You should look at the Great Gatsby curve that was a study conducted by a Canadian labour economist in Statcan and then brought to the attention of US policy makers by Alan Krueger, a influential economist in the White House Council of Economic Advisors.
It linearly correlates the Gini index (a measure of wealth inequality) with intergenerational mobility (likelihood that you will be in the same income level as your parents in the future).
As you can see, Canada is at the bottom left and US is at the top-right. This means that if you’re parents are poor in the US, you are more likely to remain poor in the future. In Canada, you are more likely to be rich in the future. Conversely, if your parents are rich in the US, you are more likely to remain rich but in Canada, the chance of remaining rich is lower.
This curve has some scary implications for Americans, because it strikes at the core of what it means to be American. For one thing, it is statistically easier to achieve ‘the American Dream’ in Canada than it is in the US. Another thing is that Americans have this respectable notion that you can succeed in life as long as you work hard. However, the curve suggests that this notion is more true in Canada than it is in the US.
Some economists are predicting future increases in income inequality in the US which will mean US will be further top-right in the graph. This means it will become harder to become rich if you’re already poor and it’ll become harder to be poor if you are already rich.
Reason for this relationship could be because Canada, Denmark, Norway, Finland all have larger amounts of ‘non-labour income’ for the poor. Things like cheap-to-free education, free healthcare, more social welfare, etc. Of course this is all at the expense of the super-rich because of the progressive tax system.
Bloomberg has some nice visualization: http://www.bloomberg.com/infogra…
The White House and Congress are fully aware of the issue:
This is Krueger’s own analysis:
I believe this is why Obama is pushing for a ‘strong middle class’ because he is fully aware of this problem. Republicans are arguing that higher income inequality is needed for healthy competitive markets (e.g. by cutting taxes for large businesses) but the data suggests that this has serious ramifications for society.Updated Fri Apr 18 2014.