The Inequality Incentive

If there’s a lesson from Occupy Wall Street, it’s that anger, tents, and drumming are no threat to the global financial system. Which is not to say that the Occupiers missed their mark. They wielded a brilliant array of indicators and statistics, held aloft for the world’s cameras and honed to inflict maximum damage to American self-esteem. For instance: “The U.S. has greater income inequality than Russia, China, and Cameroon.” In a dozen words the whole premise of American exceptionalism—that only here, under liberty, do fortunes rise and fall on merit—gets body-slammed. It’s a picket sign that leaves bruises. It also happens to be true.

The Gini index, devised by Italian statistician Corrado Gini in 1912, measures income distribution on a scale of 0 to 1. Zero is a perfectly shared pie; one is a population in which a greedy actor hoards it all. In 2011 the U.S. Gini stood at 0.475, a 1.3 percent rise over the previous year and the first significant annual increase since 1993. The 1.2 million households that make up the top 1 percent of wealth saw their earnings increase by 5.5 percent last year, according to the U.S. Census Bureau. In the 96 million households that made less than $101,583, roughly 80 percent of Americans, earnings dropped 1.7 percent. It has not been an equal-opportunity recovery.