1. How free markets create & divide wealth
Income Distribution
How free markets create & divide wealth

2. Top 1% pay more taxes 20% => 40%
The bottom 90% pay less 50% => 33%
BUT, the inequality gap rises!

3. Distribution of Income
Egalitarian Society-
means a equal society
Free markets focus on efficiency not equality
Free markets produce tremendous wealth but also a large gap between rich & poor
Inequality today is the highest since the 1920’s
Globalization & Technology have exacerbated this trend

4. Where do YOU want to live?
Country A
GDP per capita = $20,000 per year
Country B
GDP per capita = $60,000 per year
Which country do YOU want to live in?
Population = 100,000
Each person earns $20,000
GDP = 2 billion or $20,000 per capita
Population = 100,000
400 people earn $15 million
99,600 earn $1,000 per year
GDP = 6 billion or $60,000 per capita

5. Measuring Income Inequality
How do you best measure income inequality?
Average income
Median income
Lorenz curve precisely measures income inequality.
Straight line represents “perfect” income equality
Both flawed measures of income gap

6. Lorenz Curve

7. Gini Index Summary
Measures the distance from line of “perfect equality” to Lorenz Curve
Gini Index ranges from Zero to 1
An index of 0 (zero) means perfect EQUALITY
on the line => 40% population has 40% of income
As the Gini Index moves from 0  1 inequality increases

8. Lorenz Curve Review France: .34 USA: .46 Line of Income equality
Gini Coefficient
0 - 1
USA: .46

9. Gini Index by Country Sweden = .23 Germany = .28 England = .36
France = .32
USA = .46
Japan = .25
Brazil = .59
South Africa = .58

10. Practice Test

11. Wealth vs. Income Top 1% has 21% of Income Top 1% has 40% of Wealth
Bottom 40% has less than 1% of wealth

12. Gini Coefficient of WEALTH = .82

13. Winner Take All Society?

14. Top 1% versus Top 0.1% Top 1%: Top 0.1%:
Income: Over $350,000 per year
1.5 million households
Top 0.1%:
Income: $1.4 million per year
Only 146,000 households

15. The Rich get Richer
Top 1%