A measure of inequality

Inequality is a dividing factor between people and nations and it’s effects are more subtle than we realize. Although it remains unspoken, it is one of the main reasons we experience so many problems today—both on national and international level. Terrorism, nationalism, hatred, intolerance, self-isolation and even wars can be seen as a result of the perception of unfair treatment. This is what brings many peaceful protesters on the streets and this is what makes others reach for a weapon.

By pretending that inequality doesn’t exist and by being single-mindedly focused on our own well-being, we fail to see the problems of those around us and only choose to act when its already too late. But when a fire spreads over a large perimeter, it becomes much harder to deal with it. Preventing it from happening would have saved a lot of effort and resources.

It’s strange to see that we continue to be proud of our achievements in a world that’s falling apart. Acting as a locomotive and reaching new speed records is still seen as something prestigious, something that is worth aiming for. Only that we fail to realize that this is only possible, because the carload is missing. If all wagons were there and their storage was used efficiently, it would have been very hard to move so fast. Even so, at least some value would have reached the end destination.

Our desire to be much better off than those around us is what collectively brings us into the inequality trap. For every person that earns a million dollar, million people have to satisfy themselves with one. This is often overlooked, so blindly accepting a paycheck with many zeros behind is going to silently hurt many, many people. This concentrates the available capital much faster than it can be spread. We can’t tour a million people on a bicycle, so most often we don’t even try, thus allowing the differences to grow over time.

I often hear that if person A gets x times higher salary than person B, this is equal to the difference in their living standards. But I can’t see the support of this statement. Different environments attach different value even to the same amount of money. This is why some people prefer to buy their products in a neighbour country, where their money will be more valuable. Permanently changing an environment is accompanied with currency conversions, which leads to loss of purchasing power.

GDP is often seen as a measure of the strength of a country’s economy; GDP per capita is a better measure with respect to the individual. But even when we know how much an individual is making, we may still neglect to see what this money is worth in terms of the goods it can buy. This is why some economists say that the purchasing power is possibly the best indicator of an individual’s situation. For instance, someone in Zimbabwe may have owned billions of dollars, while being unable to purchase much. So if we want to measure the degree of inequality (and check if it’s truly around 20 times as some people in my own country claim), we need to measure the differences in purchasing power across different nations.

We could eventually take GDP per capita as a number and seek to divide it through the prices of a common good for each country we include. (An article mentioned something of a ranking of how many liters of oil people from different countries can buy, but I was unable to find it.) The lack of such normalized pricing data limits the number of countries we can include in a list. And we certainly can’t combine different measurement methodologies that were made at different times and in varying circumstances. By looking at a single product, we also introduce a bias towards it. This means that we need to measure against a “basket” of goods to minimize the deviation from the truth. With so many goods and countries, this would have been unfeasible in practice. I can imagine that doing such measurements can be quite costly.

What I decided to do is to take the publicly avaiable data (GDP per capita (PPP), US dollars) from Economy Watch for the year 2013 and visualize it. This is what I found on Eurostat: “Published PPPs, usually refer to product groups or broad aggregates like gross domestic product (GDP) rather than to individual products. However, these aggregate PPPs are based on sample surveys of individual goods and services.” (PPP means purchasing power parity.) I liked this relationship, although it’s still vague. But having the data normalized in this way meant that there was less chance for me to alter it in a wrong way.

Here I have included the data about all countries except the one related to a union of countries. I wanted to have as many as possible, because the world doesn’t revolve only around those who are able to speak loudly. That the graph isn’t very readable is a side-effect of this, but I felt that inequality should be perceived in its full scale in order to serve as a daily reminder of the injustice in our world. This looks like a ranking, but it really isn’t, because every person is equally important, no matter where they live.

Dividing the numbers of the first and the last country, we arrive at a factor of 105091.42/394.253 = 266.558. Although this number may not be entirely true, it probably gives a good approximation of the differences in the living standards of people around the world (in 2013 at least). In case these differences continue to grow and we allow new wars to happen in country after country, we will soon find ourselves in a very dense space.