Stacked pancakes leave us empty
Perhaps the Economist doesn't take its own advice

New is not always better, and some Indians are in fact wealthier than Americans

This chart highlighted by the Economix blog at the New York Times caught a bit of attention.

Economix-28milanovic-custom1

Catherine Rampell wrote "awesome chart" on the margin of Branko Milanovic's book which first published this, also conceding that it is a chart that can "take a few minutes" to understand, "but trust me, it's worth it".

The question for me is: is the reward worth the effort?

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The answer is no. This chart does not address an interesting question, and it tempts readers to infer things that the chart doesn't say.

Gapminder_income The message of this data is that there are rich people (by world standard) in poor countries. For me, this isn't very interesting but I can understand if others find it shocking, edifying or even satisfying.

I'd point you to a different visualization, done by the now-famous Hans Rosling, years ago (I discussed his team's work here). If he used lines instead of areas for the distributions, the chart would be even better. 

I much prefer this chart.

Comparing the two also surfaces another difference. The four countries chosen in the Milanovic chart are highly selective. (I snicker at the title which announces "Inequality in the world".) It's comparing the U.S. against three developing nations with high income inequality. What about showing us also a few lines of nations with lower inequality, like Scandinavian countries?

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Rampell's conclusions, in particular, are not well supported by her beloved chart. First, she said:

All people born in rich countries thus receive a location premium or a location rent; all those born in poor countries get a location penalty.

I don't disagree that it's better to be born with money. But my takeaway from the chart is the opposite of hers: that you can't generalize entire countries; that you can live in a poor country, and you can be extremely rich. As Rampell pointed out earlier in the article, "[Brazil] this one country covers a very broad span of income groups". So, if anything, the chart undermines the point that "all people" in any one country receive a location premium/rent.

She also said the following:

How can there be so many people in the world who make less than America's poorest, many of whom make nothing each year? Remember that we're looking at the entire bottom chunk of Americans, some of whom make as much as $6700; that may be extremely poor by American standards, but that amounts to a relatively good standard of living in India, where about a quarter of the population lives on $1 a day.

Given that the data has been adjusted for PPP, or in Rampell's words, different costs of living around the world, or really, it has been adjusted for different standards of living, it makes little sense to explain a difference in the adjusted amounts based on "standard of living". In fact, my understanding (unless something changed recently) is that the PPP adjustment uses the US living standard as the reference level.

The $6700 that she describes as the maximum income of the bottom chunk of Americans--if this amount is earned by the Indian, would put him/her in the very top bucket of Indians, according to the Milanovic chart. I'd call that a super high standard of living in India, not merely "relatively good".

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A few comments on the statistics.

The last quotation above shows a confusion between averages and extreme values. The $6,700 is the maximum income of the bottom chunk of Americans; it cannot be compared to the $1 a day, which by the way, should be written as $365 a year, but in any case, this amount is the average income of the bottom 25% of Indians. One can't compare an average to a maximum, nor an annual number to a daily number.

A number of readers conclude from the chart that the income inequality problem in the U.S. is overblown. You just can't see it on that chart. That's because the chart literally hides this information. As we know, the top 20% of the U.S. population holds 84% of the wealth, and it gets worse with the top 1%, top 0.1%, etc. The precision of the horizontal axis of the chart is the "ventile", which are 5% buckets.

Also, notice that this type of chart is used to compare one distribution against another distribution. The notion of currencies has been entirely removed. It's similar to converting data from absolute units to rankings. You lose that sense of scale. (This is the reason why it appears as if no one in India makes more than anyone in the States. If a finer scale were to be used, at the upper end of the Indian income distribution, I'm sure you find otherwise.)

Comments

Basil

Excellent points. Another chart making people believe what you want them to believe.

Bert

"The $6,700 is the maximum income of the bottom chunk of Americans; it cannot be compared to the $1 a day, [...] this amount is the average income of the bottom 25% of Indians. One can't compare an average to a maximum [...]"

The $1 per day is generally used as "less than $1 per day" so $1 is in fact the maximum. This metric is often used by as single, universal proxy of poverty; in any developing country, $1/day is not a lot.

In addition to your comments, why does the graph use "ventiles" instead of centiles or else? Some of the rich in developing countries are way ahead of the American middle-class.

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