On Elephants and Incomes

Yesterday, I watched the PBS Nightly News Hour and there was a very interesting discussion on the so-called "elephant" chart. For those unfamiliar, here it is:

This is the so-called "elephant" chart. The name makes sense if you imagine the uptick on the right representing the trunk, and the large hump in the middle and left representing the elephant's back.

Anyway, it is important to note what this chart shows. The horizontal axis represents where people are in the global ranking from rich to poor. The vertical axis represents income growth from 1988-2008.

Clearly, someone at 50 on the horizontal chart has half the world making more than him and half the world making less. For comparison purposes, a family of 4 making $40,000/year is currently in the riches 11.3% of the global population. That family of 4 making $20,000/year is in the top 20% of the global population. That family of four making $200,000/year is in the global top 0.4%.

As the chart shows, there has been enormous income growth for those between approximately the 10th percentile and the 70th percentile. To give some perspective, this chart shows the following:

• If you made $1,000/year in 1988, you would likely make $1,500/year in 2008
• If you made $200,000/year in 1988, you would be making roughly $320,000/year now.
• If you made $20,000/year in 1988, you probably make about $19,000 now.

This pretty clearly shows the hollowing out of American middle class and that of the remaining developed world. In 1988, you will recall, globalization really kicked off. By 1993, the U.S. had ratified NAFTA.

I think that if you ask most Americans, they are quite happy that the developing world, particularly in India and China, has done so well. However, it is difficult to conclude anything but that this global income growth has come at the expense of the middle class in the developed world.

The saying used to be that it is better to be a C- student in America than an honors student in China, because America provides so much more opportunity. I think that is no longer the case, and the days of getting a factory job and working 8-5 for 40 years so you can retire and afford to move to Florida are over.

This may also explain much of the rise of right-wing nationalism throughout the developed world, from Trump to Brexit to the near-miss in France with Marine LePen.

DISCLAIMER: I am not an economist, but I do find this chart to be very revealing and interesting.