John McDermott Reads Branco Milanovic on the Changing Shape of the World Income Distribution Over the Past Generation

Stolen from FT Alphaville, in turn stolen from John McDermott, in turn stolen from Branco Milanovic:

Note that these are not the changes in income of individuals in the world economy. Rather, they are the changes in the incomes associated with particular percentile slots in the world economy. Your average citizen of China is in a much higher percentile of the income distribution today than twenty years ago.

Also note that Milanovic's numbers on the prosperity of the pre-1991 Communist Bloc have always looked to me to be considerably higher than reality--they have never seemed to me to make adequate allowances for quality, variety, and the hassle factor involved in obtaining goods and services in a centrally-planned really existing-socialist economy.

Plus I am a techno-optimist: I see the coming of internet access as contributing an enormous amount to human well-being via consumer surplus that is simply not captured by standard GDP accounts.

Neverthless, the (relative) failure of development for the 75-90 percentile of the world income distribution over 1988-2008 is a fact, a fascinating one, and a somewhat terrifying one.

Now let me give the mike to John McDermott:

The chart that explains the world: Branko Milanovic depicts the recent history of global incomes.... The vertical axis shows changes in real income between 1988 and 2008, measured in 2005 international dollars.... The horizontal axis divides the incomes of the [people in the] world into percentiles....

On the far right of the chart is one of the two biggest “winners”: the 60m or so people who constitute the world’s top 1 per cent. About half of these are the richest 12 per cent of Americans. The rest of the top 1 per cent is made up by the top 3-6 per cent of Britons, Japanese, French and German, and the top 1 per cent of several other countries, including Russia, Brazil and South Africa.

The even bigger “winner” is the new global middle class, particularly in China and India. In 1988, a median earner in China would be richer than only 10 per cent of the world’s population. Twenty years later, that median income would put the average Chinese in the top half of the global income distribution.

On the far left of the chart is one of the two biggest “losers”: the very poorest.... The other, around the 80th percentile, is what Prof Milanovic calls “a global upper middle class” – including many people from former Communist countries:

as well as those citizens of rich countries whose incomes stagnated. It was probably the profoundest reshuffle of people’s economic positions since the industrial revolution”

Prof Milanovic writes of these 20 years.