American Exceptionalism Reconsidered, Pt. 3: Inequality

This post concludes a series of posts on the topic of “American exceptionalism.” In my last look at the topic several weeks ago, I argued that one conception of American exceptionalism among conservatives – the idea that the United States is uniquely free or has a particularly small government due to its culture – is mostly mistaken. In fact, while the U.S. does have a relatively small government by high-income democratic standards, that relative smallness can be explained more or less entirely by its fiscal-federal institutions, which are also shared by Canada and Switzerland (and Switzerland has a much smaller government than the U.S.). In this post, I take aim at a conception of American exceptionalism more widespread on the left, the idea that the U.S. is uniquely sinful in its degree of inequality. To a significant degree this premise on the left mirrors the premise on the right of uniquely small government: the cost of that small government, it is argued, is more inequality.

The problem with the claim is simple: comparing the U.S. to Europe on inequality is inappropriate because Europe never imported a large number of slaves into their territory. When you compare the U.S. to other countries with a history of slavery, U.S. inequality is actually remarkably low.

To show this, I use Frederick Solt’s Standardized World Income Inequality Database (SWIID). The SWIID is the most up-to-date, cross-nationally comparable dataset on income inequality. It reports the Gini coefficient, which is a summary indicator of income inequality in which higher values represent greater inequality. The Gini coefficient can be measured for both pre-tax-and-transfer and post-tax-and-transfer income, and the SWIID provides both. To get at the core of the American exceptionalism issue, it is probably best to look at post-tax-and-transfer inequality, which takes into account both the level of inequality in market incomes and the extent to which taxes and transfers alleviate those inequalities (updates in italics). Here is a chart of post-tax income inequality in some high-income democracies in 2007:

The U.S. does look high here. Of these 18 territories, only Puerto Rico has higher inequality. However, the U.S. isn’t very far above the U.K. and Portugal.

But let’s see how the ranking looks if we compare the U.S. to other New World countries that once had slavery. Here’s that ranking, from 2006 so that more countries are available:

The U.S. has the least inequality, by a fair margin, of these countries. Of course, the U.S. also has a smaller combined percentage of blacks and Amerindians than all of these other countries except Costa Rica, Chile, Argentina, and Uruguay. But that’s precisely the point – the overriding factor determining inequality in New World countries is the white or mestizo percentage of the population. When you control for that, the U.S. actually has very low inequality.

If the U.S. is exceptional at all, it is exceptional for its high GDP per capita and low income inequality, relative to similarly situated countries.

9 thoughts on “American Exceptionalism Reconsidered, Pt. 3: Inequality

  1. Interesting post, Sven. The post-tax levels of inequality should not be too surprising given that the US has the most progressive tax system (on balance) of any wealthy nation. The heavy reliance on consumption tax (VAT) in Europe makes their systems far more regressive. Of course, it would be interesting to compare levels of inequality post-transfers.

    I am somewhat skeptical of the Gini for a simple reason: a quick examination of cross-national inequality reveals that Sweden has a low Gini coefficient, but so does Ethiopia. If we value income equality, the trick is to achieve it with high levels of income.

  2. Marc – These are post-tax and post-transfer Gini numbers. I should have made that clearer. However, I doubt whether they take into account the true incidence of taxation (for instance, corporate income taxation), let alone regulation. I also agree that what really should matter for us is absolute poverty, not inequality as such.

  3. compare the U.S. to other New World countries that once had slavery. Here’s that ranking

    That’s the about the oddest category I can think of. Surely the U.S. is more similar to Canada and the U.K. than to Honduras. Now I know where to come for the finest in cherry-picked data.

  4. By controlling for one historical factor — essentially normalizing the data for that facto — you’re making an implicit claim: that that factor is, has been, the overriding factor of primary importance to growth and development over the last century or two.

    So you’re suggesting pretty obviously (but not explicitly) that if all those other advanced countries had imported slaves, they’d be doing worse than us. We’re exceptional!

    But that logic doesn’t make sense.

  5. IOW you’re adding one independent control variable (and that a yes/no “dummy” variable — slaves or not) to your regression, and asking us to just accept that that variable is the only one that we should be considering.

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