The Haves and the Have-Nots

12:51 p.m. | Updated Updated with additional explanation of how the chart controls for different costs of living around the world.

I had a review this weekend about “The Haves and the Have-Nots,” a new book by the World Bank economist Branko Milanovic about inequality around the world. My favorite part of the book was this graph, next to which I actually wrote “awesome chart” in the margin:

The graph shows inequality within a country, in the context of inequality around the world. It can take a few minutes to get your bearings with this chart, but trust me, it’s worth it.

Here the population of each country is divided into 20 equally-sized income groups, ranked by their household per-capita income. These are called “ventiles,” as you can see on the horizontal axis, and each “ventile” translates to a cluster of five percentiles.

The household income numbers are all converted into international dollars adjusted for equal purchasing power, since the cost of goods varies from country to country. In other words, the chart adjusts for the cost of living in different countries, so we are looking at consistent living standards worldwide.

Now on the vertical axis, you can see where any given ventile from any country falls when compared to the entire population of the world.

For example, trace the line for Brazil, a country with extreme income inequality.

Brazil’s bottom ventile — that is, the poorest 5 percent of the Brazilian population, shown as the left-most point on the line — is about as poor as anyone in the entire world, registering a percentile in the single digits when compared to the income distribution worldwide. Meanwhile, Brazil also has some of the world’s richest, as you can see by how high up on the chart Brazil’s top ventile reaches. In other words, this one country covers a very broad span of income groups.

Now take a look at America.

Notice how the entire line for the United States resides in the top portion of the graph? That’s because the entire country is relatively rich. In fact, America’s bottom ventile is still richer than most of the world: That is, the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants.

Now check out the line for India. India’s poorest ventile corresponds with the 4th poorest percentile worldwide. And its richest? The 68th percentile. Yes, that’s right: America’s poorest are, as a group, about as rich as India’s richest.

Kind of blows your mind, right?

Now you might be wondering: 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 were looking at the entire bottom chunk of Americans, some of whom make as much as $6,700; 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.

As Mr. Brankovic writes:

One’s income thus crucially depends on citizenship, which in turn means (in a world of rather low international migration) place of birth. 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.

It is easy to see that in such a world, most of one’s lifetime income will be determined at birth.