Most of the time, a skewed distribution, with a long tail, will be depicted almost exactly like a normal distribution, with a break cut into the tail, so that everything fits neatly on the page. Result: almost no one has a good feel for how skewed income in America really is.
Here’s a little exercise to open your eyes.
Step 1: Take a piece of 8.5 x 11 paper and hold it in landscape mode. Draw as neat a normal (bell) curve as you can, with the tails touching the left and right sides. But let the right side tail be a little higher off the bottom.
Label the left extreme as $0, label the middle (top) of the curve as $50,000, and label the right tail as $100,000.
Now you have a chart of what the distribution of American income would look like if it was normally distributed with no skew, and if the current median income of $50,000 was equal to the mean income.
Step 2: Next, place the paper on the floor, at one end the longest hall or room sequence in your house, with the right end facing down the hall.
Step 3: Now get a stack of 8.5 x 11 paper. Take one and draw an almost horizontal line near the bottom (in landscape). Label the right side as $200,000. Place it next to the first page.
Now you have a nice, two page representation of a moderately skewed distribution with a “tail” to the right. But the skew in American income is much, much greater.
To understand how very skewed American income is, perform the following two exercises:
- The median income for CEOs of major firms runs around $10,000,000 per year. How far down the hall would your lineup of pages have to go, repeating step 3, $100,000 per page, to incorporate a CEO level of income (BTW, there are hundreds of these CEOs)?
Answer: 99 pages added to the first, more than 90 feet, at 11 inches per page.
You probably don’t have a hallway that long in your house. Unless you do, you can’t show yourself a good visual image of how the median CEO compensation relates to that of ordinary people.
For the second exercise, you’ll need a much bigger stack of paper, a whole ream actually, and you’ll have to go outside to the street.
- The most successful hedge fund managers will pull down $1 billion in a year. At 11 inches and $100,000 per page, how many feet down the street will your lineup of pages have to go?
Answer: almost two miles ($100,000 divided into $1,000,000,000 equals 10,000 pages, eleven inches each, and there are 5286 feet per mile).
Next time you have to grasp how skewed income is in America, visualize that two mile long lineup of pages, with an almost complete bell curve on the leftmost page, and a horizontal line at the bottom of the next 9,999 pages, stretching out of sight down the street.
That’s what the skewness of American income looks like.
This is an excellent depiction or picture of what is otherwise quite incomprehensible. I love it.
1) However without an historical reference it is harder to assess. Since the bottom
Income can not go down, the absolute amount of skew can only go up.
2) what if the level of income is proportional to the level of contribution to the income of the whole (so Steve Jobs, Elon Musk, and Vanderbilt have wealth reflecting their level of contribution – then the skew should be applauded)
3) if there is equal opportunity to build that wealth (which surely there isn’t) then is it a problem?
4) if the very few people way, way out in the tail gave their wealth equally to all the rest, how much would it raise the mean? That is an important question.