The real reason this elephant chart is terrifying
By: Kaila Colbin
Tags: Technology, Economics, Anthro, Singularity University, Unemployment

It’s been called the “elephant graph”: starting low at the tail on the left, gradually rising up to the top of the elephant’s head, sliding down his face and then back up as if he were raising his trunk proudly.

Source: Lakner and Milanovic, 2015

What it’s charting is global cumulative real income growth during the 20-year period from 1988 to 2008: how much people’s income has gone up or down, at every percentile, around the world. It was created by Branko Milanovic, Visiting Presidential Professor, Graduate Center, City University of New York and Senior Scholar, Luxembourg Income Center, and and Christoph Lakner, an Economist in the Development Research Group (Poverty & Inequality team) at the World Bank. Here’s Milanovic’s commentary on it.

As Milanovic says, there are three points on this chart that are particularly interesting: the tip of the trunk, the high point at the elephant’s head, and the dip in between.

Let’s start with the tip of the trunk. This is the global 1%, and they’re doing pretty well. If you were rich to begin with, you’ve gotten richer — your income’s gone up by more than 60% over those two decades. No surprises there.

The top of the elephant’s head, around the 50–60th percentiles, is also a happy story. Those are the jobs created by the industrialization of China and India, where people went from nothing per day to a little better than nothing per day: a huge increase in percentage terms.

It’s reflective of good news from other sources: the number of people living in absolute poverty has dropped by more than half over this period, hitting the Millenium Development Goal 5 years ahead of schedule. In May, the COO of the World Bank noted that, “For the first time in history, the number of people living in extreme poverty has fallen below 10%.”

To be fair, this doesn’t necessarily mean these folks are getting rich. As Milanovic points out, “Chinese and Indian GDP per capita has increased by 5.6 and 2.3 times, respectively, over the period… [but the] people around the global median are, however, still relatively poor by Western standards. This emerging ‘global middle class’ is composed of individuals with household per capita incomes of between 5 and 15 international dollars per day.” (Emphasis mine.)

OK, so better off than they were. But still working for what we in the West would consider slave wages.

Let’s move on to where the trunk dips. The 75–90th percentiles. Those are basically poor people in rich countries, and they’re not looking too good.

Sure, if you’re on minimum wage in Poughkeepsie you’re better off than someone in Bombay pulling in less than 50 bucks a week. But your income is growing much more slowly than the rest of the world. In some cases it’s barely holding steady, and in some cases it’s actually going down in real terms. In every case it’s going down relative to those around you.

That this should be the case is also somewhat unsurprising. In a piece published in 2012 Andrew McAfee showed that, after more than 30 years of wages and productivity increasing in lockstep, they began to diverge in the early 1980s. By 2011, while productivity and GDP continued to climb — even factoring in the dip from the GFC — median household income and private employment were both on the decrease.

Sources: Census Bureau, Bureau of Labor Statistics, Andrew McAfee

So the fact that GDP in the US, for example, went up over the 20-year period in the elephant graph doesn’t mean that wages went up, or that workers are better off. They did not, and they are not.

This is the hollowing out of the American middle class. This is the shift from labor to capital. And this, I believe, is the source of a significant amount of global discontent: where phenomena like Brexit and Sanders and Trump find fertile ground.

But this is also not the only reason we should be concerned.