My first will start Penn State in the fall. Yes, for a state school. So, saving for education is rough for the middle class. I made great sacrifices to do that. This really illustrates how society has become a small amount of haves versus a large amount of have nots. I am in the haves category so I guess I should not complain. However, what we are seeing politically is an expression of have nots being extremely angry.
The next big shock may be from the left. Society needs to figure this out. A LOT less than 1. My oldest is a decent student but not quite U of Penn material. My youngest may be headed that way. We will see. However, my oldest is also a hard worker who knows how to make money. My younger one is good with the books but struggles with jobs. So, each has their own strengths and weaknesses. I plan to teach him everything about business and various types of jobs due to our online business. Look at the last recession. The UE rate was 3x higher for non college grads than for college grads.
Not that college is the end all and be all. I get that. I think college is important for certain fields. Trade schools for others or none at all if you are part of the. I actually think college is more important today than ever before. However, it is too expensive for many reasons. The charity is a bit low.
I also see no provision for long term care. You not have it now but you should start saving for it now given the costs. I have no children in a HCOL area. When we had our first child in the expensive central California coastal city, I did the calculations for my wife working vs not.
When her salary was added to mine as taxable income with Federal, California, Fica and loss of deductions with rising income, worthless health insurance contributions since we were already insured through my work, added childcare costs, added commuting costs then…. We did a similar calc, but one thing to consider is that usually leaving work is a one-way street. I respect your decision, but people sometimes think of it as short-term i. This is an interesting post. I am from Sydney, Australia and can somewhat relate to this article given Sydney is one of the most expensive cities to live.
Surely, someone who is on the path to financial freedom thinks and acts differently compared to someone running the rat race and trying to keep up with their peer group. I agree it is not enough to be classified as wealthy or rich in SF or in Sydney but its enough to give you the ammunition to continue on the path of FIRE whilst leaving a decent lifestyle at the same time. Love those sweet buns! Eating out for me was the easiest way to trim fat off the top. We are a dual income, Outer Sunset San Francisco family of 4 the kids are under 5.
Childcare costs are killer, yes. And yes, we are exhausted. We started pressure cooking using a multi function device and it is a game changer. Solid frozen meat on the table in Rice in 15, steel cut oats in 9. Both time and money saved. Truly amazing to turn a frozen hunk of meet into soft food that quickly. I buy 10 lb. It saves money and the blue berries taste much better than store bought and you never get a moldy one. Same for all the other summer fruit. Takes a couple of minutes in the evening to get a box into the freezer.
You eat local summer fruit all year round. I can make a tray of roasted chicken thighs or pork chops or steak with vegetables in 30 minutes tops less for fish. Preparation time 5 minutes. If I forget to thaw meat, I microwave for a minute. My freezer is full of venison :D. Giles, not much game in the city that you can hunt although lots of deer, eagles, coyotes, the odd cougar, and other wildlife in and near the city. Although there is a bird sanctuary where some hunting of migratory birds is allowed. I have read that Canadians eat the highest proportion of wild foods fish, clams, game, berries, mushrooms of any country.
Although many Canadians never eat any. Some people in my area right in the heart of the city forage in the parks for nettles, dandelions greens, fiddleheads, etc. Vancouver is actually pretty wild with sea and mountains and forest right around and in the city. I am jealous of the venison. I need second freezer for meat. Small one to tuck into a corner somewhere. It can be a big challenge in a city with lots of yummy diverse choices tho.
Easier to cook at home in remote towns with less temptations. Slow cooker is fantastic to come home to for gourmet soup and hot food in the winters, but what do u do for summers? Sushi gets expensive regularly. Housing and childcare are the biggest expenses in the coast. He actually forget, gift giving is also a bug Expense category. A great demonstration of why geographic arbitrage works. Too hard to build wealth.
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Some of my expenses are higher and some are lower but back when we had a mortgage that was about what we were spending. What they can afford is a middle class lifestyle. For a doctor, software programmer, Youtube content creator, or someone like Sam, sure. That means both spouses have to be able to either find a job in podunk, Arkansas, or work remotely.
In my case I do work remotely and have for years , but my wife is absolutely unable to, and never will be. I know a lot of people who have asked their NYC firms if they could relocate to Burlington, Vermont to be closer to the family, and got a big fat no in response….
I kind of get California because of the weather, but paying all that money to live near NYC I do not get. No thanks. In terms of expenses, we do not spend as much as what you put on here Sam. Babies can get attached to a book as early as 12 months based on my experience. All the other expenses you have seems pretty spot on. Your right about childcare expenses, their is no way to get around it unless you have family close by that is willing to take care of the kid s. But, I am waiting for the stock market to go up a little further before derisking a bit more.
My house is crazy though. We live about 40 minutes south of San Francisco definitely not in the high-cost city of S. Redfin has it higher. We just received a notice from Redfin stating houses in our area have increased by What the heck is driving that? At the height of the housing bubble, our house was , So is there another bubble around the corner?
If there is I wonder where it would come from since credit standards are much tighter? The property taxes on a house this expensive will be higher than my mortgage was when I had a mortgage. We go to open houses, and they are flooded with prospective buyers in even the tiniest of homes. I am selling some stock in hopes to by a rental property near my son.
Homes there go around , dollars. How are they doing 25 hours per week if both parents work? Not to mention a weekly date night. Kids are not cheap but they are worth it!! I think you have it pretty accurate. We are at the same number in Portland Oregon. Myself , Wife Both Engineers. You could nit pick at numbers here and there…but its not worth it.
Many ways of doing it but I fully agree…. We are on a 15yr home load and save a bit more than your example but that is primarily because we went live in childcare and a lot of home cooking.
Bottom line…. But we both work hard. Too tired to shop! Great post Sam! NY, PA has one as well which are mandatory. This will increase taxes by 2k. I can totally see someone spending at this level. To add a personal perspective I live in San Mateo less than 30 mins from you. Here is the view from a savers perspective.
We top at 90K in expenses. Our bulk shopping is costco plus asian grocery stores. Please do post more on it, as this number is something I cannot absorb for median level. I also would draw your attention to this user case study post on frugalwoods from San Francisco. We got inspired. Now more than ever one should pay attention really hard to all matters in relation to finance: — How to save; — How to invest; — Create new sources of income; — How not to lose money on bad strategy. With this sudden drop in value in ETFs of real estate special US , maybe we have an opportunity to invest.
SF is pretty expensive. A few of my coworkers came from the Bay Area becuase of the high cost of living home price, and high rent. Maybe upper middle class. Income is a funny thing. Both our families came to the US with nothing, so my wife and I went from low income assisted living to high middle class in 40 years of our lives. We do donate more than we do in the past, but we still worry about saving for retirement, and college for two etc…. With unemployment so low here, inflation is being pressured upwards at possibly a higher rate than the rest of the country.
However the mountains and large, cosmopolitan city living offer a great alternative to coastal living. I come from Los Angeles, and I get the difference. But the trajectory of property prices is concerning nonetheless. It sucks. Denver housing is expensive to buy but I rent in the heart of downtown and manage just fine. I was going more for a lighthearted, tongue-in-cheek attempt. I get that frustration and empathize. Colorado native here!
The 9.9 Percent Is the New American Aristocracy
Fun to get some local perspective. I grew up on the western slope of the state where all the true outdoor fun is had! It was not a massive hurdle to own a SFH in a core neighborhood. That is no longer the case. I absolutely love Colorado and being in Denver with all the changes has been fun. This city is no doubt on the map though and I would not hold off buying if you want a peice of Colorado.
The reality I face now is does it make sense to buy the second one and keep the first as rental. Or sell the first to buy the second and invest in better income producing properties as everything has appreciated so much? It takes time. What we did was live and flip. Bought a starter home and sold 2 years later, bought a bigger place and sold 2 years later etc. Luckily the appreciation worked for us and we have made money each time to off set selling costs. We also worked with the same realtor who gave us a discount for using him several times. We bought our first place in and we are in our 4th home worth over 2 million but we only have a , mortgage at 3.
Yes, I agree. The first house is not your dream house. If you have two young people earning good salaries, just cut expenses to the bone, and save everything, then buy when you see something that will appreciate. When it happends fast, it will not seem like a chore, it will be exciting. Have foreign student boarders, anything to get ahead. Do not have babies until you have a house. If you do all this when you are first starting out, do not ever get into debt except for mortgage debt , you will make that snowball that will keep on rolling for the rest of your lives.
How Much Money Do The Top Income Earners Make?
Or you can do it the other way, and spend when you are young, go into debt, and then spend your entire lives living a high middle class life, working, commuting, not having time to cook dinner for kids, and making do with a 3 week vacation. Now that is a chore.
I have been preaching compounding effect all my life, and it works. With two, the work to maintain a house and cook meals is minimal I am single and I find it easy and fun. Personally I would rather spend money on travel than eating out every night just to avoid 10 minutes of cooking. When you buy cars and houses, think about upkeep costs. Be practical. This is definitely the mentality on the coasts. Reading this thing over again…scary stuff.
Just because Mr. I do everything myself. Roof maintenance? Probably, as you hire people to hand-polish your pylons and custom paving stone driveways! Jones Esquire next door has Crews come to blow off each and every leaf and pick up each and every twig! You gotta do that, too, to be Accepted as an equal! No excuses! Try it sometime. Natural ground coverings which grow via Rain!
Wow, what a concept! No poisons, no fertilizers, no annoying twits jumping around with chainsaw-loud machinery. A few weeds here and there getting a little high, take out a push lawn mower once a month or two. Do it yourself, you lazy bastards! Send in the serfs! Hundreds for Clothing? All that money spent Per Year? Dunno about you lot but I wear the same clothes over and over again—across years, even Decades!
It takes out the dirt and the stuff looks like new. So long as the garments are not ripped or over- stained you can use them over and over again! What a concept! I wish I could do this with the waste material I excrete! I feel sorry for you, honestly I do.
Just think of all the money saved there—money making money via interest! Kids are The fastest way to go broke in our society. The greater the number, the faster. Follow the herd, programmed by commercials, TV, movies Product placements! Comparing yourselves to your neighbors.
Weak crybabies. Take responsibility for your actions and SAVE Money if you want to become financially independent like yours truly here. You see, since then, Eff Ess has…changed. Anyhow: Eff Ess must be Saved! We are super frugal, except on daycare spending. Live in flip in a way that you make an extra K every two years. Au pair for childcare or an option thats not the best of the best high end daycare 4.
Real Estate Professional Status so you can get some tax benefits on one high income earner while the other stays home or works part time. I find all these replies interesting. The more I visit SF and interact with many of the people who live there, the less I care for the place. Do people really challenge and opine at pregnant families as to how dare they have a child because of cost? Is that what kind of society is there?? You will just be raising spoiled brats who think they are the freakin center of the universe.
You have a duty to raise strong, willed, emotionally intelligent people who can fend for themselves and not be taken advantage of by others. I live in San Francisco and a K combined family income is so common. The traditional definition of middle class also had been shifting…It historically has meant home ownership, savings, vacations, health care coverage etc. So where do the money go? Yeah we can cut out the vacations all together and replace them with day trips and staycations, for the next 20 years.
Then why live here at all? Might as well move somewhere half the costs, with must less interesting jobs, and retire early. A luxury SUV? The food budget is out of control. But hey who am I to judge? There is more then one way to live life and hopefully be happy. Getting consistently above k networth increase per year is a preferred goal for me. Family Household income plus networth increase above k already has has been done. My preference would be for networth increases, by itself, to be consistently above k. Think I could do that before the household number.
Consistent k networth increase in one year is a nice goal. Our income fits your profile, but our expenses were significantly less until we chose to buy the big house on the hill side with the pool. Living in the normal house, I felt very middle class, and comfortable. Living in the big house and spending starting to approach your totals, I was very aware that I lived more comfortably than most and would consider myself upper middle class.
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Sink hole coverage is a large portion of that, but insurance rates are higher here -Many of our friends in the Bay Area had incomes and expenses similar to your example. The difference in savings rate was really about life-style choices. Expensive dinners, professional sporting events, shows, etc. Financial Samurai- hope u read this. Your analysis is spot on. I used to live in Cali and sold my place and moved to Chicago.
I think what people miss is that money should give u options but in expensive cities it takes a lot more money to get those options. I want to invest with Realty Shares — they apparently will have a new fund soon. Any thoughts on this? I would stay away from Chicago real estate.
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I have a decent amount of money invested with them now and have been getting my distributions but they are all in the early stages and not close to exits. I think semantics may be causing some of the disconnect here. The title of the piece indicates that K gets you a middle class lifestyle, not that it is a middle class income. If you want to live like upper class, then K will do it almost anywhere in the country other than these few ridiculously overpriced cities. For me the lifestyle and expenses are worth it for now. Great analysis and examples!
The numbers are roughly accurate although there is a wide range. For ex, the suburbs of Boston and prime Manhattan lifestyles also have vast economic differences. I would actually move the numbers up for prime areas. However, those living in the middle of the country may understand this better knowing that most of the rest of the world feels this way about the US.
For ex, when my father moved my family to the US in the s, his original plan was to buy 1 kitchen appliance every year. Toaster on yr 1, oven yr 2, etc, because where we lived, only someone really wealthy could afford all of these. Of course, once we bought our first house, it had everything in it. He was shocked that he could afford all of this as a nuclear engineer, relatively easily. He joked to me this year that he hit all of his 10 yr goals in a month when he moved here.
You would not be able to buy that in prime Manhattan for twice as much. Feels like a retirement crisis is on the horizon…. So I have to prioritize, and housing and vacations are where I save. In interested in how you find an IRA on top of a fully funded K. I thought that was not allowed. IRAs and k s are separate. If you qualify for each, then you can fund both up to the limit. Fund away! Maybe that causes the misperception? And Roth IRAs do have income limitations for funding. I always hate these posts.
We know plenty of people who do it for far less. These posts always insist that things that are luxuries like 3! And daycare only lasts 5 years. For me these amounts seems toppy and indeed symptomatic of excessive consumerism, which drives misery because of the wages needing to be earned to pay for this lifestyle.
Cutting back on the eating out, the SUV and the 1. I do not think the numbers are way off. A similar sized townhouse would be about k to 1 M. You would have to deal with hour plus commute each way assuming you take BART. For us the food, clothing, car cost are far lower than projected here. But our vacations are far more expensive. We take 3 vacations: Spring, Summer and Winter breaks. A summer trip to France can easily cost 20k per family. But on the other hand, I am still driving my Nissan Sentra I purchased right after college in We shop for clothes at Target or online and its not very frequent.
This budget — while no doubt well-intentioned — explains all sorts of problems related to consumerism in modern American life. Perhaps most of your respondents are in this camp. It will be easier with your wife presumably staying at home and making much cheaper, healthier meals. Even if you have oh, hypothetically speaking 8 children. Especially after spending all that time homeschooling. Who will spend the hours homeschooling since both parents are working? Or how do you make up for the lost income if one parent homeschools? First, thanks for responding.
Love the blog — even when I vehemently disagree with it! Answering your direct question, vacations can be cheap. Very, very cheap. It depends on what you want to get from them. It also depends which may be part of your expense on whether you have family far away that you have to spend tremendous amounts of money just to locate yourself to see. But the root cause question here is this: What do you value in life?
What is most important? What next? How about the top 5? Once you have those nailed down, your spending will follow. For me, my value system drives a desire to spend as little as possible so that there is both financial cushion and the ability to help others significantly. So let me share my spending on categories for a recent year for which my spending was moderately above average.
Repairs were negligible. Most of the churches I support have significant benevolence funds that also help the poor, which is as it should be. For 7 children. A quarter of this alone is for piano lessons. One trip to visit in-laws. This includes Eating Out when on the road — we mostly pack a cooler with sandwiches, fruits, veggies, nuts and other reasonably healthy foods. This year, there was a 50 cent Frosty special score!
Spent an embarrassingly large amount of eating out on… coffee. This includes everything bought at a grocery store — shampoo, garbage bags, toilet paper, etc. Costco was our friend here — cheap in bulk. Sales are great too — there are no double or triple coupons, but around holidays there are great deals.
Premiums were almost half this total. Notable here: no house payment due to aggressive paydown of home debt. Gift for non-immediate family were the vast majority. Note that I make about 4x the median household income, but live as though I make slightly more than the median. Without being deprived, although without a lot that most people spend money on.
I suppose this is just a case of differing values and priorities. If you want your children influenced by other adults, you can easily — very easily — do that through homeschooling. And at a higher level of diversity than in a classroom where they will be interacting with overwhelmingly education majors.
And save hundreds of thousands of dollars over their childhood doing so. If you want travel, you can do that too. You can buy off-season. You can go to exotic but not-as-popular locales. You can do skiing, sports, etc. You certainly can do pick up games for next to nothing, go skiing at off-times and at less glamorous places, etc. The big problem here is a shifting of the goalposts. First class, even once, is overwhelmingly an upper class experience.
Skiing, fully funded college accounts, etc. Being a new car, although even the lower classes do it, is a luxury experience. And trying to do all of them? Definitely upper class. You may not FEEL middle class because marketing, your peers and your neighbors are going to encourage you to live larger than you can really afford, but you are absolutely able to do so. I agree with pretty much all of the above, except that I think you define middle class more narrowly than I do.
It also means, in part, being able to provide your children with the same upbringing that you had assuming you perceive that you had a middle class upbringing. Our acquaintances who regularly fly first class, send their kids to private k school, drive range rovers, eat at expensive restaurants, and wear designer threads — they are the upper class.
The exploration of global inequality dynamics presented here starts in , for two main reasons. First, corresponds to a turning point in inequality and redistributive policies in many countries. The early s mark the start of a rising trend in inequality and major policy changes, both in the West with the elections of Ronald Reagan and Margaret Thatcher, in particular and in emerging economies with deregulation policies in China and India. Second, is the date from which data become available for a large enough number of countries to allow a sound analysis of global dynamics.
We start by presenting our basic findings regarding the evolution of income inequality within the main world regions. Three main findings emerge. More specifically, we display in Figure 2. If we put these inequality levels into broader and longer perspective, we find that they were in place since approximately the Second World War, and that these are relatively low inequality levels by historical standards Piketty, In effect, despite their many differences, all these world regions went through a relatively egalitarian phase between and However, in North America, China, India, and even more so in Russia where the change in policy regime was particularly dramatic , the rise was much more pronounced.
The fact that the magnitude of rising inequality differs substantially across regions suggests that policies and institutions matter: rising inequality cannot be viewed as a mechanical, deterministic consequence of globalization. Next, there are exceptions to this general pattern. That is, there are regions—in particular, the Middle East, Brazil and to some extent Latin America as a whole , and South Africa and to some extent sub-Saharan Africa as a whole —where income inequality has remained relatively stable at extremely high levels in recent decades.
Unfortunately, data availability is more limited for these three regions, which explains why the series start in , and why we are not able to properly cover all countries in these regions see Figure 2. In spite of their many differences, the striking commonality in these three regions is the extreme and persistent level of inequality.
In other words, the same aggregate income level can give rise to widely different income levels for the bottom and top groups depending on the distribution of income prevailing in the specific country and time period under consideration. In brief, the distribution matters quite a bit. What have been the growth trajectories of different income groups in these regions since ?
Table 2. The full population grew at very different rates in the five regions. Behind these heterogeneous average growth trajectories, the different regions all share a common, striking characteristic. In all these countries, income growth is systematically higher for upper income groups.
In Russia, the top of the distribution had extreme growth rates; this reflects the shift from a regime in which top incomes were constrained by the communist system towards a market economy with few regulations constraining top incomes. In this global picture, in line with Figure 2. The right-hand column of table 2. These growth rates are obtained once all the individuals of the different regions are pooled together to reconstruct global income groups.
Incomes across countries are compared using purchasing power parity PPP so that a given income can in principle buy the same bundle of goods and services in all countries. To better understand the significance of these unequal rates of growth, it is useful to focus on the share of total growth captured by each group over the entire period. The top 0. Therefore, the income growth captured by very top global earners since was very large, even if demographically they are a very small group.
A powerful way to visualize the evolution of global income inequality dynamics is to plot the total growth rate of each income groups see Box 2. This provides a more precise representation of growth dynamics than Table 2. To properly understand the role played by each region in global inequality dynamics, we follow a step-by-step approach to construct this global growth curve by adding one region after another and discussing each step of the exercise.
The popularization of such graphs is largely due to their use by Christoph Lakner and Branko Milanovic. In this report we are able to provide novel insights on global income dynamics thanks to the new inequality series constructed in WID. How to interpret these graphs? The horizontal axis sorts global income groups in ascending order from the poorest left-hand side to the richest right-hand side. The first ninety-nine brackets correspond to each of the bottom ninety-nine percentiles of the global population. We split it into twenty-eight smaller groups in the following way.
The group is first split into ten groups of equal size representing each 0. The richest of these groups is then itself split into ten groups of equal size each representing 0. The richest of these groups is again split into ten groups of equal size. The richest group represented on the horizontal axis group This represents 49 individuals in This is a simple way to represent clearly the importance of these groups in total income growth.
On the horizontal axis, this group occupies about a quarter of the scale. There are other ways to scale percentiles on the horizontal axis. Appendices A2. In the other, each group is given a segment that is proportional to its share of total growth captured. In this case, it is the groups at the bottom of the global distribution that are squeezed.
Our benchmark representation is a combination of these two variants. The vertical axis presents the total real pre-tax income growth rate for each of the groups defined above. Real income means that incomes are corrected for inflation. Note that the values are presented as total growth rates over the period rather than as annualized growth rates, which are perhaps somewhat more common in economic debates. Over long time spans such as the — period analyzed here, it is generally more meaningful to discuss total growth rates than to discuss average annual growth rates.
Because of the multiplicative power of growth rates, small differences in annualized growth rates lead to large differences in total growth rates over long time spans. The first group does not grow as fast as the second one, but the difference may seem limited. We start with the distribution of growth in a region regrouping Europe and North America Figure 2. These two regions have a total of million individuals in million in Europe and million in North America and represent most of the population of high-income countries.
How did this translate into shares of growth captured by different groups? These values, however, hide large differences in the inequality trajectories followed by Europe and North America. See chapter 2. The next step is to add the population of India and China to the distribution of Euro-America. The global region now considered represents 3. Adding India and China remarkably modifies the shape of the global growth curve Figure 2. This is due to the fact that Chinese and Indians, who make up the bulk of the bottom half of this global distribution, enjoyed much higher growth rates than their European and North American counterparts.
In addition, growth was also very unequally distributed in India and China, as revealed by Table 2. This corresponds to the lower- and middle-income groups in rich countries which grew at a very low rates. See Chapter 2. These new findings confirm and amplify earlier results. Not only were these growth rates important from the perspective of individuals, they also matter a lot in terms of global growth. Such figures help make sense of the very high growth rates enjoyed by Indians and Chinese sitting at the bottom of the distribution. Such a small share of total growth captured by the bottom half of the population is partly due to the fact that when individuals are very poor, their incomes can double or triple but still remain relatively small—so that the total increase in their incomes does not necessarily add up at the global level.
But this is not the only explanation. Incomes at the very top must also be extraordinarily high to dwarf the growth captured by the bottom half of the world population. The next step of the exercise consists of adding the populations and incomes of Russia million , Brazil million , and the Middle East million to the analysis. These additional groups bring the total population now considered to more than 4. The global growth curve presented in Appendix Figure A2.
This can be explained by the fact that Russia, the Middle East, and Brazil are three regions which recorded low growth rates over the period considered. The final step consists of including all remaining global regions—namely, Africa close to 1 billion individuals , the rest of Asia another billion individuals , and the rest of Latin America close to half a billion. In order to reconstruct income inequality dynamics in these regions, we take into account between-country inequality, for which information is available, and assume that within countries, growth is distributed in the same way as neighboring countries for which we have specific information see Box 2.
This allows us to distribute the totality of global income growth over the period considered to the global population. When all countries are taken into account, the shape of the curve is again transformed Figure 2. Now, average global income growth rates are further reduced because Africa and Latin America had relatively low growth over the period considered. This contributes to increasing global inequality as compared to the two cases presented above. The findings are the same as those presented in the right-hand column of Table 2.
What is the share of African, Asians, Americans, and Europeans in each global income groups and how has this evolved over time? Figures 2. Between and , the geographic repartition of global incomes evolved only slightly, and our data allow for more precise geographic repartition in , so it is preferable to focus on this year.
In a similar way to how Figures 2. In , Asians were almost not represented within top global income groups. Indeed, the bulk of the population of India and China are found in the bottom half of the income distribution. At the other end of the global income ladder, US-Canada is the largest contributor to global top-income earners. Europe is largely represented in the upper half of the global distribution, but less so among the very top groups.
This indeed reflects the extreme level of inequality of these regions, as discussed in chapters 2. Interestingly, Russia is concentrated between percentile 70 and percentile 90, and Russians did not make it into the very top groups. In , the Soviet system compressed income distribution in Russia.
In , the situation is notably different. The most striking evolution is perhaps the spread of Chinese income earners, which are now located throughout the entire global distribution. India remains largely represented at the bottom with only very few Indians among the top global earners. The position of Russian earners was also stretched throughout from the poorest to the richest income groups. This illustrates the impact of the end of communism on the spread of Russian incomes.
Africans, who were present throughout the first half of the distribution, are now even more concentrated in the bottom quarter, due to relatively low growth as compared to Asian countries. At the top of the distribution, while the shares of both North America and Europe decreased leaving room for their Asian counterparts , the share of Europeans was reduced much more. This is because most large European countries followed a more equitable growth trajectory over the past decades than the United States and other countries, as will be discussed in chapter 2.
Since , the picture is more nuanced but within-country inequality is on the rise. How did global inequality evolve between and ? Figure 2. It was then slightly reduced to Second, it is apparent that high growth in emerging countries since , in particular in China, or the global financial crisis of was not sufficient to stop the rise in global income inequality.
When global inequality is decomposed into a between- and within-country inequality component, it is apparent that within-country inequality continued to rise since whereas between-country inequality rose up to and decreased afterwards. The first one assumes that all countries had exactly the same average income that is, that there was no between-country inequality , but that income was as unequal within these countries as was actually observed.
In the second scenario, it is assumed that between-country inequality evolved as observed but it is also assumed that everybody within countries had exactly the same income level no within-country inequality. Prices can be converted from one currency to another using either market exchange rates or purchasing power parities as we did above. This makes them a natural conversion factor between currencies. The problem is that market exchange rates reflect only the relative purchasing power of money in terms of tradable goods.
But non-tradable goods typically services are in fact cheaper relative to tradable ones in emerging economies given the so-called Balassa-Samuelson effect. Therefore, market exchange rates will underestimate the standard of living in the poorer countries. Purchasing power parity is an alternative conversion factor that addresses these problems based on observed prices in the various countries.
The level of global income inequality is therefore substantially higher when measured using market exchange rates than it is with purchasing power parity. Purchasing power parity definitely gives a more accurate picture of global inequality from the point of view of individuals who do not travel across the world and who essentially spend their incomes in their own countries.
Market exchange rates are perhaps better to inform about inequality in a world where individuals can easily spend their incomes where they want, which is the case for top global earners and tourists, and increasingly the case for anyone connected to the internet. It is also the case for migrant workers wishing to send remittances back to their home countries.
Both purchasing power parity and market exchange rates are valid measures to track global income inequality, depending on the object of study or which countries are compared to one another. In this report, we generally use purchasing power parity for international comparisons, but at times, market exchange rates are also used to illustrate other meaningful aspects of international inequality. Whether future growth in emerging countries might invert the trend or not is a key question, which will be addressed in Part V of this report. Before turning to that question, one should understand better the drivers of the trends observed since Given that this period was marked by increasing trade integration between countries, it might seem reasonable to seek explanations in economic trade models.
The standard economic models of international trade, however, fail to account for dynamics of inequality observed over the past four decades. Take Heckscher-Ohlin, the most well-known of the two-skill-groups economic trade models. According to it, trade liberalization should increase inequality in rich countries, but reduce it in low-income countries. How does the model reach this conclusion? The underlying mechanism is fairly simple.
It is built around the fact that there are more high-skilled workers such as aeronautical engineers in the United States than in China, and more low-skilled workers such as textile workers in China than in the United States. Before trade liberalization started between these two countries, aeronautical engineers were relatively scarce in China and thus enjoyed relatively high pay compared to textile workers which were abundant. Conversely, in the United States, low-skilled earners were relatively scarce at the time, and the income differential between engineers and textile workers was limited.
When the United States and China started to trade, each country specialized in the domain for which they had the most workers, in relative terms. China thus specialized in textiles, so that textile workers were in higher demand and saw their wages increase, while aeronautical engineers came to be in lower demand and saw their wages decrease. Conversely, the United States specialized in aircraft building, so the aeronautical engineers saw their wages increase, while the textile workers saw their wages decrease.
By virtue of the factor price equalization theorem, the wages of low-skilled workers in China and the United States started to converge, along with the wages of high-skilled workers. While inequality did rise in the United States, as this model predicts, it also sharply rose in China, as well as in India and Russia, as seen in F igure 2. Regardless of whether the Heckscher-Ohlin is otherwise valid or not, it cannot account for the evolution of global inequality. How can we account for these empirical findings?
As Table 2. It seems necessary to carefully look at these trajectories as well as the institutional and policy shifts which may have occurred in various regions of the world over the past forty years. Understanding the drivers of global income inequality requires a thorough analysis of the distribution of national income growth within countries. These dynamics are explored in the following chapters. National income is more meaningful than GDP to compare income inequalities between countries. However, this measure is of only limited use in measuring national welfare.
GDP measures the value of all goods and services sold in an economy, after having subtracted the costs of materials or services incurred in production processes. These limitations have led many statistical agencies, and a growing number of governments, to develop and use complementary indicators of economic performance and well-being. Beyond the fact that the GDP framework is not meant for the analysis of inequality within countries, it has two other important limitations when the focus is on income inequality between countries. The first one is that gross domestic product, as its name indicates, is a gross measure: it does not take into account expenses required to replace capital that has been deteriorated or that has become obsolete during the course of production of goods and services in an economy.
Machines, computers, roads, and electric systems have to be repaired or replaced every year. This has been termed capital depreciation or consumption of fixed capital CFC. Subtracting it from GDP yields the net domestic product, which is a more accurate measure of true economic output than GDP. Consumption of fixed capital actually varies over time and countries Table 2. Countries that have an important stock of machines in their overall stock of capital tend to replace higher shares of overall capital.
On the contrary, economies that possess relatively fewer machines and a higher share of agricultural land in their capital stock tend to have lower CFC values. CFC variations thus modify the levels of global inequality between countries. Such variations tend to reduce global inequality, since the income dedicated to replacing obsolete machines tends to be higher in rich countries than in low-income countries.
In the future, we plan to better account for the depreciation of natural capital in these estimates. GDP figures have another important limitation when the need is to compare income inequality between countries and over time. At the global level, net domestic product is equal to net domestic income: by definition, the market value of global production is equal to global income. At the national level, however, incomes generated by the sale of goods and services in a given country do not necessarily remain in that country.
This is the case when factories are owned by foreign individuals, for instance. Taking foreign incomes into account tends to increase global inequality between countries rather than reduce it. Rich countries generally own more assets in other parts of the world than poor countries do. This figure in fact hides strong disparities within the European Union. On the other hand, Latin America annually pays 2. Interestingly, China has a negative net foreign income. It pays close to 0.
By definition, at the global level, net foreign income should equal zero: what is paid by some countries must be received by others. However, up to now, international statistical institutions have been unable to report flows of net foreign incomes consistently. At the global level, the sum of reported net foreign incomes has not been zero.
The World Inequality Report relies on a novel methodology which takes income flows from tax havens into account. Our methodology relies on estimations of offshore wealth measured by Gabriel Zucman. Taking into account missing net foreign incomes does not radically change global inequality figures but can make a large difference for particular countries.
This constitutes a more realistic representation of income inequality between countries than figures generally discussed. Asian growth contributed to reduce inequality between countries over the past decades. Using MER values, gaps between rich countries and the global average are reinforced: United States and Canada are five times richer than the world average whereas the EU is close to three times richer.
A World-Famous Pastry Chef's Heartbreaking Regret
This marks a sharp contrast with the situation in Indeed, per-adult income in Western Europe was in the same as ten years before, before the onset of the financial crisis. Despite a reduction of inequality between countries, average national income inequalities remain strong among countries. Developing and emerging countries did not all grow at the same rate as China.
Average North Americans earn close to ten times more than average sub-Saharan Africans. Diverging forces were also at play in certain parts of the world, such as sub-Saharan Africa and Latin America. Huge inequalities persist among countries but, in some cases, they actually worsened. Certain low- to middle-income regions are relatively worse off today than four decades ago. This growth trend, marked by a combination of political and economic crises and wars, is not limited to the poorest region of the world.
After a historical decline from the s to the s, income inequality is on the rise in most regions of the world. Income inequality was sharply reduced in the first half of the twentieth century—more precisely, between the s and the s—in most countries of the world, but it has been on the rise almost everywhere since the late s. In Europe and North America, the long-run decline in income inequality was due to the combination of political, social, and economic shocks already discussed. These included the destruction of human and physical capital led by the World Wars, the Great Depression, nationalization policies, and government control over the economy.
After the Second World War, a new policy regime was put in place, including the development of social security systems, public education, social and labor policies, and progressive taxation. This combination of factors severely affected very high fortunes, and enabled the rise of a patrimonial middle class and a general decline in inequality in Europe—and to a lesser extent, in North America. In emerging economies, political and social shocks led to an even more radical reduction of income inequality.
The abolition of private property in Russia, land redistribution, massive investments in public education, and strict government control over the economy via five-year plans effectively spread the benefits of growth from the early s to the s. In India, which did not undergo a communist revolution but implemented socialist policies after gaining its independence, income inequality was also severely reduced over the same period.
For most of the global population, the first three-quarters of the twentieth century corresponded to a very strong compression in the distribution of national incomes. The economic elite captured a much smaller share of economic growth in the late s than it did at the beginning of the century. The trend was then reversed in most countries—even though there are notable exceptions deserving attention.
Countries did not all follow the same path. Large emerging countries, as they underwent profound deregulations of their economies, saw inequalities surge as they opened up and liberalized but followed different transition strategies. In rich countries, inequality levels also varied largely according to changes in institutional and policy contexts, with sharp income inequality rises in the Anglo-Saxon world and more moderate increases in continental Europe and Japan.
Certain Western European and Northern European countries almost contained the rise in income inequality. Given the multitude of trends presented in this chapter, it would be imprudent to seek a single story line behind the rise of inequality across countries. Our findings show that national cultural, political, and policy contexts are key to understanding the dynamics of income inequality. In this chapter, we largely focus on the evolution of top-income shares, as they are now available for a very large set of countries.
In the country-by-country chapters that come next, the focus will be more detailed and we will shift the attention to bottom-income groups. Bottom-income groups were shut off from economic growth in the United States, while top incomes surged in the Anglo-Saxon world. Novel data suggest that top incomes have either recovered their shares or are progressively recovering them. The rise in labor income inequality played an important role in the rise of inequality in Anglo-Saxon countries, and particularly in the United States before the turn of the century, as discussed in chapter 2.
This evolution was also accompanied by an increased polarization of income between low-wage and high-wage firms. This contrasted with European countries, where the dynamics at the top of the distribution have been more moderate. New estimates also show that the upsurge in top incomes has mostly been a capital income phenomenon after in the United States, shedding new light on the process of unequal growth generation. Our novel estimates also allow a better understanding of the dynamics at the bottom of the distribution—at least for certain countries.
Government provided little support to help low-income individuals cope with the situation. The comparison of inequality trajectories between the United States and Western Europe is particularly striking. Inequality in enlarged Europe with a population of million is now substantially smaller than in the United States million. We also compare in Figures 2. Enlarged Europe includes ex-communist East European countries with lower average incomes than West European averages, leading to higher inequality levels. However, it is striking to see that inequality levels in enlarged Europe remain much smaller than in United States.
This conclusion would likely be exacerbated if we were to compare enlarged Europe to enlarged North America including not only Canada but also Mexico , which we plan to do in the near future as new data become available for Mexico. Continental European countries were more successful in preventing the rise of incomes at the top and the stagnation of incomes at the bottom. In western continental Europe, inequality has also been on the rise since the late s, though both the levels of inequality and the rise in inequality were less striking than in the United States.
Spain displays a different picture. For France, new estimates also allow us to track the dynamics of growth at the bottom of the distribution. This increase in inequality is characterized by rises in both labor and capital income. However, the bottom half of the population was not shut off from growth after the s. This part of the population enjoyed close to average income growth rates—a strikingly different picture than in the United States.
Northern European countries had among the lowest levels of income inequality in the world in the early s. Growth has been more unequal in these countries after than before, yet income concentration at the top of the distribution remains limited. As we can see, many European countries have been able to generate relatively high average income growth rates and maintain the rise in income inequality Figure 2. Income concentration and wealth concentration were particularly high in tsarist Russia before the Soviet revolution of see chapter 2.
In Russia, the communist revolution led to an extreme compression of money incomes. It is worth stressing, however, that this extremely low level of monetary inequality is partly artificial. Soviet inequality took other, non-monetary forms, such as privileged access to particular shops and vacation centers for the political elite, and brutal political repression for large segments of the population. The Chinese opening-up policies established from discussed in chapter 2. China shows a substantial rise in inequality the top share rose from 6. Since , inequality at the top has stagnated.
In China and to a lesser extent in India, the rise in inequality occurred in the context of high average income growth, enabling important growth at the bottom of the distribution. In Brazil, wage inequality has decreased over the past twenty years in particular due to rising minimum wage and there have been important and often lauded cash-transfer systems to the poor.
As discussed in chapter 2. But in contrast to Brazil and the Middle East, inequality increased significantly over the past decades in South Africa. The trade and financial liberalization that occurred after the end of apartheid, coupled with the failure to redistribute land equally, can help to explain these dynamics - yet more research will be required to better track and understand recent South African income inequality dynamics.
This is yet another inequality-generating mechanism: the geography of oil property and the frontier system have led to extreme inequality in this region. In low-income countries, inequality is likely to be higher than previously thought, but data is scarce. We still know very little about the evolution of income inequality in the rest of the developing and emerging world. The first explanation for this situation is that there is a lack of proper income-tax data, either because governments have not shared it, or because the data simply do not exist anymore, or because the data are still decentralized and not digitized.
King and Parliament all agreed on the wisdom of a strong expanded Royal Navy. But while the king tried to build up a small standing army, Parliament kept a very close, nervous watch. Puritanism was entirely out of fashion, as the royal court introduced a level of hedonism that far exceeded anything England had ever seen. Harris says, "At the center of this world was a libertine court — a society of Restoration rakes given more to drinking, gambling, swearing and whoring than to godliness — presided over by the King himself and his equally rakish brother James, Duke of York.
England never had a standing army with professional officers and careerist corporals and sergeants. It relied on militia organised by local officials, private forces mobilised by the nobility, or on hired mercenaries from Europe. At the restoration, Parliament paid off Cromwell's army and disbanded it.
For many decades the Cromwellian model was a horror story and the Whig element recoiled from allowing a standing army. Calling up the militia was possible only if the king and local elites agreed to do so. This became the foundation of the permanent British Army , By it had grown to soldiers in marching regiments, and men permanently stationed in garrisons. A rebellion in allowed James II to raise the forces to 20, men. There were 37, in , when England played a role in the closing stage of the Franco-Dutch War. In , William III expanded the army to 74, soldiers, and then to 94, in Parliament became very nervous, and reduced the cadre to 7, in Scotland and Ireland had theoretically separate military establishments, but they were unofficially merged with the English force.
The British have always regarded the overthrow of King James II of England in as a decisive break in history, especially as it made the Parliament of England supreme over the King and guaranteed a bill of legal rights to everyone. Steven Pincus argues that this revolution was the first modern revolution; it was violent, popular, and divisive. He rejects older theories to the effect that it was an aristocratic coup or a Dutch invasion. Instead, Pincus argues it was a widely supported and decisive rejection of James II. The people could not tolerate James any longer.
He was too close to the French throne; he was too Roman Catholic; and they distrusted his absolutist modernisation of the state. What they got instead was the vision of William of Orange, shared by most leading Englishmen, that emphasised consent of all the elites, religious toleration of all Protestant sects, free debate in Parliament and aggressive promotion of commerce.
Pincus sees a dramatic transformation that reshaped religion, political economy, foreign policy and even the nature of the English state. During the joint rule of William and Mary, William made the decisions when he was in Britain; Mary was in charge when he was out of the country and also handled Church affairs.
William encouraged the passage of major laws that protected personal liberties. The Act restated and confirmed many provisions of the earlier Declaration of Right , and established restrictions on the royal prerogative. It provided that the Sovereign could not suspend laws passed by Parliament, levy taxes without parliamentary consent, infringe the right to petition , raise a standing army during peacetime without parliamentary consent, deny the right to bear arms to Protestant subjects, unduly interfere with parliamentary elections, punish members of either House of Parliament for anything said during debates, require excessive bail or inflict cruel and unusual punishments.
The primary reason the English elite called on William to invade England in was to overthrow the king James II, and stop his efforts to reestablish Catholicism and tolerate Puritanism. However the primary reason William accepted the challenge was to gain a powerful ally in his war to contain the threatened expansion of King Louis XIV of France.
William's goal was to build coalitions against the powerful French monarchy, protect the autonomy of the Netherlands where William continued in power and to keep the Spanish Netherlands present-date Belgium out of French hands. The English elite was intensely anti-French , and generally supported William's broad goals. The French king, and the, denounced William as a usurper who had illegally taken the throne from the legitimate king James II and ought to be overthrown. England and France would be at war almost continuously until , with a short interlude — made possible by the Treaty of Ryswick.
Leopold, however, was tied down in war with the Ottoman Empire on his eastern frontiers; William worked to achieve a negotiated settlement between the Ottomans and the Empire. William displayed in imaginative Europe-wide strategy, but Louis always managed to come up with a counter play. But eventually the expenses, and war weariness, but the second thoughts. At first, Parliament voted him the funds for his expensive wars, and for his subsidies to smaller allies.
Private investors created the Bank of England in ; it provided a sound system that made financing wars much easier by encouraging bankers to loan money. Louis XIV tried to undermine this strategy by refusing to recognise William as king of England, and by giving diplomatic, military and financial support to a series of pretenders to the English throne, all based in France.
Williams focused most of his attention on foreign policy and foreign wars, spending a great deal of time in the Netherlands where he continued to hold the dominant political office. His closest foreign-policy advisers were Dutch, most notably William Bentinck, 1st Earl of Portland ; they shared little information with their English counterparts.
The wars were very expensive to both sides but inconclusive. William died just as the continuation war, the War of the Spanish Succession , — , was beginning. It was fought out by Queen Anne, and ended in a draw. Historian Stephen B. Baxter is a leading specialist on William III, and like nearly all his biographers he has a highly favourable opinion of the king:. Anne became queen in at age 37, succeeding William III whom she hated.
Down until , the Parliament was dominated by the " Whig Junto " coalition. She disliked them and relied instead on her old friends Duke of Marlborough and his wife Sarah Churchill , and chief minister Lord Godolphin — But the war dragged on into an expensive stalemate. The opposition Tories had opposed the war all along, and now won a major electoral victory in Anne reacted by dismissing Marlborough and Godolphin and turning to Robert Harley.
She had 12 miscarriages and 6 babies, but only one survived and he died at age 11, so her death ended the Stuart period. Anne's intimate friendship with Sarah Churchill turned sour in as the result of political differences. The Duchess took revenge in an unflattering description of the Queen in her memoirs as ignorant and easily led, which was a theme widely accepted by historians until Anne was re-assessed in the late 20th-century. Anne took a lively interest in affairs of state, and was a noted patroness of theatre, poetry and music.
Scotland and England were entirely separate countries, having the same ruler since Queen Anne, ruling both countries, worked to bring them together in the Acts of Union Public opinion in Scotland was generally hostile, but elite opinion was supportive, especially after the English provided generous financial terms and timely bribes.
The Parliament of Scotland agreed to the terms and disbanded. Scotland was much smaller in terms of population and wealth. Its colonial venture in the Darien scheme had been a major financial and humanitarian disaster. The Acts of Union refunded the losses of the Scottish investors in Darien. In basic terms, Scotland retained its own Presbyterian established church, and its own legal and educational systems, as well it's its own separate nobility.
The Scots now paid English taxes, although in reduced rates, and had a voice in the affairs of Great Britain. The long-term economic benefits took a couple of generations to be realised, and long-standing distrust continued for generations. The risk of war between the two was greatly diminished, although Jacobite raids launched from the north hit England for another forty years. The new Britain used its power to undermine the clanship system in the Scottish Highlands  Ambitious Scots now had major career opportunities in the fast-growing overseas British colonies , and in the rapidly growing industrial and financial communities of England.
Scotland benefited, says historian G. Clark, gaining "freedom of trade with England and the colonies" as well as "a great expansion of markets. By the time Samuel Johnson and James Boswell made their tour in , recorded in A Journey to the Western Islands of Scotland , Johnson noted that Scotland was "a nation of which the commerce is hourly extending, and the wealth increasing" and in particular that Glasgow had become one of the greatest cities of Britain.
The total population of England grew steadily in the 17th century, from to about , then declined slightly and stagnated between and The population was about 4. The next cities in size were Norwich and Bristol with a population of about 30, each. Historians have recently placed stress on how people at the time dealt with the supernatural, not just in formal religious practice and theology, but in everyday life through magic and witchcraft.
The persecution of witches began in England in , and hundreds were executed. The government made witchcraft a capital crime under Queen Elizabeth I of England in Judges across England sharply increased their investigation of accused 'witches', thus generating a body of highly detailed local documentation that has provided the main basis for recent historical research on the topic. Historians Keith Thomas and his student Alan Macfarlane study witchcraft by combining historical research with concepts drawn from anthropology.
Older women were the favourite targets because they were marginal, dependent members of the community and therefore more likely to arouse feelings of both hostility and guilt, and less likely to have defenders of importance inside the community. Witchcraft accusations were the village's reaction to the breakdown of its internal community, coupled with the emergence of a newer set of values that was generating psychic stress. Historian Peter Homer has emphasised the political basis of the witchcraft issue in the 17th century, with the Puritans taking the lead in rooting out the Devil 's work in their attempt to depaganise England and build a godly community.
As the process of psychological modernisation reached more and more people, fears of witchcraft and magic tended to steadily diminish. After Puritans were largely excluded from the judiciary and lost their power to investigate. In , Jane Wenham was the last woman found guilty of witchcraft in England. In Parliament no longer believed that witchcraft was real—despite the efforts of James Erskine, Lord Grange , the Scottish Lord who made a fool of himself speaking in opposition. Parliament passed the Witchcraft Act which made it a crime to accuse someone of witchcraft. The laws against witchcraft were not fully repealed until with the passing of the Fraudulent Mediums Act There was no free schooling for ordinary children, but in the towns and cities small local private schools were opened for the benefit of the boys of the middle classes, and a few were opened for girls.
The rich and the nobility relied on private tutors. Private schools were starting to open for young men of the upper classes, and universities operated in Scotland and England. The University of Oxford and the University of Cambridge provided some education for prospective Anglican ministers, but otherwise had academic standards well below their counterparts in Scotland. Historians have looked at local documents to see how many men and women used their signature and how many used X's.
Literacy rates were very low before , but grew steadily in the next three centuries, with men twice as likely to be literate as comparable women. Two forces were at work: Protestant religion called for the ability to read the Bible , and changing social and economic conditions. For example, towns grew rapidly, providing jobs in retailing in which literacy was a distinct advantage. When the Puritans fell out of power, Britain began to enjoy itself again. Historian George Clark argues:. The first coffee houses appeared in the mids and quickly became established in every city in many small towns.
They exemplified the emerging standards of middle-class masculine civility and politeness. Admission was a penny for as long as a customer wanted. The customers could buy coffee, and perhaps tea and chocolate, as well as sandwiches and knickknacks. Recent newspapers and magazines could be perused by middle-class men with leisure time on their hands.
Widows were often the proprietors. The coffeehouses were quiet escapes, suitable for conversation, and free of noise, disorder, shouting and fighting in drinking places. The working class could more usually be found drinking in pubs, or playing dice in the alleyways. Many businessmen conducted their affairs there, and some even kept scheduled hours. Historian Mark Pendergast observes:. Lloyd's Coffee House opened in and specialised in providing shipping news for a clientele of merchants, insurers, and shipowners.
In a few years it moved to a private business office that eventually became the famous insurance exchange Lloyd's of London. By the s private clubs had become more popular and the penny coffee houses largely closed down. In science, the Royal Society was formed in ; it sponsored and legitimised a renaissance of major discoveries, led most notably by Isaac Newton , Robert Boyle and Robert Hooke.
Out in the countryside, numerous architects built country houses — the more magnificent the better, for the nobility and the wealthier gentry. Inigo Jones is the most famous. Numerous architects worked on the decorative arts, designing intricate wainscoted rooms, dramatic staircases, lush carpets, furniture, and clocks that are still be seen in country houses open to tourism.
The Great Fire of London in created the urgent necessity to rebuild many important buildings and stately houses. Sir Christopher Wren was in charge of the rebuilding damaged churches. More than 50 City churches are attributable to Wren. His greatest achievement was St Paul's Cathedral. Historians have always emphasised the localism in rural England, with readers gaining the impression that the little villages were self-contained communities.
However, Charles Phythian-Adams has used local evidence to paint a much more complex picture. People could relocate from one village to another inside these networks without feeling like they were strangers. The network would include for example one or more market towns, county centres, or small cities. Roads existed and were supplemented by turnpikes. However the chief means of transportation was typically by water, since it was much cheaper to move wagon loads of commodities, especially wool and cloth, by boat than over land.
Much effort was made to improve the river system, by removing obstacles. A mania to build canals, —, enlarged the range and lowered costs. After , the coming of railroads enlarged the range of local networks so much that the localism was overwhelmed . The 18th century was prosperous as entrepreneurs extended the range of their business around the globe. By the s Britain was one of the most prosperous countries in the world, and Daniel Defoe boasted:.
As an island there was little incentive for gaining new territory. In the Tudor and Stuart periods the main foreign policy goal besides protecting the homeland from invasion was the building a worldwide trading network for its merchants, manufacturers, shippers and financiers. This required a hegemonic Royal Navy so powerful that no rival could sweep its ships from the world's trading routes, or invade the British Isles.
Wool was the great commercial product. The 13 American colonies provided land for migrants, masts for the navy, food for the West Indies slaves, and tobacco for the home and the re-export trades. The British gained dominance in the trade with India, and largely dominated the highly lucrative slave, sugar, and commercial trades originating in West Africa and the West Indies.
The government supported the private sector by incorporating numerous privately financed London-based companies for establishing trading posts and opening import-export businesses across the world. Each was given a monopoly of trade to the specified geographical region. The Company of Royal Adventurers Trading to Africa had been set up in to trade in gold, ivory and slaves in Africa; it was reestablished as the Royal African Company in and focused on the slave trade. Other powers set up similar monopolies on a much smaller scale; only the Netherlands emphasised trade as much as England.
Woolen cloth was the chief export and most important employer after agriculture. In the medieval period, raw wool had been exported, but now England had an industry, based on its 11 million sheep. London and towns purchased wool from dealers, and send it to rural households where family labour turned it into cloth. They washed the wool, carded it and spun it into thread, which was then turned into cloth on a loom.
Export merchants, known as Merchant Adventurers, exported woolens into the Netherlands and Germany, as well as other lands.