Posts Tagged ‘GINI index’
“An imbalance between rich and poor is the oldest and most fatal ailment of all republics”*…
… so, how we measure it matters…
In 2015, Greece, Thailand, Israel, and the UK were equally unequal. That is, all four countries had the same Gini coefficient, a common measure of income inequality.
The number suggests that the spread of incomes in the four nations was the same. However, a close look at the poorest and wealthiest in those societies reveals a very different picture. The ratio between income held by the richest 10% and the poorest 10% ranged significantly, from 13.8 in Greece to 4.2 in the UK.
The fact is, just because the Gini coefficient is so well known doesn’t mean it’s a particularly useful measurement. Its appeal comes from its simplicity—a number between 0 and 1 that can encapsulate a complex distribution in a single figure—as well as its popularity. It is also regularly published and updated by powerful international organizations like the OECD, the World Bank, and the International Monetary Fund.
However, it has a number of serious limitations. So many, in fact, that the World Inequality Database, one of the world’s leading sources of income inequality data, steers clear. And it’s not alone. While some economists defend the Gini coefficient’s continued use, most agree that as a way to understand income inequality, it’s insufficient on its own…
A primer on the dominant measure of economic inequality, and on some alternatives/supplements to it: “Gini coefficient: An introduction.”
* Plutarch
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As we aim to understand, we might note that today is the Summer Solstice, the day on which the earth’s north pole is maximally tilted toward sun, and there are more hours of daylight than on any other day of the year (in the Northern Hemisphere; in the Southern, it is the Winter Solstice, the shortest day). The June solstice is the only day of the year when all locations inside the Arctic Circle experience a continuous period of daylight for 24 hours. And perhaps more immediately, it is the “official” start of Summer.
(The 21st is the traditional date; in the event, the solstice falls on the 20th, 21st, or 22nd– this year, on the 20th… still, the traditional date is the one folks tend to mark.)
Not coincidentally, today is also National Daylight Appreciation Day.
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”*…
In the past few decades, the Gini coefficient—a standard measure of income distribution across population segments—increased within most high-income economies. The United States remains the most unequal high-income economy in the world. The disparity reflects a surge in incomes for the richest population segments, along with sluggish or even falling incomes for the poorest, especially during bad economic times.
At the same time, the middle class is shrinking. The percent of Americans in the middle class has dropped since the 1970s, from 61 percent in 1971 to 51 percent in 2019. Some have moved up the income ladder, but an increasing number are also moving down. The middle class has also shrunk considerably in countries like Germany, Canada, and Sweden, but other advanced economies have generally experienced more modest declines.
From the introduction to the Petersen Institute for International Economics report “How to Fix Economic Inequality?”
Founded by Pete Petersen (Lehman Brothers Chair, Nixon’s Secretary of Commerce, and co-founder, with Trump supporter Stephen Scharzman, of investment giant Blackstone), and overseen by trustees who include Larry Summers, Alan Greenspan, and George Schultz, PIIE is hardly a “progressive” think tank. But they are worried: quite apart from its obvious humanitarian toll, inequality at the scales that have emerged is highly unlikely to be sustainable (even at the human cost that we’ve so far been willing to pay). Put more bluntly, it is ever more likely to torpedo the domestic (and large hunks of the global) economy and indeed to threaten the stability of democratic society.
Other sources suggest that they have very good reason for concern:
• Even as the stock market hits new highs, 26 million Americans are suffering food insecurity (See also: “The boom in US GDP does not match what’s happening to Americans’ wallets.”
• The distribution of assets in the US (and other developed economies, but most egregiously in the U.S.) is even more skewed than income: see data in the PIIE report and “The Asset Economy.”
• And lest we think that this issue is confined to the U.S., social democracies throughout the developed world are feeling the same pressures (albeit mostly less dramatically).
FWIW, your correspondent doesn’t have terrifically strong confidence in the remedies mooted in the PIIE report. Even as the authors recognize that the issues are deeply structural, they confine themselves to recommending (what seem to your correspondent) relatively timid and incremental steps– which, even if taken (and most require legislative or regulatory action) are more likely to slow the polarization underway than to reverse it.
But they are worth contemplating, if only to provoke us to more fundamental measures (e.g., here). And in any case, it’s telling– and one can only hope, encouraging– that determined champions of the very neoliberal economics that have gotten us here recognize, at least, that unless we change course, we’re speeding into a dead end.
* Warren Buffett
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As we agree that fair’s fair, we might recall that it was on this date in 2001 that Enron, once #7 in the Fortune 500, declared bankruptcy. Six months earlier, it’s stock had traded as high as $90; it closed November 30th at 26 cents, wiping out billions in wealth (a appreciable part of it disappearing from employees’ pension plans). At the time, Enron had $63.4 billion in assets, earning it the honor of being the nation’s largest bankruptcy to that date. (It would be surpassed by the WorldCom bankruptcy a year later.)
Jeff Skilling, Enron’s CEO served 11 years in prison on several counts of fraud; Andy Fastow, Enron’s CFO, would served about 5 years. Chairman Ken Lay was also found guilty, but died before his sentencing. Enron’s accounting firm, Arthur Andersen (at the time a leader among the “Big 5”), which at least “missed” the egregious fraudulent practices in their audits of Enron, was effectively forced to dissolve after the scandal.
“The good we secure for ourselves is precarious and uncertain until it is secured for all of us and incorporated into our common life”*…
… It might be that people have been studying inequality in all the wrong places. A few years ago, two scholars of comparative politics, Alfred Stepan, at Columbia, and the late Juan J. Linz—numbers men—tried to figure out why the United States has for so long had much greater income inequality than any other developed democracy. Because this disparity has been more or less constant, the question doesn’t lend itself very well to historical analysis. Nor is it easily subject to the distortions of nostalgia. But it does lend itself very well to comparative analysis.
Stepan and Linz identified twenty-three long-standing democracies with advanced economies. Then they counted the number of veto players in each of those twenty-three governments. (A veto player is a person or body that can block a policy decision. Stepan and Linz explain, “For example, in the United States, the Senate and the House of Representatives are veto players because without their consent, no bill can become a law.”) More than half of the twenty-three countries Stepan and Linz studied have only one veto player; most of these countries have unicameral parliaments. A few countries have two veto players; Switzerland and Australia have three. Only the United States has four. Then they made a chart, comparing Gini indices with veto-player numbers: the more veto players in a government, the greater the nation’s economic inequality. This is only a correlation, of course, and cross-country economic comparisons are fraught, but it’s interesting.
Then they observed something more. Their twenty-three democracies included eight federal governments with both upper and lower legislative bodies. Using the number of seats and the size of the population to calculate malapportionment, they assigned a “Gini Index of Inequality of Representation” to those eight upper houses, and found that the United States had the highest score: it has the most malapportioned and the least representative upper house. These scores, too, correlated with the countries’ Gini scores for income inequality: the less representative the upper body of a national legislature, the greater the gap between the rich and the poor.
The growth of inequality isn’t inevitable. But, insofar as Americans have been unable to adopt measures to reduce it, the numbers might seem to suggest that the problem doesn’t lie with how Americans treat one another’s kids, as lousy as that is. It lies with Congress…
The estimable Jill Lepore on accounting for inequality: “Richer and Poorer.“
[image above: source]
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As we search for the balance, we might recall that it was on this date in 1931 that the National Hunger March gathered in Washington DC to demand jobs and relief. Massing in front of Congress, the 1,670 marchers were met by an estimated 1500 police, and 1000 Marines, all armed. They left without a hearing from President Hoover or any other official, but did have an impact: they set the stage for the 1932 march of the Bonus Army where 43,000 marchers – many veterans – descended on Washington DC to demand payment for the “service certificates” which had given to them in 1924 in lieu of cash.
The Big (Not So) Easy…
Lake Providence lies in East Carroll Parish in the northeast corner of Louisiana…
It’s a place where the air is so soupy-hot your shins sweat; where bugs are such a looping, whirring presence that it can feel like you’re trapped in hell’s version of a snow globe; and where the level of income inequality, as persistent as the bugs and humidity, is higher than any other parish or county in America…
Since the late 1970s, the gap between rich and poor has widened to Grand Canyon proportions — pushing America toward a two-class society. People have a harder time getting ahead now than at any time since the Great Depression.
The nation is more economically split, according to the CIA, than Iran or Nigeria.
East Carroll Parish, population 7,500 and home to Lake Providence, is worse off still…
And of course, the difference makes a difference…
This is well documented in a book called “The Spirit Level” by epidemiologists Richard Wilkinson and Kate Pickett. Drawing on decades of work, the researchers found, essentially, that people who live in economically unequal places — such as Louisiana or the United States as a whole — tend to live harder lives.
Not just poor people. All people.
When the researchers plotted income inequality against an index of social problems that included infant mortality, mental health and others, they got the chart below, which shows that more unequal places tend to have more of these issues. The United States, the most unequal of the developed countries, for example, also has the world’s highest incarceration rate and a higher infant mortality rate than comparable nations. Sweden, meanwhile, has a low level of income inequality and fares much better on these social measures….
Read the whole story– it’s eminently worth reading the whole story– (with more and bigger, more-legible charts) at “The Most Unequal Place in America.”
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As we mind the gap, we might recall that it was on this date in 1930, in Atlanta, that Jessie Daniel Ames founded the Association of Southern Women for the Prevention of Lynching.
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