GINI Don’t Preach

     The GINI coefficient measures inequality on a scale of 0-100, where 0 represents everyone owning an equal amount of a countries wealth and 100 represents a single person holding all of a countries wealth. A more complicated explanation can be found here, and furthermore here is the most current list of coefficients for countries listed by the CIA. The most recent coefficient for the United States is listed at 45 in 2007 (I wonder how the financial crises changes that), up from 40.8 in 1997. One thing I try to stress when presenting the GINI coefficient for any given country is that, although it has it’s limitations, the index is good for measuring inequalities change over time. 

     So looking at a ten year change between ‘97-‘07 in the U.S. we see that inequality has moved upward, representing increased wealth/income concentration to a fewer amount of people. Now this is where GINI’s limitations come in, because looking at the big picture doesn’t actually explain the micro trends causing such changes. This examination of micro explanations for the movement in inequality is where the battle is taking place.

     For example, here are all the posts on FrumForum under the tag income inequality. There have also been many volleys between people like Tim Noah, Jon Chait, and various pieces by the online magazine of the American Enterprise Institute. Here’s Reihan Salam’s perspective from the National Review Online, and the Brookings paper he’s referring. While some attempt to deny that inequality even exists, or that if it does it’s way overblown, refuting the GINI coefficient is akin to refuting that some people have more wealth than others. Which is, of course, on it’s face ridiculous.

     Time and again I state that the GINI index, along with other methods of gauging inequality, are just measurements. They are not a value statements. They are not in and of themselves a condemnation of capitalism, or conversely a condemnation of a countries work ethic. The disagreement shouldn’t be whether or not it exists, as the CBO reports, but indeed the implications of it’s existence. Drilling down into the details can give us all sorts of useful information, which should inform our opinion as to whether or not it’s 1. A problem, and 2. What we can or should do to about it.