Not Dreaming of Gini


I was chasing down some information on Mexico’s skewed economics and ran across this showing how the US ranks among the world nations. Look at the chart to see that we are below all the usual suspects like Sweden and Japan, but also Iran and Pakistan. The Gini Coefficient is a serious professional tool used by economists.

Gini Coefficient: An Indicator of Income Inequality

The Rising U.S. Gini Coefficient Indicates a Widening Income Gap 

Labor Department data shows the U.S. Gini Coefficient is rising. If the current trend continues, then the American income gap will resemble that of Mexico by year 2043. 

The U.S. Department of Labor publishes the annual Gini Coefficient with the nation’s tabulated income statistics. Graph 1, shown below is derived from those data and illustrates the upward Gini trend from 1967 to 2001 as a black line. The red line is a projected continuation of that trend to the year when the U.S. Gini Coefficient will be as high as Mexico’s was in year 2000.  

 Data Source: U.S. Department of Labor, Census Bureau Income Statistics

 

Gini Background 

The Gini Coefficient is named after Corrado Gini, an Italian economist who published it in 1912. The Gini Coefficient is derived from a statistical formula and expresses the degree of evenness or unevenness of any set of numbers as a number between 0 and 1. A Gini Coefficient of 0 would indicate equal income for all earners. A Gini Coefficient of 1 would mean that one person had all the income and nobody else had any.

Thus, lower Gini Coefficients indicate more equitable distribution of wealth in a society, while higher Gini Coefficients mean that wealth is concentrated in the hands of fewer people. More information is available at the Wikipedia (Gini coefficient). Sometimes the Gini Coefficient is multiplied by 100 and expressed as a percentage between 0 and 100. This is called the “Gini Index”.

 

Table 1. Here is a list of recent Gini Indexes for a select group of nations:

Japan 24.9   United Kingdom 36.0
Sweden 25.0 Iran 43.0
Germany 28.3 United States 46.6
France 32.7 Argentina 52.2
Pakistan 33.0 Mexico 54.6
Canada 33.1 South Africa 57.8
Switzerland 33.1 Namibia 70.7

Notice that the Gini Index for the United States is closer Mexico’s than it is to Canada’s.

A Well-Established Trend

The Gini Coefficient for the United States has risen steadily since 1967. If the current trend continues, the United States will reach a Gini Coefficient of 0.546 in about 37-years, or 2043. This coefficient is equal to the one Mexico had in year 2000. Mexico is not known for having a large prosperous middle class.

Unless the United States breaks this trend, the American middle class will be a thing of the past – actually within the lifetime of most Americans living today. My kids will be in their forties in 2043. Many of the younger Boomer generation, for example, those born between 1960 and 1964, will still be around.

What to Do? 

The distractions are formidable, but this trend is reversible. It is not inevitable. The trend line can be leveled off through a combination of tax, trade, and labor policies – but only through substantial, focused pressure from citizens on their government officials. Here are some suggestions:

  • While the main news is about the hideous situation in Middle East and the usual bling-bling, Congressional operatives, Administration officials, and lobbyists are working very hard to make Bush’s tax cuts permanent. They are also trying to end the Estate Tax, which is a tax on millionaires making up about 3% of estates. These tax cuts enacted shortly after Bush took office, which were clearly the top priority in the early days of his presidency, disproportionately favor the wealthy and they should not be allowed to continue beyond their expiration date. In fact they should be rolled back, immediately. They should have never been passed.
  • The maximum graduated income tax bracket during World War II was 90-percent. It was 70-percent as recently as 1980. The current maximum tax bracket is far too low and should be raised back to 70-percent.
  • The minimum wage, when corrected for inflation, has declined over 30-percent since 1980. The U.S. Congress should increase the minimum wage to at least $7.75.
  • In its trade relations, the United States should not be an enabler of oppressive regimes that resist human rights, rule of law, environmental protection, occupational health and safety, and the right to organize.
  • Our trade policies should reflect our values and commitment to the “five freedoms” of speech, religion, press, petition, and assembly provided under the Constitution.

 

Another dramatic and compelling depiction of income inequality is illustrated in David Chandler’s L-Curve of Income Distribution in America. This is well worth a look, and I can’t find anything wrong with his statistics.

Keywords: Gini coefficient, income inequality, income gap, gini index, shrinking middle class

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