Ever heard of the Gini Coefficient? Yeah I thought not who has and frankly who cares? Well in reading Stephen Roach’s “Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization” I came across this measure of income dispersion within and across economies of all shapes and sizes. When I went to the US Bureau of Labor Statistics looking for a historical record of US Gini coefficients I was disappointed (but not surprised) to see a very disturbing trend developing.
First let me note that the Gini Coefficient is a decimal between Zero and One (The Grey Between Binary!), with One being absolute inequality (i.e. The Rich Have Everything) and Zero being completely equitable distribution of income across any given economy.
What I saw when I plotted the Bureau of Labor’s data was a sharply upward trending slope from left (1967) to the present (2007). At the current trend we will have a Gini Coefficient of 0.537 in 2025, 0.652 in 2075, 0.767 in 2125, and 0.939 in 2200. That is unless the world ends. OR H1N1 kills us all. This should disturb those on the left and the right equally, because believe you me the folks benefiting from this trajectory have no religion or aspirations for any type of greener planet, rather they are driven by Financial Weapons of Mass Destruction and really big yachts. This points towards a New America, which when we think about income equality or meritocracy we see that it is becoming more and more a Zero Sum Game or what what 18th/19th Century British economist David Ricardo called Comparative Advantage (See Below). Although in this instance we are talking about intra-country or -region income disparities.
Comparative Advantage (According to the US Bureau of Labor Statistics): When one nation’s opportunity cost of producing an item is less than another nation’s opportunity cost of producing that item. A good or service with which a nation has the largest absolute advantage (or smallest absolute disadvantage) is the item for which they have a comparative advantage.
I think that this trend and the data it describes to are two more examples of why across-the-board capitalism does not work. Do aspects of capitalism work? OF COURSE no one (not least of which me!!) is saying differently, but to assume that any “-ISM” in its entirety is suitable for an entire country or across the board is foolish, arrogant, dangerous, and short-sighted. BEWARE OF THE -ISM PEOPLE!!!
Lets briefly put this trend and Gini in some perspective. First it is worth noting where the US sits globally with respect to Gini. As you can see below we (US in Red) are somewhere in the middle of the 153 global average of 0.409±0.103. Some of the esteemed nations with a more equitable distribution of wealth include Russia, Myanmar (That’s Right Myanmar!), Cuba, and Saudi Arabia. Our neighbors on the Gini scale include Irag, Petro States like Iran and Nigeria, not exactly paragons of freedom. Given the projections I calculated above we will join nations like Zimbabwe (Hint: You know the nation with inflation >1 quadrillion %) by 2025, systemically corrupt nations like Sierra Leone, Equatorial Guinea, and Namibia in 2075, AND…..Drumroll Please…………..We will be off the current distribution by 2125 at a Gini of 0.767. Not bad huh? So with all the huffing and puffing from the right about our dept and deficit climbing as a % of GDP I think it is worth paying credence to this much maligned index, given its current value and projected trend. Sure we need to consume less and save more, but the fact is that many in this country are under the impression that “Compared with people in other rich countries, Americans tend to accept relatively high levels of income inequality because they believe they may move up over time. The evidence is that America does offer opportunity; but not nearly as much as its citizens believe.”
So the final point that many on the way- and intermediate-right, along with countless centrists and Efficient-Market Hypothesis ideologues make is that this type of asymmetrical wealth distribution is a product of and promoter of competition. The idea that a rising tide lifts all boats with respect to consumption, investment, government spending, and export-import (ie GDP = C+I+G+(Exp-Imp)). However, if we look at GDP as a function of the Gini Index across the aforementioned 153 nations we see ZERO RELATIONSHIP! Let me say that again there is no relationship between an increasing Gini (ie, Rich Getting Richer!) and GDP growth. So, what are we to make of this? Well the answer is that The Great Decoupling with respect to income inequality has spread geographically and will prove insidious and along with an increasing redistribution of water rights another reason why bottom-up “concern” should and will grow. We’re not talking about astroturf revolution, but rather empirical and well-thought out multi-angle reform.