INEQUALITY

The dominant myth that Americans tell themselves and the world about America is the myth of American exceptionalism.  America is the only nation created as the embodiment of an idea, the idea of equality.  America is a city upon a hill, a beacon to all, the hope of mankind, the greatest democracy on earth, the leader of the free world. America is the only world power not to seek imperial hegemony.  Never mind that none of this is true.  What is true is that America is really exceptional in one deeply important fashion.  It is far and away the most economically unequal of the world’s advanced industrial economies.

The purpose of this blog post is to introduce you, if indeed introduction is necessary, to the measure of economic inequality called the Gini Coefficient.  I do this for two reasons:  First, because I enjoy explaining technical things, and this is my blog, damn it; and Second, because I think it is useful when discussing politics and economics to introduce a measure of precision as a way of getting past anecdote and polemic.  Accordingly, I will first explain what a Gini Coefficient is and then tell you a bit about how nations across the globe differ in their degrees of inequality, as measured by their national Gini Coefficients.

The easiest way to understand a Gini Coefficient is first to understand a Lorenz Curve [both of these, of course, named for the economists who invented them].  Take a look at this diagram, copied from Wikipedia.

.  Along the x-axis is measured the share of a nation’s population, from 0 to 1, or from 0% to 100%.  Along the y-axis is measured the percentage of the nation’s income that goes in a year to the corresponding fraction of the population [or the percentage of the nation’s wealth owned by that fraction of the population, a very different thing, of course.]  Thus, a point with the coordinates [x= .27, y = .15] is a graphical representation of the fact [if, indeed, it is a fact] that the poorest 27% of the population collectively receive in a year 15% of the nation’s income [or own 15% of the nation’s wealth, if that is what one is measuring.]

Now, on reflection, it is obvious that if the income or wealth is distributed absolutely equally, then the series of points representing this fact will be a straight line rising from 0 on the left to 1 on the right, at a 45 degree angle.  Think about it.  The poorest 1% of the population receive 1% of the nation’s income.  So their income is represented by a point with the coordinates (.01, .01).  The poorest 2% receive 2% of the nation’s income, and that is represented by a point with the coordinates (.02, .02).  And so on, cumulatively, until 100% of the population receive 100% of the nation’s income.  By way of contrast, the maximally unequal distribution is one in which no one receives anything save one individual, who receives everything.  This extremal situation is represented by a right angle, with every point on the axis having zero elevation save the last, which lies at a distance of 1, or 100%, from the baseline.

OK, got that?  In the real world, of course, there are no perfectly equal or perfectly unequal nations.  In every nation, the poorest people receive less than their proportionate share of national income and the richest people receive more than their proportionate share.  If you graph that reality, you get a curve that looks something like the curve in the diagram above.  The more closely that curve hugs the equal distribution 45 degree angle line, the more equally income is distributed in the economy.  The more that curve sags and droops, the less equally income is distributed.  So much for Herr Lorenz.

Signor Gini’s idea was to translate the Lorenz curve into a number, namely the ratio of the area between the equal distribution line and the Lorenz curve to the total area of the right triangle.  In the diagram, that means the fraction ( A/A+B ).  This ratio is called the Gini Coefficient.  A little thought should make it obvious that the smaller a nation’s Gini Coefficient, the more equal its distribution of income or of wealth, depending on which one you are measuring.  Low Gini Coefficient:  relative equality;  high Gini Coefficient: relative inequality.

Two general facts:  First, a nation’s Income Gini Coefficient is usually lower than its Wealth Gini Coefficient;  Second, America’s income and wealth Gini Coefficients are the highest in the developed world. 

Here are some numbers, income first.  The most equal nations for which the UN has data are Ukraine, Iceland, Slovenia, the Czech Republic, Slovakia, Kazakhstan, Kosovo, Belarus, Finland, and Norway, all with Gini Coefficients in the 25-26 range.  Belgium, Denmark, and the Netherlands are a tad less equal, with Gini Coefficients between 28 and 29.  Germany’s Gini Coefficient is 31.4, Japan’s is 32.1, France’s is 32.3, and Canada comes in at 34, between Sierra Leone and Niger.  A tiny bit less equal is Great Britain, with a Gini Coefficient of 34.1

The United States has a Gini Coefficient of 41, a bit less equal than El Salvador and exactly equal to Qatar.  South Africa, alas, has the largest Gini Coefficient recorded – 63.4.

And wealth?   The United States has the least equal distribution of wealth in the entire world, with a wealth Gini Coefficient of 80.56!  Try if you can to visualize the wealth Lorenz Curve for America.  Four-fifth of the area is above the curve.  Indeed, as Thomas Piketty notes, the poorest one-half of America’s population has collectively wealth of exactly zero!  How is this possible?  Simple, if you aggregate their wealth holdings and subtract their debts, nothing is left.  Graphically, America’s wealth Lorenz Curve does not even make it above the x-axis until the 0.5 point.

America is indeed exceptional.