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Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

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Monday, June 26, 2017

US and UK have worst income inequality

The Gini Coefficient measures the degree of inequality in a society.  The higher it is, the greater the inequality.  A Gini coefficient of 1 means that all income goes to 1 person; the rest receive zero.  A Gini coefficient of 0 means income is exactly equally distributed.  If you drew a Gini coefficient for wealth instead in income it would be much higher, i.e., significantly more unequal.  I was surprised to see how high Oz's Gini coefficient is--the result of decades of neo-liberalism has changed my country from an egalitarian one to something much more unequal.

2 comments:

  1. The graphic tells us only a few, very general things, but I have a lot of questions about what exactly is being represented here. I went to the Wikipedia entry on the Gini Coefficient and got lost pretty fast; I'm not a mathematician or an economist. Evidently the Gini coefficient is the point on a Lorenze Curve. To me, that means that the actual value of the coefficient would be like a logarithmic scale, which means that the values on your graphic are misleading. For example, does the value for Luxembourg, at .30, mean that inequality is 3/4 that of the U.S., at almost .40? I suspect that the curve would actually be closer to a hyperbola.

    The graph only shows Western democracies. What would the value be for very poor countries, like Haiti, where most of the wealth is in the hands of a small aristocracy? It would be a pretty stark (and politically volatile) point if the U.S. coefficient were close to that of Haiti.

    Also, the Wikipedia entry says that the coefficient can represent wealth or income. Your graph is for income, but a major part of the issue is the fact that wealth is accumulating in the hands of the top 1% or .01%. Given that many people in the U.S. are also heavily in debt with mortgages and credit card debt (negative wealth), the coefficient based on wealth would be even higher. Theoretically, it could be greater than 1.0.

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    1. It *is* closer to a hyperbola. For very poor countries, the Gini coefficient would be higher, but I'm not sure by how much. And the Gini coefficient for wealth would be much higher. And you are absolutely right, theoretically for wealth it could be greater than 1 given that many at the bottom of the pyramid have negative wealth. Well spotted.

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