Jump to Navigation
Home

Main menu

  • Home
  • News
  • Markets Map
  • Topics
  • Data
  • Comments
  • Images
  • Blog
  • About

Secondary menu

  • Latest News
  • Top Rated
  • Most Popular
  • Archive
  • Discussions
  • Behind Denmark's Eurovision win
  • The sector that finds the best stockpickers for you
  • Top cos add Rs 40,053 cr in mkt val; ONGC, SBI shine
  • FIIs invest Rs 12,000 cr in stock market
  • Unitech to invest over Rs 500 cr to develop luxury housing
  • FIIs invest Rs 12,000 cr in stock market
  • Market to take cues from FIIs inflows, corporate earnings
  • Green Deal debt may have to be repaid before property sold
  • MFs invest Rs 4.74 lakh cr in FY'13
  • High Court directs ICICI Lombard General Insurance...

    Measuring inequality

    Thu, 11/10/2011 - 10:27 EDT - Stumbling and Mumbling
    • Comments

    Tim says that inequality falls in recessions, because top incomes are determined by market forces and so fall whilst bottom incomes are welfare benefits which, barring reforms, are fixed in real terms. The data seem to support his view; the Gini coefficient for post-tax and benefit incomes did fall slightly between 2006-07 and 2009-10.
    But how meaningful are Gini coefficients? Consider the three societies in my table. All are equally rich, with an average income of 7. Which is the most unequal? Gini
    If we look at the incomes of the poor, C is unequal. There, three people have an income of half or less of median income. In B, no-one has so low an income. In A only two do.
    But if we look at the gap between the rich and the median, we get the opposite ranking. Society B is highly unequal, whilst C is egalitarian.
    If we take the ratio of top incomes to bottom incomes, C is most unequal and B is most equal. However, if we take the absolute gap in incomes, the opposite is true.
    So, which society is the equal one? Gini coefficients cannot adjudicate here. They are all the same, by construction. In society C there are small inequalities at the top, but big ones between average and bottom. In B, there are big inequalities in the top half and small ones near the bottom. These inequalities cancel out.
    I don’t think my example is contrived. You can think of society B as one with a “squeezed middle” -  individuals ranked 2 to 6 are worse off than in society A - and with “winner take all” features that generate a very wealthy minority, but with a relatively generous welfare state. If you like, it’s a New Labour society. Or if you like, it's a society in which the richest manage to get government bail-outs whilst the middle class suffers.
    Society C, however, is the opposite. It‘s a bourgeois society, with a big middle class but a weak welfare state.
    Which is preferable? Utilitarians can’t adjudicate, as average incomes are the same. Nor can the egalitarian who looks only at Gini coefficients, as these too are all the same. Rawlsians would prefer society B, as this maximizes the position of the worst-off member. Others, though, might prefer C, as it gives us a six in nine chance of getting an average income or better, whilst society B gives us only a four in nine chance and A gives a five in nine chance. Still others might find B least attractive, if they fear adverse social or political consequences of having a very wealthy elite, or if they have (non-consequential) libertarian objections to the large transfers that fund the welfare state.
    My only point here is perhaps a trivial one - that simple measures such as Gini coefficients (or I suppose any other single measure) tell us very little about complex phenomena such as inequality. 

    • Original article
    • Login or register to post comments
     

    Related

    • Inequality, & statistics

      John Rentoul has been causing trouble. "The gap between rich and poor has not changed significantly for about 20 years" he says - which is "at variance with the accepted story of food banks and greedy bankers".

    • Shrink the state: a leftist aim

      David Semple thinks the left should join American tea parties, which protest against high taxes. I think I agree. The desire to shrink the state should be a leftist aim. I say so for four reasons.1. Big government cannot be redistributive government. If the state is raising 40% of GDP in taxes, it must tax the worst off, simply because the rich, even in the UK and US, aren’t that rich or plentiful.

    • Our Misleading Measure of Income and Wealth Inequality: The Standard Gini Coefficient

      Robert H. Wade is a Professor of Political Economy, London School of Economics and a winner of the Leontief Prize in Economics for 2008. His “Governing the Market” won Best Book in Political Economy from the American Political Science Association. Originally published at Triple Crisis.

    • ‘A stark story of two Americas’: Rich got richer and poor got poorer after U.S. recession

      The U.S. economy has recovered for households with net worth of $500,000 or more, a new study shows. The recession continues for almost everyone else. Wealthy households boosted their net worth by 21.2% in the aftermath of the recession, according to the study released today by the Pew Research Center. The rest of America lost 4.9% of household wealth from 2009 to 2011.

    • Young and poor hit hardest as UK cuts widen inequality, says OECD

    • Americans Can't Stop Talking About Income Inequality, But No One Is Doing Anything About It

      On the face of it, income inequality is high on America’s agenda.

    • United States Inequality in the Recovey Period

      I want to point out this post from the LA Times, The consumer isn’t overleveraged — the middle class is: That’s one conclusion to draw from a new Bank of America Merrill Lynch report this week, “The Myth of the Overlevered Consumer.”

    • Invariant inequality

      The Office for National Statistics today published its latest figures (pdf) on income inequality. These show that, in 2007-08, the richest 10% received 28% of all post-tax income - that is, incomes including benefits after direct and indirect taxes - whilst the poorest 10% got just 2%.

    • Inequality vs relative poverty

      In the Speccie, Charles Moore writes:If poverty comes to be defined relatively for all purposes of public policy — households with less than 60 per cent of the median income, says the government — then poverty and inequality become the same thing.

    • The Shocking Trend In U.S. Individual Income Inequality, 1994-2010

      Perhaps the most common measure of income inequality in a nation is the Gini Coefficient (aka the "Gini Ratio"), which ranks the amount of inequality there is in a country on a scale from 0, which represents perfect equality, where everyone would have an equal share of the nation's income, to a value of 1, which represents perfect inequality, where one person would have all the income, but everyone else has none.

    Latest

    Seth Meyers Knocked Out Anderson Cooper On Saturday Night Live
    Seth Meyers Knocked Out Anderson Cooper On...
    Here's How A Successful Lawyer Knew For Sure She Was A Sociopath
    Here's How A Successful Lawyer Knew For Sure...

    User login

    • Create new account
    • Request new password
    • Click on the icon to sign in with your social network login or enter your Bullfax.com login

    Our Blog

    • Aviva steps up drive for cost cuts
    • Food Demand, JM Financial, UK Startups Incubator and Sina in Our News for Today 05/17/2013
    • Budget black hole at heart of George Osborne’s finances

    Markets Map

    Markets Map

    Follow Us

    Follow Us on Facebook, Twitter, Google Plus and RSS LinkedIn Facebook Twitter Google Plus RSS
    S&P 500: 1667.47 1.02% FTSE: 6723.06 0.52% Nikk.: 15138.12 0.67% DAX: 8398.00 0.33% HSI: 23082.68 0.17% FX: EUR/GBP: 1.1821 USD/EUR: 1.2833 JPY/USD: 103.165 Commodities: Gold: 1360.15

    Bullfax.com - Market News & Analysis 2008-2011
    Contact Us | About Us | Terms & Conditions

    Follow Us on Facebook, Twitter, Google Plus and RSS LinkedIn Facebook Twitter Google Plus RSS .

    Secondary menu

    • Latest News
    • Top Rated
    • Most Popular
    • Archive
    • Discussions