George Rebane
Obama could not spell it out more clearly than in his third book, this one just submitted to Congress and entitled ‘A New Era of Responsibility: Renewing America’s Promise. The President’s Budget and Fiscal Review’ (2.8MB pdf) It is a declaration of class war on life as usual in these United States. Team Obama correctly bets that his flock will not read the document, and if they do, they will not understand its implications.
In his own words on page five, The Man says, “While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not.” Translated – ‘You see those rich folks? they have too much, they got it by taking away your fair share, and we aim to get it and give it back to you.’ The rest of the 141-page document outlines how that process will be started to correct the “something wrong” about the government “allow(ing) the playing field to be tilted so far in the favor of so few …”. Chilling stuff last heard from a Lenin, Mao, Castro, Mugabe, … standing on the flatbed of truck surrounded by large crowds waving guns and pitchforks.
For those who want to get a little deeper understanding of the burr under the socialists’ blanket, we have to look at something called the Gini Index (sometimes also erroneously called the Gini Coefficient). The Gini Index is a simple yet compelling measure of how equally wealth or income is distributed in some group of people, for example, citizens of a country or participants in an economy. The Gini Index (GI) per se is one of the favorite tools of the Left, including the United Nations, in arguing for the forcible redistribution of wealth among the world’s people. I use ‘per se’ because by itself, the GI can imply a very misleading picture of the quality of life (QoL) in the covered populations simply because it ignores QoL in its make-up. Nevertheless, attempting to reasonably discuss wealth distribution without some apprehension of the GI reduces one to just mouthing ideological slogans.
Looking at the nearby figure (click to enlarge) is fundamental to understanding the GI. The horizontal axis represents the fraction of people in the GI population, and it ranges from 0 to 1 or 0 to 100%, if you prefer. The vertical axis represents the cumulative amount of income or cumulative amount of wealth with a similar range. To metaphorically generate the GI, you line up all the population starting with the lowest income (we’ll use the income version for now) on the left, then the next lowest, and so on winding up with the person with the highest income at the right end (the 100% end) of the population axis.
Then you start drawing what is called the Lorenz curve by plotting the first person’s income above him/her in the vertical direction, over the second person you add his/her income to the first income to get the cumulative for the first two and plot that, and so on. At the 100% end, you wind up with the total income for the population plotted over the last and highest income guy’s position representing 100% of the population. That dollar amount is 100% income for the population and now all the previous cumulative income amounts are divided by this total amount and plotted to give the Lorenz curve (i.e. for the techie, the cumulatives are normalized).
Next you draw a straight line from zero population and cumulative income point on the left to 100% population and cumulative income point on the right. This 45 degree line is the Lorenz curve representing ‘perfect equality’ – everyone in the population gets exactly the same income. Plotting this straight line and a country’s actual Lorenz curve on the same graph lets us compare the areas under the straight line to the area under the country’s Lorenz curve. The value of the country’s GI is then the difference between the two areas (shown in blue) and the triangular area under the straight line. This value is seen to range between zero and one, where zero represents a GI of ‘perfectly equal’ income distribution and one represents ‘perfectly unequal’ income distribution. In the latter case the Lorenz curve is zero for all the population save the last and richest one who gets 100% of the income.
[22mar09 update] For those who would like to see a more detailed explanation of how the Gini Index is calculated, please download 'The Gini Index Made Simple' (43KB pdf Download TN0903-1) and the related spreadsheet (Download Gini_Index) that let's you easily calculate GIs for various income distributions.
Most people – including sociologists, economists, political scientists, and even some smart politicians – would agree that a country with a GI close to one would be a slave state and a miserable place to live. Also a country having a very low or close to zero GI would probably be a very primitive economic environment such as may still be found in the indigenous cultures on the mountain tops of Papua-New Guinea or the deep Amazon jungles. Nevertheless, the latter case has been and continues to be an attractive beacon on the hill for the Left and socialists over at least the last two centuries. In the US today, that beacon burns brighter than ever.
Using the GI for making and communicating social policy has many drawbacks in spite of its simplicity. One reason is that it is easy to play games with definitions here, and it’s important to understand how these games are played. For example, we usually think of a person’s income as being the spendable money that s/he receives from all sources – labor, investments, government transfer payments (SS, food stamps, …). But that’s not always the case, for example France considers a person’s income to be from all sources as just described, but the US excludes transfer payments thereby making our lower income people seem to be more poorer. This, of course, affects the GI calculations for both countries and makes them difficult to compare.
Above is a Gini Index map of the world (click to enlarge) that lets you do your own comparisons. Note the invitingly low (egalitarian) GI values for countries like Bulgaria, Ukraine, and some of the Balkans as compared to the Nordic countries.
There are other technical aspects in calculating the GI that affect its value which the interested reader can find here. The main thing to remember is that the GI does not take into account the total (dollar) level of income or wealth, but just deals with the relative distribution of such wealth. Therefore, if this is made clear about the GI, most people would say that living in countries with a GI close to zero or one would not be much fun - perhaps Japan and Denmark excepted. Somewhere, we must also include a measure of the quality of life (QoL), but that will be the subject of a future post.
Finally, what we are witnessing now is a radical left tilt intended by President Obama and the Democrats as described in his budget. America’s Gini Index will be lowered toward a more egalitarian value. In the process, government will become a much more prominent player in our lives, and government spending will become a bigger component of the country’s GDP. Conservatives ask if anyone has ever seen the promised 1.5 Keynesian multiplier that is supposed to result from the stimulus dollars about to flood the country. Apparently history doesn’t validate this most basic reason given for printing, borrowing, and taxing more trillions which the gang that can’t see straight (they’ve never shot straight) will, in their wisdom, now direct into the economy.
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