Wednesday, March 20, 2013

How Should Wealth be Distributed (Part Two)

In my last post, I opened the subject of income inequality.  This topic of income and wealth inequality has been fascinating me lately, and I'm not alone in this fascination as growing wealth disparity is gaining more and more press attention.

The most common way to measure income inequality is using the Gini coefficient described here. There's quite a bit of math behind the calculation of the index, but, in simple terms, a country Gini index of 100 indicates perfect inequality (i.e. one person owns all the wealth) while 0 indicates perfect equality (i.e. wealth is evenly distributed among all).  Wolfram Alpha has a histogram showing the distribution of the Gini index across the world.

I was curious about the degree of wealth inequality in various nations around the world.  This reference* shows the Gini index for 153 countries around the world with, the Seychelles at the bottom of the inequality list with a coefficient of 65.77, and Denmark at the top with a coefficient of 24.70.  Not surprisingly, the ten countries showing the greatest inequality are all relatively poor - the Comoros, Namibia, South Africa, Botswana, Haiti, Angola, Honduras, Central African Republic, and Bolivia.

Three of the four countries with the lowest Gini coefficient - i.e. with the most equal distribution of wealth - are not, surprisingly, Scandinavian: Denmark (24.70), followed closely by Japan (24.85), Sweden (25) and Norway (25.9). The Czech Republic (25.82) rounds out the top 5.

I reflected on how this might play out in real life.  When visiting Kenya and Tanzania a few years ago, I observed that ordinary Tanzanians seemed to be much better off than Kenyans, despite a substantially higher per capita GDP in Kenya than in Tanzania ($808 versus $532).  Well, on the Gini list, Kenya (at 47.68) is near the bottom at 120th of 153, while Tanzania (at 37.58) is just above the middle at 67th, a full 53 positions higher than Kenya.  So, from my own small, personal, totally unscientific sample, you can actually see the difference distribution of wealth can make.

How does North America fare?  Canada (32.56) is 30th of 153.  Mexico (48.28) is almost tied with Kenya at 122nd.  So where might the US be, the richest country in the world?  The US** (40.81) is a dismal 91st : i.e. it's in the bottom half of the world when it comes to inequality and it's about half way between Kenya and Tanzania.

The next question to ask is whether this matters very much.  What's your opinion of how wealth should be distributed in your country?

* I should point out that in this chart I found, the coefficients relate to different years in different countries, so they are not directly comparable.

** This figure dates from 2000, and recent data points to a deteriorating situation re inequality since then.

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