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The Gini Factor, or How the US Flunked the Equality Test

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For nearly one hundred years a measurement known as the GINI Coefficient has been used to describe the distribution of wealth of a given country. It is a complicated ratio derived from the Lorenz Curve and first introduced in 1912 by Corado Gini an Italian Statistician. It starts with the premise that if everyone earned exactly the same amount of money, the coefficient would be given the arbitrary value of zero. In other words, a janitor and the CEO of the largest company in the country would earn exactly the same salary. Likewise, the arbitrary value of one hundred would be given to a society where only one person earns the entire income of the nation. We can plainly see that all nations lie somewhere in between these two values. Similarly, we can see that the closer to zero the score, the greater the spread of wealth in the target country.

 

In other words, the GINI Coefficient gives us an idea of how evenly distributed is the wealth of any nation. In an ideal country, there would be a small percentage of wealthy people, say 15 to 20%, a burgeoning middle class of around 60 to 70%, and a poorer class of around 10 to 25%. This is very important from another aspect as well. It is common knowledge that the rich don't pay taxes. That's why they hire all those tax consultants, etc. It is more affordable for the rich to pay $100,000 to $200,000 per year on consultants who will save them, in the end, $10 to $20 million or more. Likewise, the poor don't pay taxes either. THEY CAN'T. They live paycheck to paycheck at slave-like jobs and make so little that some don't even meet the minimum income requirement to pay taxes in the first place.. It is up to the country's middle class to pay for nearly every aspect of governmental life. The middle class earns enough money to be taxed on, yet lacks the resources to defer payment through legitimate means. In other words, they can't hire the experts to tell them how to avoid paying taxes. The middle class can't afford to spend $100,000 a year to avoid paying $20,000 in taxes. Therefore, what the GINI coefficient tells us is how well off the middle class of a country is.

 

First world nations are inherently better off than third world nations. Let's look at some contrasting numbers between first world and third world. Recently, Japan scored a 24.9 coefficient, one of the lowest numbers ever recorded. Sweden scored 25, Germany scored 28.3, France scored 32.7 and Canada scored 33.1. Now let's see how the third world nations scored around the same time. Argentina scored 52.2, Mexico scored 54.6, South Africa scored 57.8, and Namibia scored 70.7. This clearly shows us that the standard of living in Japan, at 24.9, is much better than the standard of living in Namibia with a score of 70.7. The distribution of wealth is much more equal in Japan than Namibia, and we can see by the effect on our global society that indeed, Japan plays a much greater role around the world than Namibia.

 

And this is the underlying intent of the GINI factor. It rightfully addresses human conditions on a national basis through a strictly monetary viewpoint. It states quite soundly that a person's welfare is directly related to the amount of disposable income that person owns. And I have seen the effects of this first hand. I now live in a relatively upscale area of the United States where disposable income is prominent. People are always discussing how they are going to change the landscape of their yard, or what additions they are going to make on their house. This would be considered middle class to upper middle class.

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I also lived four years in Mexico. I lived in Apizaco, Tlaxcala, Mexico, to be exact. I lived in a two-bedroom apartment in downtown Apizaco and had the mayor of the town as my next-door neighbor. I worked for a multi-national company, Clemex, as their Production Control Supervisor. My wife was the secretary to the Vice-President of Operations. We were definitely considered middle class. But I also saw a country burdened with debt, foreign debt. This wasn't funny debt like we have in the US, this was real debt that needed to be paid, and the government made a big deal of it.

 

Mexico is very high on the GINI list. Even Mexicans know this intuitively. They would tell me that only 13 families rule all of Mexico. They introduced me to a game called, "Speculation." It is run purely by the rich. It consists of a commodity that is suddenly yanked off the shelves of supermarkets across the country in hopes of reintroducing the product later at a higher price. The most dramatic example I witnessed while living there was toothpaste. Yes, toothpaste. At first, Colgate, Crest, and all the other brands except Sensodyne were removed from the shelves. Then, after two months, even Sensodyne was removed. I learned what one does in the case of no toothpaste. At age 28, I started brushing for the first time with Bicarbonate of Soda. I had never known this, but the people in Mexico seemed quite familiar with it.

 

Of course, that wasn't the only eye-opener in Mexico. I distinctly remember having no water for up to three weeks at a time. I also remember not having electricity for up to three weeks at a time. Even in Mexico City there was a mandatory "light's out" at 8:00 pm every night. It would last for 30 minutes or so.

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And this wasn't the only obvious demonstration of such a high GINI factor. I can clearly recall the construction of another four-story apartment complex across the street from where I lived. They started construction in 1980. When I left in 1984, they had three of the four floors built, but without any outside walls constructed. What's worse, they hadn't worked on the project for the previous two years. When I arrived in Mexico in June, 1980, the peso was at 22.5 to the dollar. When I left in February, 1984, the peso was at 176 to the dollar. The peso fell to a low of 3,000 to the dollar in the years that followed. Inflation went from 30% in 1980 to 99% in 1984.

 

I would like to interject here that these indicators do not cover the entire aspect of social life in Mexico. I have tons of great memories from my four years in Mexico, and the people who live there. After all, my children and their mother were all born in Mexico City. The doctors there took care of my son and provided the best health care money could buy to save him, and they didn't charge me a cent. But the topic here is overall health of a nation, and Mexico can and must do better for its people.

 

So this brings us to the United States. Surely we have one of the best GINI factors of all, right? Don't we distribute wealth better than all the other nations?? In 1970, our coefficient was 39.4, a little worse than Canada. But by 2005, our factor had worsened to 46.9, nearly that of Argentina. It is clear that we are slipping more and more into the abyss of third world status. It is predicted that we will attain Mexico's 2000 GINI factor by the year 2046.

 

What can we do to stop this slide into third-world status? How can we reverse the train of destruction from taking away what our forefathers fought so hard to obtain?

 

It is clear that we don't need any more tax breaks for the wealthy. After all, they already avoid paying any taxes to begin with, why would we need to give them tax breaks on top of it? We are unique among nations in that we have the currency that everyone else cherishes. We can easily reduce the taxes on the middle class and thus allow them more disposable income. We have a bloated military industrial complex that, when reduced to actually required size, would save the economy over $300 billion dollars yearly. We are not the world's policeman, and therefore, the ills of the world need to be split among all countries, except those areas where we were completely stupid and caused problems to begin with.

 

But the GINI factor is unforgiving. It is deadly in its precision and shows quite rightly how the wealth is distributed country by country. While France has improved dramatically over the past few decades, from a coefficient of near 50 to a coefficient closer to 30, the US has slackened from a coefficient around 35 in 1945 to a coefficient near 50 in 2005. Canada has seen dramatic improvements from near 35 in 1950 to almost 25 in 2005. In fact, only China has worsened as much as the US.

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What is needed is as obvious as it is essential. We need to stop the upscale explosion of the super wealthy. Our corporate CEOs don't need $50 billion or more in order to retire after having screwed tens of thousands of workers. We have seen that scandal after scandal has left hundreds of thousands of workers without pensions and without retirement income. Now let's stand back a moment and look at this. If a person arrives at an emergency clinic and says that they're ill, will the clinic deny this person medical care?? Of course not. But this person used to work for Enron and no longer has the insurance to pay for their care. So who pays??

 

The American taxpayer pays, that's who. Because Enron screwed up, we pay. Because WorldCom screwed up, we pay. Because big business screws up, we pay. Because the mortgage industry used predatory selling practices to accept loans from those who really couldn't afford them, we pay. Because Fanny Mae and Freddy Mack and an increasing number of insolvent banks have to be bailed out, we pay.  According to leading economist Nouriel Roubini, the USA, the United States of America, has become the USSRA, the United Socialist State Republic of America. He rightfully points out that we are living in a system which has two tiers to it, a socialist system where the government ensures that all major financial institution will always be bailed out of any bad management decisions using our tax dollars to do so, and a second tier of citizenry that lives paycheck to paycheck sinking ever more into the abyss of overextended credit and rising costs. I'd just like it to be a bit more equal across the board.

 

I don't mind paying, as long as I see the big boys across the table paying their fair share. It is obvious to see through the GINI factor that the middle class in the US is being shouldered with more of the burden and given fewer resources. Don't let this happen. Don't let this nation fall into a banana republic type nation where 10% or less own virtually everything and can control our daily lives. That part really sucked about Mexico, trust me.

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60 year old Californian male - I've lived in four different countries, USA, Switzerland, Mexico, Venezuela - speak three languages fluently, English, French, Spanish - part-time journalist for Empower-Sport Magazine. I also write four (more...)
 

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