Relative American Inequality

Sept 20th, 2011

Max Fisher has written a spirited defense of the so-called "Buffett Rule" in the plan President Obama outlined yesterday.

"Obama's "Buffett rule" is a response to a number of U.S. economic issues (as well as some relevant political openings) related to the recession. One of the most severe is income inequality -- the gaps between wealthy, super-wealthy, and everyone else -- a serious, long-worsening problem that makes the recession more painful and recovery more difficult. To get a sense of just how bad our income inequality has become, it's worth taking a look at how we stack up to the rest of the world. 

Viewed comparatively, U.S. income inequality is even worse than you might expect. Perfect comparisons across the world's hundred-plus economies would be impossible -- standards of living, the price of staples, social services, and other variables all mean that relative poverty feels very different from one country to another. But, in absolute terms, the gulf between rich and poor is still telling. Income inequality can be measured and compared using something called the Gini coefficient, a century-old formula that measures national economies on a scale from 0.00 to 0.50, with 0.50 being the most unequal. The Gini coefficient is reliable enough that the CIA world factbook uses it." 

For those of you who have not heard of the Gini coefficient before, here is an explanation of how it works based on its metric, the Lorenz curve:

"The Lorenz curve maps the cumulative income share on the vertical axis against the distribution of the population on the horizontal axis. In this example, 40 percent of the population obtains around 20 percent of total income. If each individual had the same income, or total equality, the income distribution curve would be the straight line in the graph – the line of total equality. The Gini coefficient is calculated as the area A divided by the sum of areas A and B. If income is distributed completely equally, then the Lorenz curve and the line of total equality are merged and the Gini coefficient is zero. If one individual receives all the income, the Lorenz curve would pass through the points (0,0), (100,0) and (100,100), and the surfaces A and B would be similar, leading to a value of one for the Gini-coefficient."

Fine, you might say. What does all that mean? Fisher shows us with this stark presentation:

As he explains, the map below illustrates the range of income inequality with "the most unequal countries in red and the most equal in green."