Denmark’s Terrible Gini Coefficient

Blue are rich countries, Orange are poor countriesCommentators pay frequent attention to the Gini coefficient of income in various countries to determine which countries are more ‘equal’, that is which countries have the lowest disparities between rich and poor. Equally frequent is the lack of attention paid to the relative differences between countries. Given that you want to be tall is it better to be a random jockey, where the Gini coefficient of height is very small, or a random pro basketball player where the Gini coefficient is greater.

If we are chasing material comfort, security, and freedom money buys we should take a greater Gini coefficient in exchange for a greater (purchasing power adjusted) median income.

But assuming we are all good egalitarians, shouldn’t we be concerned not with income but with wealth?

To be a member of the idle rich elite you don’t need great income you need great wealth. You need great income in the past. Assuming you want to protect the old money from the new the best way seems for the aristocracy to impose high marginal taxes on income to prohibit entry into the elite.

Win the lottery, clear the hurdle in one swoop, and you are in. 10 million dollars in a money market account and you can safely spend 1000 dollars a day. Live at the Four Seasons Hotel in NY, fly around the world first class, wine and dine like Solomon; and never work another day in your life. Yet your income is on par with an above average dentist or your average MD.

If it is passive an income in the 99th percentile of Americans puts you in the lifestyle of the 99.99. Wealth matters more than income.

Consider saving for retirement, people work to accumulate wealth to have something to spend when they either tire of working or are unable to work; they hope their store of wealth will outlast their store of time. Income is useful as it leads to wealth. At least if income is greater than expenses.

If passive return on wealth is greater than expenses and inflation then you have a shot at being a member of the idle rich.

But Denmark.

A Gini Coefficient on income of zero, perfect income equality, doesn’t mean much if most people are toiling in the salt mines for their income yet some are sipping cocktails on the beach enjoying a passive income stream. Even if everyone’s income is identical this is not an egalitarian paradise.

A Gini Coefficient on Wealth reveals a little more, including that Namibia (0.847), Zimbabwe (0.845), Denmark (0.808), and Switzerland (0.803) are less egalitarian than the United States (0.801). Which gets us back to the Jockey vs Basketballer problem. Life in Denmark, Switzerland, and the United States is certainly better than life in egalitarian paradises like China (0.550). Maybe everybody should move to Japan (0.547).

So Gini on wealth doesn’t reveal all people would like to reveal either. People want to live were everyone is equal and everyone is rich while conveniently ignoring the poor outside their borders (if you are in favor of the forced redistribution of wealth by government then you should favor taking from an American making minimum wage to give to the half of the population of the world living on less than $2.50 per day).

Proposal: to capture what people would like to capture with so-called inequality metrics graph Gini Coefficient of Wealth vs Median equivalized disposable household income at PPP.


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