What Gini apocalypse?

While popular culture worries about a zombie apocalypse, the OECD is focused on a genie apocalypse. Or at least a Gini apocalypse, the “Gini coefficient” being the most common measure of inequality. Rubbing its magic data lamp, the 33-country international organization calculates that the zombie economy of the last eight years has left most rich-country Gini coefficients, and thus inequality, at record levels.

The Gini coefficient, invented a hundred years ago by Corrado Gini (1884-1965), an Italian sociologist and statistician, varies between zero and one. It’s zero when everyone has exactly the same income — which you actually wouldn’t want in a society, not if effort, enterprise and innovation are to be rewarded. When everyone does have the same income, that income is usually near zero (farewell, Fidel!). By contrast, the Gini coefficient would be at the maximum of one if a single person has all the income — an experiment the U.S. might soon embark on as the president of The Trump Organization embraces the almost unlimited profit-making opportunities associated with simultaneously being president of the United States.

Between zero and one, what’s the ideal Gini? That question has no satisfactory answer. In anything bigger than an oasis-sized economy, the degree of inequality is the result of billions of decisions made by millions of people about: what and how long to study, whom to marry, where to work, how many hours to put in per week and year, how many kids to have, whether to get divorced, whether and when to take up social benefits, when to retire, and so on and so on and so on.

After the 2008 crash, some countries experienced big changes in their Ginis. We didn’t. As the accompanying chart shows, Canada’s Ginis have been almost preternaturally stable. If we unlabelled the year axis, it would by very hard to tell where 2008 was. Our Ginis have been hovering, zombie-like. From 2004 through 2013 they barely budged, which is certainly not the impression you get from most discussion of inequality these days.

In fact, the chart shows three Gini coefficients. The first and highest is for what are usually called “market incomes,” that is, what people earn before they pay taxes or receive any benefits from government. Not surprisingly, because we have redistributive governments, that’s the income concept that involves the greatest inequality and highest Gini. In some respects, redistribution may actually increase that inequality: If you get an income from government, you may not need to earn one on your own.

The middle line shows the Gini for market incomes plus cash transfers from government. Incomes are higher as a result of such transfers but the Gini is lower because the transfers go disproportionately to lower-income people. Finally, the bottom curve shows the Gini for incomes after transfers and taxes. It involves even less inequality because upper income people pay more taxes than lower income people do.

The vertical distance between the top and bottom curves is one measure of the redistributive effect of government, though only one. It captures the cash effect of government. The very big transfers government effects in kind, by providing free education and health care, aren’t included — basically because including them involves very detailed data and highly controversial assumptions.

What do the OECD data say about us? Our Ginis aren’t doing much of anything. And not much is happening in terms of redistribution. We aren’t getting appreciably more redistributive but we aren’t getting appreciably less, either — despite the frenzied political discussions of the last decade.

Beyond this no-news good news, there is also outright good news in the OECD data. With poverty measured in absolute rather than relative terms, 13 OECD countries actually experienced a reduction in poverty rates since 2007. Canada was seventh best in this group, a little ahead of Norway, a little behind Switzerland. Fourteen other OECD countries experienced increases in poverty rates, in some cases — Ireland, Spain and Greece — big increases.

If a genie gave you three wishes for your society, a lower Gini would make a few people’s list. Lower poverty would make everyone’s.