The Gini Coefficient

Julian,

I recently ran across a book which, despite the cover (and the awful title) has brought up some interesting issues and some questions. The book is America on the Brink: It Could Happen Here, by Bruce Judson. (I told you it was an awful title.)

There’s a statistical measure called the Gini coefficient that measures the “spread” of any concentration throughout an abstract population. When applied to concentration of wealth among a population of people, a Gini coefficient of 0.0 would mean that everyone has exactly the same wealth, while a Gini coefficient of 1.0 would mean that one person gets all the wealth, and everyone else gets nothing.

The Gini coefficient shows a U-curve during the past century. It stood at a high of 0.450 in 1929, had dropped to 0.397 by 1947, reached a low of 0.386 in 1968, and had climbed to an all-time high of 0.470 by 2006. This is one statistical measure (of many) that illustrates the general fact that FDR’s New Deal brought about a significant redistribution of wealth from the elites to the masses (which is why those elites hated him so bitterly), and the Free Market exuberance that began with Reagan in the 1980’s brought about an equally significant concentration of wealth. Every measure of wealth indicates that wealth has become far more concentrated in the United States since 1980 than it was between WWII and 1980 — if you don’t like Gini, use something else, all measures show the same trends.

The rich get richer, the poor stay poor, and the middle class is getting pinched out of existence.

There is no sensible reason to believe this trend should have been otherwise. Under FDR, income tax climbed to roughly 90% for the top tax bracket. Reagan dropped it to 50% in 1982, and to 28% in 1988. When you tax the top income at 90% and redistribute it to returning GI’s (education), farmers (agricultural subsidies), unskilled laborers (CCC, WPA), and the elderly and indigent (Social Security), you’d certainly think that it would result in redistribution of wealth from the rich to the poor — it would be very surprising if it didn’t. Conversely, when you systematically reverse government barriers to wealth-building and seek to “privatize” massive sections of government, as has been happening since 1980, you would expect the rich to take advantage of that and become richer very quickly.

The concept of “trickle-down” was always counter-intuitive — that’s why Bush I called it “voodoo economics.” Had it worked the way it was sold, we would have seen “all boats lifted” by the rising tide of investment. That didn’t happen. The Gini coefficient rose (it did not fall), along with all other measures of concentration of wealth. Far from lifting all boats, Reagan’s “free market” preferentially lifted the highest boats.

Every political commentator from Aristotle to Will Durant has noted that economic inequality and political instability go hand-in-hand. It is one of the few correlations in history that stands out repeatedly in the fall of governments and civilizations. The absolute level of the economy doesn’t matter — what matters is the relative difference between the rich and the poor.

So here’s the reality-disconnect I’m continually suffering while reading Libertarian views. The “free market” so obviously benefits the rich more than the middle class or the poor, and it demonstrably increases the distance between rich and poor. Yet increasing the disparity between rich and poor is one of the best ways to court political instability and revolution. Do Libertarians want to bring down the government?

The religious ones do, of course. You’ve mentioned that they seek a Sharia-style government. I don’t think they actually have that much respect for law or social stability. The rank and file wants Jesus to return and kick unrighteous butt (others), then sit and drink non-alcoholic grape juice with the righteous (them), but their eschatology says this will not happen until the world collapses into terror and ruin. So they are willing to act (or passively refrain from acting) as agents of ruin — as nihilists, expecting a Deus ex Machina to “save” them, hopefully in a Rapture that pulls them bodily out of moving vehicles before they have to suffer, but certainly seven years later after they’ve “toughed it out” in their mountain redoubts. The religious leadership, I suspect (very strongly) is also willing to cultivate ruin because it creates personal political opportunity for them that does not exist in a stable democracy. So it makes perfect sense for them to encourage disparity between rich and poor, especially since many of them are already members of the wealthy class anyway.

Even the non-religious Republicans — including yourself — speak of the government with such a scathing contempt that I have to wonder if you really think we’d all be better off entirely without it. How much nihilism does the party platform harbor?

I’ve felt that way myself in the past — I’ve noted that the human misery that would be caused by releasing every thief, murderer, child-molester, and drug-user the government has ever “protected” us from doesn’t amount to a fart in a windstorm compared to the human misery caused by even a small war. But the more I look into where the “free market” takes us, the more I realize that without law and government, we’d be living incredibly impoverished lives. By “we,” I mean (of course) the middle class and the poor. The rich would be fewer and much richer, but they’d actually be more miserable as well — they would have much more trouble protecting their wealth in such a world, and would, like Lorenzo de Medici, bemoan that fact bitterly.

What is the answer to this disconnect? Do Libertarians believe wealth is not concentrating, contrary to common observation and every measure available? Do Libertarians agree that it is concentrating, but it is the fault of that standard bugaboo, government regulation — and therefore, do they believe that regulation actually decreased in the 1940’s under FDR and has increased since the 1980’s, accounting for the shape of the trend? If not government regulation, then what? Do Libertarians agree that wealth is concentrating, but believe it’s completely harmless (at worst) or beneficial (at best), in defiance of history? Or do Libertarians agree that wealth is concentrating, it is harmful to the nation, and that’s okay?

What did I miss here?

— Themon

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