As teachers, you'd think they would know that the Gini Coefficient naturally grows in times of economic success and shrinks in times of economic contraction.

This is due to a pretty simple reality which is....Economic growth mostly happens through investment, either in building businesses or the stock market.

The rich have the money to do this. So they do... if they get 51% of the wealth created chances are the gini coefficient goes up.


This really isn't a problem at all... sure the regular people have a lower percentage of the money, but they have a higher amount of it... so they're better off.

To lower or maintain Gini Coefficent, you essentially would need to say to the rich... "You can keep less then half of what you make with money you already had that you invested at great risk."

HOWEVER there is one problematic reality with how things have worked lately. To be put in a second post because I imagine these two things would want to be debated separately if replied to.

That one problem?

The If the economy increases by 100%, then Decreases by 100% back to it's original level... the rich should actually end up with LESS money then they did originally... since the money created that moves down to the "poor level" is safer and in areas not prone to loss, and contraction always hits the top much harder, and often is mostly at the top.

So economic downturns actually naturally keep gini coefficent in check.

Lateley however, we have Economic Stimulus.  Which mostly benefits the rich.

All one needs to do is look at today's economy. 

Tells the story pretty well.   The Depression after the Clinton era actually caused the rich to shrink 57%.  Vs the expansion where it grew 45%.  We didn't see a need for a big stimulus then.

This time though?   HUGE stimulus.  It cushioned the rich peoples loss, then greatly fueled the rich peoples capturing of new wealth, as the poor and normal people have never really recovered... because well... poor people don't recover through stimulus.  If we didn't bail out the wallstreet banks, the rich would of been hit MUCH harder.  Believe it.

As such, Obama(and Bush) caused a ridiculious new precedent.  If there is a longstanding 1% problem after that continues they created it.

Not through tax cuts or anything like that, but through stimulus. (Well and fed policy.)

It should be fine if we ever finally go through a few more recessions without major stimulus, or possibly if things rebound on their own (or it may have sent a permanent precedence based on this, i'm not sure.)


However if we're in a long term japanese holding pattern?   We've got issues.

Or to put it more simply, the 1% issue isn't actually a problem of capitalism, it's a problem of not letting the negative times in capitalism to play out.

It's like if Las Vegas only ever had winners. The Gini coefficient there would rapidly increase as those who could bet more would rapidly outpace those who could bet less.  Let Las Vegas play out how it should, and the rich will be brought down to the level of everyone else.

Our main issue is that we've developed a "Negative avoidance" culture.

Another helpful graph to point it out...

See how much larger the drop is in corproate profits vs wages+other benefits?  Track Corporate wages at it's lowest point, back to where it was lowest before, and compaire where real wages were in 2009 vs 2003.

Your statement ignores the reality of the 50's, 60's, and 70's where the economy was doing very well but income disparity was very low. History has shown us that the Gini coefficient is high right before economic trouble which can clearly be seen if you look at what happened in the late 1920's, the first couple of years of the 21st century and most recently in 2007. To a leser extent you could even include the mid 1980's in that list aswell.

It's also important to point out that although the economy goes grow through investment that it only grows through investment done here. As has been said in this thread already less and less investment is taking place in the United States because we cannot hope to compete with countries like China, India, and other Asian countries when it comes to production costs.

Your statetment about regular people having more money is misleading. Yes they do have more money but it's no secret that income has not kept up with inflation for regular people.

I feel like you didn't actually read what i wrote.  If so... you didn't comprehend it.

The economy is larger today then it was in the 50's, 60's and 70's.  Hence inequality has risen.

Also, inequality rose quite a bit in the 1970's.

It only didn't in the 1950's and 1960's because two things  happened right before then. 

It was called the Great Depression and World War 2... which led to

A) Such huge losses it massivly effected the poorer consumer first.

B) Forced Austerity in WW2.

When the economy drops so badly as to effect the little guy badly, the little guy must recover first. (Unless you dump a bunch of stimulus money onto the rich at the expense of the poor... which you know.  Is why our recovery sucks now.)

Also, income has kept up with inflation if you count full benefits.  Those who say they aren't are tricked by a slight of hand that only compares wages and does not consider full compensation.

They incorrectly use this.

Instead of this.

Or this.... (Women's data interesting too by the way.)

If you count everything that your average wage gets you now, even so low as a cheap healthcare plan at a supermarket chain.  Compensation has grown. 

You can of course argue that "one size fits all" benefits or something similar to it are different and an increase in actual wages would be better giving people free choice even if it means they'll get less value for their money if they try and buy the same things... but that's a completely different issue. 

http://macroblog.typepad.com/macroblog/2005/12/are_workers_los.html

Quite interestingly... 

That's just a problem of healthcare being ridiculously expensive per capita in the US then.

Also, does that count true pension value? Pensions of the previous generation were guaranteed fractions of salary. Now they are investments which can and do underdeliver or collapse.

Isn't it a little misleading to use benefit value adjustments though? The reason many of those exist is for tax avoidance by employers rather than to offer taxable salary increases. A system like that greatly benefits the wealthy and has led to our healthcare system inefficiencies and over consumption.

Is it perfect?  Probably not.  I don't see how you can argue that it's more misleading then just completely ignoring every single new benefit workers get now that they didn't before.  Fact is... take away those things, and the average person is far worse off, and paying far more for things like healthcare.

As for benefiting the wealthy... not really.  Real wages for the poor have gone up as well.  It's just outside of the poor it's gone up in terms of different benefits.

As for tax avoidance... maybe that's something under the ACA but it doesn't save companies any money now.  In fact, it benefits employees more then it shows because FICA and the like aren't taken out of it.

Even then if we're talking "Rich vs Poor income inequality" it misses an even bigger thing.

Non-Salary/Compensation income.   As companies make more money they're taxed more, as they're taxed more that's more money to government which often means things like more funding to things like Welfare, Medicare and Medicaid.   For an example.... look at that above chart that also has women's numbers on it, and check out the tripling of real income for Women without Salary/wage.

In general, the answer an obvious yes to "Are we better off then we were in the 1950's-1960's." everyone is, and everybody has higher compensation in relation to real income.

This is despite the fact that since there the has been a huge demographics changes that's exerted downward pressure on this... espiecally at the lowest income levels.   Like Single Parents.  Which is a whole other thing that gets overlooked by the way.

Another big increase in gini-coefficent by the way is another social factor that is REALLY interesting but nobody every pays attention to because it doesn't fit any fun political narratives... and would make you look sexist if taken out of context.

That is... Women in the workplace. The increasing of women in the workplace actually raises the gini-coefficent.

Why? As it turns out, rich people are highly likely to marry each other.  As income and wealth among gender evens out and careers even out. The Gini Coefficent will get higher as more rich couples form to marry super rich couples.

Instead of say... Don Draper marrying his secretary Meagan... you End up with Rich Doctor Bill Cosby marries Clair the Lawyer.

Which means his "Meagan" instead ends up with a guy who works at the local supermarket.


Not that women in the workplace is a bad thing. Quite the opposite. It's just the "Base" gini-coefficent value has changed due to demographics. Even if somehow everyone always made the same wage from now on. Gini Coefficient would rise, simply due to marriages.

Actually a lot of research seems to show that the reason upword mobility is staying stangant recently is because of this.  It's a lot easier to work your way to the top, but it's a lot harder to marry your way to the top.

By the way... another chart for "Only the rich got bailed out."