On The Path To Socialist Prosperity: Charting The Distribution Of Income Within Countries
With the US well on its path to an increasingly socialist (if not worse) system, yet still home to one of the world's highest GDP per capita metrics in the world, Goldman's Erik Nielsen presents an interesting matrix in which he plots GDP per capita versus the Gini coefficient - a measure of income inequality. Countries that have the lowest Gini are those in which incomes are more or less flat across the board. The US, on the other hand, has the highest income inequality per its Gini of 0.38, a phenomenon about to be blatantly abused by changes in the US tax code. A relevant question here would be whether greater income inequality leads to a higher GDP? As Nielsen points out, "correlation does not imply causation" (a fact long-lost on the market dominant HFT market makers), although an important question is whether an attempt to grow US economic output should be predicated by a push toward further income equality, or a world in which the rich get richer. As the regression in the chart below would seem to suggest, the latter is what the Obama administration should be aiming for, and may explain why Obama's advisors have been so hell bent on perpetuating the wealth of those who should have lost everything in the crash of 2008. Of course, the one exception to the rule is socialist Norway, which has a higher GDP/capita than the US, but which however also happens to be one of the most resource rich countries in the world.
Next month the European Q2 GDP numbers are set to be released, and given the continued equivocal manner in which markets and risk sentiment have reacted over the past 6 months, this data may provide more calm, after the European bank stress tests.
Today’s Chart of the Day, however, looks at another dimension of GDP: the distribution of income within countries. It plots the Gini coefficient (a measure of income inequality, with a higher number meaning greater inequality) against the level of GDP per capita in several European countries and the US.
Different income distributions may mean that the type of consumption (luxury goods vs. necessity goods) may differ between countries even if they are as wealthy as each other in aggregate. There are also a number of channels through which income dispersion may affect growth, although we would note that correlation is not causation and economic theory is ambiguous about the direction of any relationship.
Although richer on a per capita basis than most European economies, the US has a greater dispersion of income than any country in our sample.