Misleading Single Numbers
Those of you who read this rag regularly or look through my book reviews will have noticed my occasional rants against the use of a single social or economic indicator to explain social phenomena (See for example my review of Hernando De Soto’s book ‘The Mystery of Capital’ on Amazon UK.
I was, therefore, interested to read a piece about the misleading nature of what is known as the Gini Coefficient, widely used as a measure of inequality. The index was invented by uber-control freak Corrado Gini just over 100 years ago. Pundits and politicians love single numbers - they ‘simplify’ things for what the pontificators consider to be the great unwashed masses. In this case it’s even better, because it’s a number between zero and 100, with zero as perfect equality - in other words everyone has the same income.
Sounds really useful - most people understand numbers scaled from zero to 100 (actually what most people understand is numbers scaled from one to 100, but that’s another story). So what’s the problem? Well, the real problem is that the index can’t really handle non-cash based rural economies, and therein lies the rub.
The example in the article makes this very clear. Namibia has a Gini index of 70.7, as opposed to the US index of 45. Roughly speaking, in Namibia 10% of the population take 60% of the country’s income. In the US, 1% take 20% of the income. However, even the smallest town and most inaccessible rural areas in the US operate a cash economy, even where there is a tradition of bartering.
In Namibia, though, around a third of the country’s population are rural farmers on less than US$1 a day. Do these people really subsist on US$1 a day? Of course not. They are either self- sufficient or part of a barter economy, and in general they are not starving. But, of course their economy doesn’t show up on the Gini index.
So, while the Gini index might, in some cases, be a marker for levels of social discontent, on its own it is a pretty lousy measure for comparison on a worldwide basis. Nonetheless, I think readers might find the article gives you an interesting insight into what basis politicians and talking heads are using when they talk about social inequality.
Alan Lenton
3 February 2013