GINI Index Explained


Hard to believe this …

The importance of the GINI index to intellectuals and others of the liberal or progressive persuasion cannot be dismissed. This popular index is used to rank countries as to how good a place to live they are by organizations such as the UN the World Bank and our own CIA. Those of us that believe that the American way of life is the best ever devised by man would place America at the top of any list of countries — American Exceptionalism — is what be believe in. We would however be very, very wrong. The chart below is based on our own CIA’s ratings and it places us way down the list at about 100 out of the 149 rated countries. Places like Cambodia, Uganda, Iran and Macedonia all have better ratings then America. The CIA gives America a GINI of 45.0 and to put that in perspective Kazakhstan has a GINI of 26.7 and that makes them the 9th best place in the world to live (lower is better). How can this be?

gini-coefficient-map1

Most Americans would find this very hard to believe for just using common sense if this GINI index were true why would just about everyone in the world be trying to get into the United States both legally and illegally? For example India with a 36.8 GINI rating is ranked as 59th verses the American ranking of 100th — almost twice as good as America. So based on the GINI rating why would anyone move from a good place to a bad place? If the facts don’t match the theory there is one conclusion that can be made and that is that the theory (rating in this case) is wrong. This should be to no surprise to those of us that have a great distrust of things coming from agencies controlled by those seeking personal power.

One of the core precepts used to make this factious rating redistributing wealth can be understood by looking at what Milton Friedman wrote in his 1962 book Capitalism and Freedom. The answer can be found in Chapter X The Distribution of Income on page 171 of the fortieth anniversary edition. But first before we get into the explanation we must first understand why the rating exists at all. It’s actually very simple those that desire power need to find ways to justify their desires to the common man. Since America was so far above all the rest of the world they had to find some way to make it seem like it wasn’t as good as “we” thought it was. There was one segment of the Boomer generation that thought they knew a better way to run the country and when their revolutionary ideas failed in the 60’s and the 70’s to take hold in the general population they took a different tack.

The Education System and Politics was their path to the power they desired. Previous generations did not have their beliefs so all they had to do was wait till those that believed in America were retired and/or dead. The strategy was to out live the previous generations and manipulate the younger ones through propagandized education while they moved up in the ranks of the government at all levels. Most of us did not see this shift we were to busy living and raising our families. But we awakened after the election of 2008 put a believer of central planning and socialism in as president of the United States of American. The answer was the Tea Party, which changed the complexion of congress in time to stop further damage but not enough to reverse what was already done. The job needs to be finished this November.

Friedman has written many excellent books on the subject of economics and politics and when you read them you quickly find they are well thought out, the arguments logically developed and the conclusions sound. The issues are discussed putting both sides on the table and then he goes on to prove definitively that the only way to get a truly free and just society is to get government out of the peoples life’s. The key here is the fact that government is run by people and people have personal agendas and those are almost 100% self-serving. The founders understood that and that is why the powers they gave the federal government were so limited.

The opposite of what we have is America is central planning and limited freedom and that is what most of the rest of the world has — but we have seen that it just doesn’t work. Hundreds of million of people were killed in setting up these systems all through Europe and Asia over the last hundred years, and where are they now? These systems all had at their core an economy that was run (directly or indirectly) by their federal government, the names of the systems were different but the practice was the same in each case. We understand that and reject the concept but those that want to rule are clever and they found a way to get what they wanted through the back door while we weren’t paying attention. It started with changing our history and even the definition of words so things seemed to be different than what they really were. Keep in mind George Santayana, who, in his Reason in Common Sense, The Life of Reason, Vol.1, wrote “Those who cannot remember the past are condemned to repeat it.”

Starting in 1913 with the creation of the federal reserve and them in earnest with Social Security and quickly running through The Great Society, Medicare, Medicaid, The Department of Education and many other programs and Departments we now have government (federal state and local) running (directly and indirectly) over 40% of the American economy. When the health care system take over with the Patient Protection and Affordable Care Act (PPACA) of 2010, is completed in a few more years the government will be running almost 2/3 of the economy. When that happens we will no longer be citizens we will be subjects of those that rule us.

Now the explanation of why the GINI index is what it is and how it is used to justify the Federal government taking over more and more segments of our country using every trick in the book and even some new ones as those who desire power transform the country into one that is run out of Washington.

The GINI index has many factors but the one that seems to give many counties a bad rating and others a good rating is the one that measures income disparity between the classes. This factor measures the difference between those at the top, the 1% today, verses those at the bottom, the 99% today. For example lets say the bottom segment of country A earns on average $5,000 per year and the top segment earns $50,000 so there is a difference of 10:1 which is low and that gives country A a high rating. Now we have country B where the bottom segment earns on average $10,000 per year and the top segment earns $250,000 so we have a difference of 25:1 clearly this is a great discrepancy between the top and the bottom and so country B gets a lower rating. Based on those earnings numbers and the resulting GINI rating, policy is developed to reward country A for being good and penalizes country B for being bad. But is this even a valid measure and if it isn’t of what good is it?

Friedman gives an example like this in his book and then explains what if country A has a cast system with no mobility between the classes. This is not speculation many countries have de facto cast systems where if you are born poor you stay poor. These countries are almost all poor economically because of their system of no freedom no private property and a strong central governments run by rulers that have no reason to change anything. He goes on to explain that country B has freedom, private property and limited federal government. This gives the people the incentive to work hard and make something of themselves. Sure some make a lot of money and get to the top and some don’t. But all are better off even with this income spread for the bottom of those of country B have twice the earning power as those in country A. But more importantly those in country B can be born at the bottom and through hard work and effort end up at the top. The upward mobility is the key.

But there is another factor here often over looked. When you graduate from high school or college you enter the work force at the bottom. You maybe making a reasonable amount but you also expect to move up and be earning more later in life. So you are in a lower income group when young and in a higher income group when older. The point is that the people in a free society move up and down the income groupings over time. The top today is not made of the same people from 20 years ago and the bottom is made up of different people as well. Those seeking power and using class warfare try to made us think that people stay in a group all there life — maybe they do in some countries but most do not here.

Clearly we are in country B and most of the rest of the world are in countries like county A; the prove of this is not found in the GINI index but with people that come here because of the opportunity they know is here. They voted with their feet and that is the only vote that counts.

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