It’s a coefficient of statistical dispersion.
By definition, it doesn’t really matter whether it’s calculated based on local currency or their equivalence in a different currency, since both the level of disposable income of individuals and the total national disposable income would have to go through the same PPP wringer and result in exactly similar ratios and income distribution curves.
Or, to put it another way, the 1% still owns 40% of the wealth, whether you base your calculation of their wealth on dollars or convert everything into yens first (for some godforsaken reason). To put it a second way, the GINI coefficient doesn’t concern itself with “how many Big Macs can categories 1/2/3/4/5 buy over a year ?” but rather “How many more Big Macs can category 4 buy, compared to category 1, and how many people are in those respective categories ?”. The price/availability/whatever of each Big Mac is irrelevant to that second question.
If you want to be like Sweden–both wealthy and equitable for income–you have to have a relatively homogeneous population.
A homogeneous population is not only roughly similar for the skillsets people are born with; it also tends to be easier to drive altruistic social policies (including income redistribution) when everyone feels like one big happy family.
In nations with heterogeneous populations–especially those composed of immigrant waves that result in very mixed skillsets and privileges–its nearly impossible to smooth out wealth/income distribution. No matter what sorts of policies you pass, the clever will take advantage of the less clever. The privileged will outmaneuver the less privileged.
Finally, arguments can be made that what matters is the broad middle class. Perhaps poor Swedes are better off than poor Americans, and rich Americans are better off than rich Swedes. But what about the 60% in between? This guy, at least, wants to argue that “What matters most is that… it is better to be middle class in America. The 60% in the middle earn 20% more in the U.S than they do in Sweden, even taking government purchases crudely into account. It is a myth that only a few at the top do better in the American system compared to even arguably the most successful of the European welfare states.”
How do you reckon? If you calculate the gini of a combined Bosnia and France, but do this after a) First scaling up Bosnian incomes based on PPP
or b) Straightaway calculating gini based on nominal euro incomes
You don’t think the ginis would be different?
Totally understand where you are coming from. American workers are mostly concerned with their own financial position and very few are concerned about the financial position of those in the rest of the world. Also, the main problem of getting any sort of meaningful aid to the poorest in the world is navigating the money safely through the minefield of corrupt and inefficient governments, let alone those who seek some sort of obscene profit in the delivery and distribution of the aid…regardless if it’s charity or work for pay. Some countries/companies are quite capable, but most are not.
If you scale up Bosnian incomes based on PPP, you also have to scale up French incomes based on PPP. You can’t do one but not the other. Beyond that, Bosnia isn’t actually a member of the EU (even though strictly speaking, it is in geographical Europe, which is why I mentioned it in the first place), so the point is a newt.
This seems to suggest you don’t know how PPP works. The idea of PPP equivalence is that you derive an exchange rate between two countries which is based on purchasing power between its citizenry and not nominal rates. To do this, you would only scale one of the two. Scaling both by the same factor would have no meaning at all, not just for the purposes of calculating a Gini coefficient, but for any purpose whatsoever.
And I was talking about Bosnia only because you gave it as an example. Pick whatever is the richest and the poorest country in the EU.
Since all European countries use the same currency, I assumed that your notion of adjusting one to a different PPP equivalent would apply to both (e.g. equivalencing to dollar purchasing power for the purpose of comparing with the US). A Big Mac’s a Big Mac, it costs roughly the same across Europe, and a Euro’s worth exactly one Euro all across the EU as well. That’s sort of the point.
But even if it weren’t, I’m still not convinced it would matter, because Gini isn’t based on raw purchasing power, but rather on its local distribution among social classes. The “upper upper class” in France and in Bosnia are tallied along the same factors and in relationship with the rest of the population, even if the French upper class can buy yachts while the Bosnian upperclass might be extatic when it can get its hands on a soy latte. The way I understand it, when you want to average the Gini of multiple countries, you add up the number of people in each discrete population income class and calculate the Gini of that new population distribution curve/histogram ; you don’t tally the relative incomes of all individuals in the artificial group and shuffle them around into one big pool then sort them anew based on an imaginary mutual Big Mac purchasing power standard. That would make very little sense, wouldn’t it ?
I thought eastern europe was a fair bit cheaper in terms of goods and services. A Euro may be worth exactly one euro everywhere in Europe, but it can buy you more in some places, no?
I don’t think we’re on the same page here. Let’s say two countries have 5 people each, with the following income distribution.
Nominal income, separate countries case
Country A: 1 2 3 4 5
Country B: 6 7 8 9 10
The gini coefficient will be similar in both countries, and low
Separate countries, PPP equalised income case
Country A has goods and services that are exactly half as cheap as country B. PPP adjusted incomes are now
Country A: 2 4 6 8 10
Country B: 6 7 8 9 10
Ginis will remain the same, and be low.
Countries considered together, PPP equalised income case
A+ B: 2 4 6 6 7 8 8 9 10 10
Gini will change somewhat, but be low, and close to what both countries had earlier
Countries considered together, nominal income case
A+ B: 1 2 3 4 5 6 7 8 9 10
Gini will change significantly, be higher, and different from what both countries had earlier.
This last is the proper way to compare a economic/monetary union, especially if against other, single countries. I think, although I may well be wrong, that this is not what is being done in the link you cited. I believe they use PPP. I think the EU would be similar(although obviously less extreme) to this last case when you consider the countries that are poorer. Bulgaria, etc. It’s a little unfair to look at just the rich countries in Europe separately, and compare them to the US especially when they benefit the most out of the EU economic(and not just monetary) union.
Not actually true in either case. Both provide examples if societies with multiple forms of power an where wealth was at least partly separate from power. The complete autocracy invalidates wealth asa separate ffactor and rendered it trivial. Think Communist Russia and you’re a lot closer. Or even Fascist Germany.
But you missed the point. I was laboring to show two things. First, you have a bunch of hidden assumptions and ideas - things you want or don’t want but aren’t saying. The question is: how far are you willing to go? What are you willing to trade. Life is never a convenient case of getting everything you want, so what price are you willing to pay? And whatever you think the cost will be, you must accept it’s likely to be much greater in practice.
Second, you haven’t (still) defined your goal. What, specifically, do you want the end state to be?
Your OP, though clearly well intentioned, has no meaning without these two answers.
This seems to suggest you don’t know how PPP works. The idea of PPP equivalence is that you derive an exchange rate between two countries which is based on purchasing power between its citizenry and not nominal rates. To do this, you would only scale one of the two. Scaling both by the same factor would have no meaning at all, not just for the purposes of calculating a Gini coefficient, but for any purpose whatsoever.