The Gini coefficient is not a measure of justice

The Gini coefficient is not a measure of justice

Which is more just, Europe or the United States? Every time the egalitarian Left seeks to measure “social justice” it turns to its favorite measuring stick, the Gini coefficient. The Gini coefficient measures the distribution of income or property within a restricted group. The limiting values are zero and one. Zero (0) means perfect equality, where everyone’s income and property are the the same. One (1) means perfect inequality, where one person literally owns everything. Since the Gini coefficient is higher in the United States than in European countries, egalitarians claim that this “scientifically” proves the inequality of American society. This conclusion is, however, completely non sequitur.

Some people earn more than others. It is a fact from which we can’t logically draw conclusions about the “inequality” of the distribution of wealth. The Gini coefficient doesn’t tell us why some earn more than others, and therefore can’t be used as a measuring stick for economic justice.

To demonstrate this simple fact, let us imagine the distribution of wealth in my household. Assume that I decide to take a flatmate. If our incomes were equal, the Gini coefficient of our household would be close to zero. However, if my flatmate lost his job after cheating his employer, his income would drop down to virtually zero. Not surprisingly, our Gini coefficient would rise from zero to one. What is “unequal” about this distribution of wealth? Apparently nothing.

I earn my income by working; my unemployed flatmate does not. People will pay me voluntarily for academic work according to my merits. My flatmate earns nothing while lying on the couch watching TV. I get what I deserve, and so does my flatmate. Isn’t this the quintessence of justice?

Of course I’m more than happy to help a friend in temporary need – if I believe that he deserves my help. But let us imagine, instead, that my flatmate manages to fill me with guilt and makes me pay his share of the rent, electricity, Netflix account and food as well. For practical purposes, he therefore gets half of my income. Thanks to this “redistribution of wealth” our Gini coefficient decreases back to an equal zero. But what exactly is just about this? My flatmate isn’t doing me a favor by spending half of my income and spending his days lying on the couch watching episodes of House of Cards. He gets a free lunch, so to speak. Isn’t this the exact opposite of justice?

This example shows that the resulting Gini coefficients are just, but the artificially low (or high) values reached through “redistribution of wealth” are unjust. In other words, the Gini coefficient may vary, it doesn’t have one “correct” value. But the only way to ensure that it is based on justice is to leave its formation to the free market. In the example case, I could stop supporting my flatmate or set him some terms, but in an economic system based on “redistribution of wealth”, there is no such freedom.

The principle of “redistribution of wealth” is the same, whether we’re dealing with my household or the entire country. So what conclusions can we draw from the United States’ higher Gini coefficient? At the end of the day, the answer is surprisingly simple: Fewer acts of “redistribution of wealth” are made in the United States than in European countries. The American welfare state takes (through taxation) less from those who earn their living and similarly gives less to those who don’t. The United States is a country where productivity is more rewarding than in Europe.

Once we understand the moral irrelevance of the Gini coefficient and instead focus on how the Gini coefficient has been formed in each country, we can see the question of justice in Europe and the United States in a new light. What is your answer?



One comment for The Gini coefficient is not a measure of justice

  1. Hi Marja

    Thanks a lot for the brilliant article and for explaining an intricate concept with a simple everyday example.

    As the article is restricted within the perspective of Europe and United States, I will keep my comments within that context as well.

    First of all, US and Europe are very different I reckon. One is formed of states that come under a common (federal) government while the latter has countries which are (predominantly) independent. This reflects as there is more diversity in food, culture, languages, ethics, people attitudes and others within the latter. In other words the hard as well as the soft facts differ more. This is further apparent these days as the existence and relevance of EU is at stake. May be comparing a particular country against another (e.g. only Germany with US and not the whole of Europe) may have more congruity. Would you agree?

    Secondly, we talk about measuring “social justice” with the Gini coefficient, but it seems ironic on the point that it is more of a scale for measuring the “financial justice” as the base used for comparison is (earned) money or as you mentioned “wealth”. The true “social justice” may have several factors that govern it and the financial aspect could may as well be one of them but definitely not the only one. What do you think?

    Thirdly, final Gini coefficients are average and averages do NOT always make sense. The underlying facts have to be understood first to reach conclusions. e.g. According to statistics (assuming half the population is male and the other half female), an average human being has one breast and one testicle, which is fully erroneous. Thus the Gini coefficients (which are based on averages) may or may not be “just” depending on the context in which they are used.

    Fourthly, the concept of “redistribution of wealth” in itself is up for debate irrespective of whether a state (country) is more focused on welfare or less. The world (population) is becoming more atheist but the countries (governments) are trying their best to become the modern day GOD by trying to give something to everyone and take something from everyone in the name of equality. The term GOD used here may be too strong, perhaps the term ROBINHOOD can be more explanatory. Right?

    Lastly, comparing countries, their populations, their wealth distribution and other factors, does not lead to any relevant revelations. It just leads to a bit of addition to our knowledge about some numbers which different people perceive in different ways. At the end of the day, there are people both in US and Europe who are very happy, very depressed, very optimistic and so on, everyone moulds according to the set of rules (laws and regulation according to the constitution) that govern his/her geographical boundaries (country in which one resides). What do you comprehend?