Sunday, November 02, 2008

Economy, Wealth and Gini

Approximately 40% of those filing tax returns did not pay any federal income tax because these wage earners did not earn enough income to require income tax payments. Over the past 2 decades, the disparity between average middle-income wages and executive pay jumped from 27 times the average income to 270 times the average income. The theory of trickle down economics to encourage economic growth from business is not working, growth is slowing, wages are stagnant, employee benefits declining. It is incomprehensible to Main Street America that executives of failed institutions are earning tens of millions of dollars a year while Main Street wages remain stagnant. Main Street America is losing expendable income needed to support businesses.

The Obama tax plan would lower the tax burden so the Average Joe, including “Joe the Plumber”, would have an increased opportunity to buy that small business he desires and would stimulate entrepreneurship. As Main Street America sees less available income and more income needed for basic needs, i.e., food, clothing, fuel, home, medical costs, insurance and of course, taxes, there is little left. The American Dream is dissolving.

The trend in the United States which is eroding the middle class is moving more towards the economic inequality of Mexico as the Gini Coefficient Index documents.

A Well-Established Trend (

The Gini Coefficient for the United States has risen steadily since 1967. If the current trend continues, the United States will reach a Gini Coefficient of 0.546 in about 37-years, or 2043. This coefficient is equal to the one Mexico had in year 2000. Unless the United States breaks this trend, the American middle class will be a thing of the past.

Notice that the Gini Index for the United States is closer Mexico's than it is to Canada's

Data Source: U.S. Department of Labor, Census Bureau Income Statistics
Japan 24.9
Sweden 25.0
Germany 28.3
France 32.7
Pakistan 33.0
Canada 33.1
Switzerland 33.1
United Kingdom 36.0
Iran 43.0
United States 46.6
Argentina 52.2
Mexico 54.6
South Africa 57.8
Namibia 70.7

US Gini Coefficients, Year 1970-0.394; 1980-0.403; 1990-0.428; 1994-0.456

Other Research (W.Kitterer[4]) also shows, that in perfect markets inequality does not influence growth. In real markets redistribution contributes to growth.

Considering the inequalities in economically well developed countries, public policy should target an ‘efficient inequality range’. The authors claim that such efficiency range roughly lies between the values of the Gini coefficients of 25 (the inequality value of a typical Northern European country) and 40 (that of countries such as China and the USA).

“As of 2006, the United States had one of the highest levels of income inequality, as measured through the Gini index, among high income countries, comparable to that of some middle income countries such as Russia or Turkey,[15] being one of only few developed countries where inequality has increased since 1980.[16]”

America needs to find a direction back to a sustainable middle class. John McCain in 2001 and 2002 agreed the Bush Tax Plan was detrimental to the middle class. We have waited 20 years for trickle down economics to work, it is not working and now it is time for our government to take a lead in restoring Main Street America. When 40% of wage earners do not earn enough to support federal income tax we are in serious jeopardy.

NOTES (researched through Wikipedia)
4 # ^ Wolfgang Kitterer: Mehr Wachstum durch Umverteilung? (More Growth through Redistribution?), 2006

15 # ^ a b "CIA. (June 14, 2007). Field Listing - Distribution of family income - Gini index. Factbook". Retrieved on 2007-06-20.

16 ^ a b Weeks, J. (2007). Inequality Trends in Some Developed OECD countries. In J. K. S. & J. Baudot (Ed.), Flat World, Big Gaps (159-174). New York: ZED Books (published in association with the United Nations).