Sunday, 31 July 2011

Why the Gini is NOT a measaure of inequality as it is touted

I have have the Gini index touted as a constant error in the statements that I make that the US is not an unfair society and it is better to aim for a society where people eat than one where all individuals are equally poor and destitute.

Basically, the Gini index is one of the most flawed statistical lies used in the pursuit of socialism as a goal. It makes so many false assumptions it is not funny. It does not class people by age and gender and does not account for differences in the distributions of age over time.

It does not measure actual wealth and confuses income and wealth.

It compares what it calls a measure of wealth (falsely) in different classes of populations.

To expound further, the Gini index is not as you tout a measure of inequality, but one of income distribution without regard to age and other factors. It fails as a measure of inequality for many reasons, mainly as it does not measure wealth. Inequality is a measure more of wealth at a point in one’s life than over a generalized population.

A person at 20 cannot be compared directly with one at 50. The same person at 20 does not have the wealth and resources of one at the age of 50 as one tends to accumulate wealth as one ages (being that one starts with little and it accumulates over time).

The wealth distributions of males (being that the decision to exit the workforce or not is in itself a determining factor for wealth and also many third world countries do not have large working populations of females with independent incomes) at the age of 45 would be a far superior measure of inequality than the Gini as it is used, but this or course also has its problems (though there are far fewer issues here than in the Gini).

The age distributions in third world and socialist countries (commonly the same though not always) are far flatter than in the western “capitalist” (nominally) countries. That is, a worker in say Kenya will see little increment in their earned income from the age of 20 to that of 50. The distribution of their income over their lifetime remains relatively static.

In contrast, the income and earning capacity of a worker in the US, even an unskilled one, will change significantly during their career.

A worker in the US earns little when they are a student. This rate increases as they gain in experience and increase in productivity. This earning capacity generally peaks around the age of 45-55 and then starts to decline until it finally returns to a low amount for most people in retirement when savings are used to supplement ones income. A worker in the US commonly earns 4-5 times their starting wages at some point in their career.

Many socialist societies have no age based income differentials and the earning capacity is based more on class, rank and party affiliations/position, a truly unequal system.

As the Gini does not account for age and sex based differences in its calculation, it fails even as a true measure of income variance. That is, it fails without even looking at the fact that income equality is not a measure of inequality in itself in any event.

We start in western countries earning less, movie into higher wage brackets before falling to near nothing again. If you take a measure of the "inequality" rank to age and sex classifications, you find an R^2 of over 0.90 or a correlation to age and NOT inequality using the Gini.

Now, taking into account that “first world” countries generally have people living longer than “third world” countries, we start to see that there is an inherent bias in the Gini index as well as the afore noted errors. In countries where people have a longer retirement, the Gini creates a situation where a country is classed as “unequal” for simply having people who live on their accumulated wealth.

Then, the socialist ideal here in not to actually analyze data, but to blindly accept the dogma as blinded sheep.

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