Follow-Up, Part I: Government’s Affect On Reducing Inequality

We had eleven folks last night, a typical turnout in numbers but a better-than-average-quality discussion, I thought.  Thanks to Jim for his research, presentation, and for running the meeting.  The subject was poverty, but as a follow-up, let me start with a post on inequality.  Here is a chart that shows how much inequality the U.S. Government actually alleviates through taxing and spending, compared to nine other rich countries.  (source)

The chart requires some explanation.  It does not show how much inequality exists in the nine countries, either before or after government.  Rather, it measures how much inequality governments take away, measured in terms of a reduction in each country’s GINI coefficient.  The GINI coefficient measures inequality on a scale from 0.0 to 1.0, with 0.0 being perfect income equality (everyone has the exact same income) and 1.0 being where a single person has it all and everyone else has zero income.  (Neither pole can exist in the real world, of course.)

Most rich countries, BTW, are in the .25 – .40 range, after accounting for government taxes/spending.  Our post-government GINI score is .40-.45, depending on the year, meaning that we have the highest level of inequality in the OECD, except for Mexico.  Our inequality level is slightly better than Cambodia’s and slightly worse than Ghana’s!  (Source)

Back to the chart .  It shows that U.S. government policies do less to mitigate inequality than governments of the other nine countries listed – including Canada, Germany, and the U.K.  Eyeballing the chart, USG taxes (the unfilled-in circle) only reduce that GINI coefficient by about 0.05, and USG spending (the solid diamond) only reduces market inequality by a little more, maybe 0.06 or so.  Compare that to the other countries by adding the distance each of the country’s tax and transfer diamonds are from the vertical horizontal axis, about .25, in Norway’s case.

So…the next time someone tells you that our evil federal government redistributes vast amounts of wealth to the poor and/or undeserving, you can now tell them we do it less than any other major country.


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