The Gini coefficient is the most widely used way economists measure income inequality. The diagram below depicts they way economists figure out the Gini value for a given group of people.



Along the x-axis, they plot the cumulative percentage of the population: all the way to the left is nobody, a quarter of the way to the right is the lowest 25% of the people, three quarters to the right is the lowest 75% of the people, and all the way to the right is everybody. Along the y-axis, they plot the total amount of money: at the bottom is no money, at the top is all the money.

The solid line on the graph represents perfect income distribution -- that is the poorest 25% of the people own 25% of the money, the poorest 50% of the people own 50% of the money and so on. Everyone has the same amount. The dotted line represents the actual income distribution for a given geographic area or group of people. In this example, judging from point P, it looks like the bottom 50% of the people own about a third of the money.

The Gini coefficient measures the ratio of the area between the dotted line and the solid line to the area under the straight line. So in a country that actually does have perfect income distribution, the Gini coefficient is 0 (the area between the solid line and the dotted line is zero). In a country where one person has all the money, the gini coefficient is 1 (the area between the solid line and the dotted line is, for all intents and purposes, the same as the area under the solid line).

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So, the Gini coefficient for any group under consideration can range from 0 to 1. As with most things in life, reality falls somewhere in between the boundaries of possibility. Judging by the Gini coefficient, the most economically egalitarian country in the world is Denmark, with a Gini value of .247. Japan, Sweden, Belgium, and the Czech Republic round out the top five, all with Ginis under .255. At the other end of the spectrum is Namibia, with a Gini coefficient of .707. Click here for a world map organized by Gini coefficient. Click here for individual country data.

The United States' Gini coefficient is .466. That puts us 92nd among the 124 countries with enough data to reliably calculate a Gini coefficient. Ecuador, the Phillipines, Iran, Cameroon and Pakistan all have lower Gini coefficients than ours. Our Gini coefficient is closer to that of South Africa, Brazil, and Guatemala (117,118 and 119 on the list) than that of the Western European average. The Gini coefficient in America has grown steadily since 1970, and is higher now than any time since World War II. According to this measure, the money is very unevenly distributed in the United States and is becoming even more so.

The world Gini coefficient is .62, which is worse than every individual country except Namibia. Generally speaking, Western Europe is the most economically egalitarian area in the world; South America is the least (though only because Africa is virtually without data). Also generally speaking, money is more evenly distributed in wealthier nations than in poorer ones.

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With the exception of Forbes Magazine and a handful of economists, most people agree that economic inequality is, on the whole, something to minimize. Like any measurement system, the Gini coefficient has its limitations in telling us how well we are doing in pursuit of that goal.

First, the Gini is concerned with money and only money. That's limiting. And not just in the sense of money can't buy you love. It's also limiting in the sense that the Gini coefficient doesn't account for near-money equivalents like food stamps. That's one reason that the US looks (unfairly in many policy-makers' minds) less egalitarian than our European counterparts: we hand out services; they hand out money.

On top of that, though, the Gini coefficient's strict adherence to pure dollars does not capture another way in which individuals and households can experience inequality: wealthier households are able to use their money more efficiently than poorer ones. For example, someone who lives paycheck-to-paycheck can't afford the monthly commuter rail pass, requiring him or her to pay higher daily-ticket fees. The Gini coefficient does not capture the easier access to goods that wealthier households have as a result of their purchasing power.

Another difficulty of using the Gini coefficient to measure inequality is that different monetary distributions can produce the same Gini value. For instance, the situation in which one person owns half the wealth and all the rest is split equally among the remaining population produces a Gini value of .5, while the situation in which half the people own nothing and the other half split everything also produces a Gini value of .5, but the first scenario is clearly more egalitarian assuming the two situations are economies of equal size.

Which brings us to an additional limitation: the Gini coefficient says nothing about overall economic size. Ethiopia, Bangladesh, and Rwanda are all among the 25 most economically egalitarian nations in the world, but that doesn't mean the average American would be better off were he to pick up and move to one of those places. Additionally, the Gini value tends to be much higher (that is, it tends to report greater inequality) for a large geographic area than for a small area because of regional differences in economic structure. For instance, the Gini coefficient for the United States takes into account both Manhattan and Whitefish, Montana. What appears to be significant income inequality between those two locations can be alleviated to a large extent by the fact that housing costs are so much lower in Montana.

Finally, the Gini coefficient is only as good as the data available to inform it. In countries with large indigenous populations -- or any other group typically not counted in the census -- the Gini will miss a large part of the inequality in a nation because those who don't get counted are almost invariably the poorest. Same goes for any type of large scale economic activity going on outside of the measured economy (which can be quite substantial in many nations).

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I began the last section with a snide aside to Forbes. I'll begin this section by defending the magazine. Their praise for inequality is dependent on that inequality being dynamic or fluid - they say that a high Gini coefficient is ok (even good) as long as the barriers that restrict movement between low-income brackets and high ones are strictly merit based. "The greater the disparity between wealth and income," they say, "the harder people strive to be successful, and by their striving they enlarge the pie." That seems true, if idealistic in a way only an economist can be.

The place where the Gini coefficient falls most poignantly short is in this area: The Gini coefficient can't tell you who is unequal. It doesn't tell you about access to education and opportunity. It doesn't make distinctions between rural and urban areas. It doesn't pay heed to race or gender. Indeed, many of the most egalitarian countries are also the most homogeneous. In a previous installment of Dissect-O-Stat, we talked about unemployment, and we singled out France as a particularly unemployed country. Yet France also sits comfortably in the middle of the Gini list. But what several episodes of civil unrest there show is that French citizens are far from content with their "equal" lot.

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