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Definition
The Gini index is a measurement of a nation's income inequality. If a nation's Gini index is zero, then every citizen of the nation earns the same amount of income. A value of a hundred indicates that all income has been earned by a single individual. As a calculation, the Gini index is calculated through the use of a Lorenz Curve. (The index is the area of total equality as populated on the Lorenz Curve divided by the sum of the area of total equality and the area under the Lorenz Curve expressed as a percentage. Sound confusing? There's a great graph with a simple explanation provided by The World Bank.)
Problems and Criticisms
Like most economic statistics, the Gini index does not accomplish its goal perfectly. Some of the problems are mathematical. (For example, you cannot average the Gini indices of different groups of people to get the Gini index of the entire group.) The Gini index does not take into account the efficiency of income use. (The rich tend to the use their incomes more efficiently than the poor.) Additionally, the numbers for different nations do not account for the different levels of wealth.
The United States
The best use of the Gini index is for measuring the changes in income inequality in a given nation year after year. Looking at the Gini index throughout our history, it easy to see the effect of the two major competing political ideologies on income inequality. In 1929, at the beginning of the Great Depression, economists estimate the Gini index at 45.0. Of course, a period of highly conservative economic rule proceeded the Geat Depression. In the aftermath of the New Deal, and during World War II, the Gini index had dropped to 37.6. As recent as 1968, following the implementation of LBJ's Great Society, the index was paltry 38.6. The index would tick upwards slightly to 40.3 by the time Ronald Reagan was elected President in 1980. Since the implementation of Reaganomics throughout the 1980s, income inequality has grown steadily, peaking at 47.0 in 2006. This is the highest index recorded in the United States. It is safe to say that income inequality will continue to grow long term until the nation implements substantially more progressive economic policies.
Further ReadingPrevious Entries in this Series: GDP, Unemployment Rate, Poverty Rate, Inflation Rate
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