Redistribution: Rights versus Security

The Gini Coefficient
The American body politic is growing increasingly aware of the uneven distribution of wealth in our society. That unevenness is measured by something called the Gini Coefficient. A value of 0.0 denotes a society in which everybody has exactly the same amount of wealth. A value of 1.0 goes to a society in which a single person owns all the wealth and everybody else has nothing. In the USA, that number has been steadily increasing for the last 30 years. Around the world, the Nordic countries have the lowest Gini Coefficient at around 25%. Most European countries have values between 30% and 35%. Most Latin American countries come in between 40% and 50%. Finally, your garden-variety Third-World dictatorships come in between 50% and 60%.

The USA comes in at 45%. It reached its lowest around 35% in the 1970s. As you can see, the rich have really cashed in the last 30 years. 

You can find a complete list of Gini Coefficients for countries around the world here

Social Mobility
Another important measure of social importance is social mobility. This is measured by the degree to which a child is likely to have the same income as its parents. In a society with perfect social mobility, the correlation between the earnings of the parents and the eventual earnings of their children is 0.0; every child must make it on their own. In societies with low social mobility, the eventual earnings of the children are closely tied to the earnings of the parents, and the correlation coefficient between them is close to 1.0. So here we have another measure for which 0.0 is good and 1.0 is bad. 

Social mobility in the USA comes out to be 0.47; France is 0.41, Germany is 0.32, Sweden is 0.27, and the true Land of Opportunity is Denmark, with a social mobility value of 0.15. The notion that the USA is the land of opportunity is laughable; in most civilized countries, you’ve got a better chance of getting ahead in the world than you would have in the USA. 

Does your heart bleed for all the poor people in America who are oppressed by The System, while the rich glut themselves on obscene riches? Mine doesn’t; I’m afraid of those poor people. Here’s why:

The Ultimatum Game
This is a standard experiment the economists have been using to measure the economic expectations of people all over the world. The experimenter offers two people a sum of money, say, $10, under the following rules:

1. The first player decides how to distribute the money between the two of them.
2. The second player then decides whether to accept the deal or reject it. If the second player rejects the deal, then neither player gets any money.

Now, if people were coldly rational, then the second player would accept any offer above $0.00, because he still comes out ahead. But in the real world, low offers are often rejected. People expect that benefits will be divided fairly. This experiment has been carried out in many cultures around the world, and although some significant differences among cultures have been found, in general, most of the time, the first player offers the second player about 40% of the pie, and the second player rejects the offer around 15% of the time. 

These are striking results because they clearly demonstrate that most people expect something close to an equal division of the pie. They are willing to accept some inequality, but not much. 

I think it is fair to apply this lesson to society in general. People expect that The System will give them a “square deal”. When they lose faith that The System is treating them fairly, bad things start to happen.

Social Capital
The next important idea I want to introduce is that of social capital. This represents the notion that people in a society work together smoothly with little friction. It could be called patriotism, solidarity, or “one for all, all for one”. A society with lots of social capital has few lawsuits, people trust each other, and they will assist each other readily. Crime is nonexistant, everybody pays their taxes without cheating, and big trucks stop for little bunnies.

A society with no social capital is a libertarian paradise. A state of anarchy prevails; it’s every man for himself; your home is a fortress and you keep a gun with you at all times.

Neither of these extremes exists in the real world; real societies fall in a range from high social capital to low social capital. Few Americans realize just how important American social capital has been to our economic success. Russia provides us with a sobering lesson as to the costs of low social capital. Trust is in short supply in Russia; there is little confidence that the law will protect anybody, so nobody pays much attention to it. Just about everybody cheats in some way; bribery and cronyism are surer paths to success than intelligence and hard work. The Russian government is deeply corrupt, and few Russians complain about that; cynicism is near-universal. Despite vast well from its petroleum resources, the Russian economy continues to putter along feebly. 

We are still in the early stages of understanding exactly what the role of social capital is in the health of a society, but some lessons are beginning to emerge. In societies with low social capital, corruption is endemic. People are reluctant to engage in business deals because it is so easy to cheat on a deal and get away with it. The poor have no faith in or loyalty towards a society that they believe abuses them, so crime is a serious problem. Societies with little social capital are crime-ridden and unstable.

The long view
Will Durant summarized these concepts with greater elegance than I could ever muster:

“Since practical ability differs from person to person, the majority of such abilities in nearly all societies, is gathered in a minority of men. The concentration of wealth is a natural result of this concentration of ability, and regularly recurs in history... In progressive societies the concentration may reach a point where the strength in number of the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or revolution redistributing poverty.” 

Over the long run, that is the true choice we face: legislation redistributing wealth or revolution redistributing poverty.