Dear WS-ners,
To answer some old requests from Richard H., Mine, Gert and others, here, a summary of method and basic theory behind past posts on Gini Index of US 1947-1998, taken from a paper in progress and mixed with a few comments:
2.0 A Summary of the General Theory and Method
Before addressing the analysis of Gini's index and its measurement it is here a summary of the sustained global vision of the economy.
2.1 On the one hand: National Accounts Equilibrium Structure
I found2 "Macroeconomics Equilibrium Structure" from input-output national accounts (IO-Nipas) of different years and nations (US, Canada, Spain, Colombia, Mexico), that in spite of flaws in Nipas and in business accounting practices, there was evidence to support the validity of the general premise for real transactions and flows:
Q = A = D
(Q= Total costs, A=Total value added, D=Total Demand) in real currency and market prices.
Given that A = V+S ......................(V=wages, S=Surplus) and that ......
Q = C+V .......................................(C=total intermediate cost really paid) it follows S = C (total surplus = total capital cost)
Given that T = S+V+C................ (T= gross sales, or transaction totals) it follows that T=V+2S, ....or...... T= V+2C, .........or ..........T=A+S
If you call a*= T/A, or a*=T/D, or a*=T/Q (average mark-up factor) you find:
1) a* is always between one and two 1<a*<2 if there is general surplus
2) S=(a*-1).A
3) V= (2-a*).A
4) p = S/V = (a*-1)/(2-a*) ............(p= average surplus rate) .. which is the same as
5) a* = (2p+1)/(p+1)
2.2 On the other hand: Statistical Income Distribution
On the other hand, in a 1986 paper of mine, entitled "Pareto and Alternative Economics"3, there is an appendix called "Pareto and Income Distribution"2, where I conclude, among others things:
1. Pareto's income distribution econometrics leads to a Lorenz curve, ordered from richer to poor, of the shape:
Y=t^(2-a*) ...................where necessarily 1<= a* <=2
2. For such curve,
g = (a* - 1)/(3-a*) .......................(g=gini) which is equivalent to saying that:
a* = (3g+1)/(1+g)
2.3 Joining the two hands: A possible systemic economics theory
Given that 1< a* <2 appears on both hands, my intuition told me that probably they are the same parameter in both analysis: The Nipas hand, and the Pareto's statistics hand. So,
g = (a*-1)/(3-a*) .......and .........a*= (2p+1)/(p+1) ..........leads to:
p = 2g/(1-g) .................... (surplus rate vs. gini index) ......or
g = p/(p+2) .................... (relations gini vs surplus rate)
Now from the Lorenz initial curve Y=t^(2-a*) we may find that the exponent 2-a* may be written in terms of g=gini, or p= surplus rate:
2-a* = 1/(p+1)
2-a* = (1-g)/(g+1)
So given that g, a* and p are inter-related in the average, the Lorenz curve may be expressed in 3 ways:
1) Y= t ^ (2-a*)
2) Y= t ^ (1/(p+1))
3) Y= t ^ ((1-g)/(g+1))
where a*= average markup, p=average surplus rate, g=gini index
All this would mean that at the end, due to the circular nature of the economy, society induces an internal distribution, product of human practices, in which average (markup, surplus-rate and gini) are statistically tied. So, if you decrease surplus-rate, markup decreases, and gini too.
Assuming that official quintile fractions are reliable, we may infer from them Gini's Index value with the right method, and once real average gini is known, we get a* and p= surplus ratio.
In the example for the year 1994, from official data quintiles, I found that: g = 0.535 (The process to be explained in an special paper)
Therefore a*= (3g+1)/(1+g)= 1.6970684= 1.70
Therefore p = S/V = (a*-1)/(2-a*) = 2.30107527=2.30
Therefore V/A = 2-a* = 0.30 and S/A = a* - 1 = 0.70
This means that you might do the inverse process: from Nipas get the fractions of S/A and V/A, divide them to obtain the average surplus rate p and apply Y= t ^ (1/(p+1)) to obtain an approximated Lorenz curve for your society. Then, just compare them with official quintile data.
If you measure capitals distribution (stock shares, bank deposits, lands, etc.) you may also find a Pareto's distribution which is quite normal, because after all they are the accumulated or inherited results of historical incomes distribution per period. Now, given that interests, rents, profits to shareholders, and other forms of surplus are proportional to them during the period, they affect the income Lorenz curve of the period.
Some people is asking a proof that neoliberal-globalization and WB/IMF recipes and policies have affected adversely the poorest of the world. Well, according to this model their recipes (high interest rates+lower state social aid+smaller real average salaries+...) are the kind of policies that increase ginis, average surplus rates and markups, and decrease V/A (equivalent to increase S/A, surplus/added-value). This is also related to the recent debate about reviving keynesianism. My stand is that any policy that makes governments to spend more in social services decreases gini, improves a little the poverty problem, but does not create enough global justice because it does not limit exploitation, neither imperial elites depredation over the periphery. So if the problem is to finish neoliberal abusement and their WB/IMF complicity, Keynes should be welcome as a first solution, but never as a definitive one.
Well, I took some time to reply explaining this of Ginis, because I sent some of my papers to two lists with the hope to put them in their web pages, but had no answer so far. Those papers, plus a hard critic to Leontief and the model with my calculations of the parametric structure of world economy for 1997, are part of a book I am writting on alternative economics as seen from a peripheric point of view. As you know, it is hard for people of the thirld-world to find spaces to express ideas to europeans and north-americans, even among those interested in the project for global justice and world systems, so I feel glad by just explaining myself through this letter and list, and understand our need to create a web page for peripheric proposals under our own control.
Finally, my public thanks to all those brave persons that participated in recent DC events, because they have done a remarkable job and deserve our admiration and more active support.
Thanks, Emilio