Is India more equal than the United States?

The conventional wisdom debunked.
May 1 2008 5:22 PM

Is India More Equal Than the United States?

Inequality is important, but the way we measure it is stupid.

A busy street in India
A crowded street in Old Dehli

Consider two facts about India. Fact No. 1: Every year, nearly 4,000 people die in the Mumbai commuter train system, most because they fall out of overcrowded cars in the cheap standing-room carriages, or try to hold onto the outside of the train to avoid paying the fare. Fact No. 2: According to an international survey of rental prices released earlier this month, Mumbai is the world's sixth most expensive place to rent an apartment, falling just behind London pricewise and well ahead of Paris and Rome.

Now add to these a third fact: Measured by the Gini index—the standard yardstick of inequality and the number that's being referred to whenever you read that, say, the Scandinavian countries are "more equal" than the United States—India is substantially more equal than the United States. It is also a little bit less equal than Israel and Japan. If you rank the countries of the world from most to least equal by the Gini index, India falls just a little behind Italy.

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As the election season heats up, we hear ever more discussion of the problem of inequality, much of it driven by the assumption that growing inequality is creating an American underclass—you know, those folks clinging to guns and religion because they're falling behind. These odd facts about India highlight a couple of points about inequality that tend to get buried in the debate. Measuring inequality, or what most people think of as inequality, is not simple. And, perhaps more importantly, the standard measure of inequality tells us a lot less about poverty than we might think or hope.

To see why, let's look a little bit into the mathematics of inequality. The Gini index is a number that expresses the proportion of income that goes to people on various steps on the economic ladder. In a country in which everyone has exactly the same income, the Gini coefficient will be zero. On the other hand, in a country in which all the income goes to one person, the Gini coefficient will be 1, and the Gini index will be 100 (technically, it'll never reach the perfect 100, but it'll be incredibly close). In real life, the United States has a Gini index of 45, and Norway's is 28.

This is useful information, and by common-sense measures, Norway probably is more equal than the United States. But here's a thought experiment: Imagine that in some post-apocalyptic, global-warming-induced future the United States breaks up into a bunch of independent minifiefdoms.

One of these fiefdoms will be the Republic of Missoula, where 10,000 people live. Of these, 8,000 are getting by on $20,000 a year, or its equivalent in lentils and steel rods. Two thousand people, however, are doing much better. They've maintained a very comfortably upper-middle-class standard of living, with an income of $120,000 a year each.

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