Gini Coefficients, Wealth Capture, and Inclusivity

Often, it's worthwhile to go back and double check the frequent links posted at Economist's View. Yesterday's links provided an interesting take on Gini coefficients from Robert H. Wade, who argued that we need to distinguish between absolute and relative Gini measures. He suggested that for purposes of income inequality, the left can utilize the absolute measure and the right can utilize the relative measure. Yes, but...hmm, my mind thinks of that approach as somehow counterproductive and so ran in a different direction. It "wears" me out sometimes when my mind does that...

Why do discussions about Gini coefficients seem to come with the underlying assumption that, with the appropriate taxation and related forms of redistribution, all is well in the universe? Consequently, I question even the best redistribution strategy, because of underlying wealth distribution patterns created by the institutions themselves. As for the real discussions and decisions about inclusive or exclusive elements of wealth capture, they mostly take place outside of public dialogue, behind "closed doors" so to speak. Whereas, people could be forgiven for thinking they were part of the actual discussion as to inclusive or exclusive measures of economic access, through taxation!

Underlying factors of existing wealth distribution patterns have more to do with problematic resource and monetary flows than redistribution can realistically address. Plus, even though redistribution "patch ups"  arising from an initial exclusionary framework may further "grow" GDP in significant ways, equilibriums become further imbalanced and distorted over time, and political constituencies may not really recognize that the initial problem set was "baked into the cake". Such imbalances show up not just as further (ultimate) inequality "patch ups", but also debt loads which consequently lack adequate economic activity, to counter. Wade's concerns about absolute measures becoming more significant than relative measures, certainly alludes to this problem.

Just the same, it is important to stress that wealth capture (patterns of economic access and participation through formal and informal institutions) is not necessarily a good or bad thing, in and of itself. Rather, it becomes negative whenever it is both inefficient and misleading, which consequently leads to counterproductive attempts to find solutions. Examples abound, such as making a city "better" by getting rid of one's lower income categories, or large business operations which pose as small business operations so as to gain better publicity and preferential political treatment. Anytime potential solutions are considered, it helps to ask: who, and what, is really being included in the gains now being set on the table? While it may appear not to matter in the short term, .problems arise just the same in the long term, when economic exclusion is too significant.

Wealth capture and wealth creation go hand in hand, and are part of the same processes of arbitrage. Multiple forms of wealth capture are continuously set up and consequently agreed on, because, - without such formal social definitions - there are no clearly recognized patterns of economic activity that make real sense. Without such agreed upon foundations, valuable resources of all kinds may be right in front of us, yet we have no discernible way to provide additional meaning to them which also translates into further gains (As has happened to knowledge use in the present). Sometimes needed forms of wealth capture are not yet apparent, because a societal coordination process has not yet been put into motion.

Just as people may not recognize the potential gains of assigning new values, they may not always recognize the long run patterns from previous forms of wealth capture. For instance, when minimum wages are raised, they nonetheless remain a part of the pattern which set up the imbalances in the first place. The recognizable form of income increase gets quickly factored into pricing of other non-tradable goods in the location of the income. In other words, what seems like an inclusionary action leads to only more exclusionary effects. Real estate (still) captures the gain that was intended for the lower wage. Rather than fighting real estate interests head on, it is best to challenge the tight low technology definitions of living arrangements which have such ripple effects in local economies. Such actions can go a long way to decrease Gini coefficients, which mostly provide more fodder for opposing political divisions. It's become too easy to forget just how inclusive true productivity gains can be, because most production gains have been limited to entertainment and communications in recent decades. The fact that such production gains were never extended to our living and service environments is a tremendous factor, in the significance of the Gini coefficient in the present.