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Economic Freedom Vs. Gini Coefficient

donald.keller
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1/29/2014 10:54:19 PM
Posted: 2 years ago
Economic Freedom Vs. Gini Coefficient
After putting together some economic statistics from almost every nation in the world, I found some interesting correlations.

File: http://www.megafileupload.com...

Chart 1: http://www.debate.org...
Chart 2: Must download Excel File to view.
Chart 3: Must download Excel File to view
Chart 4: Must download Excel File to view

In chart 1, there is a correlation between the Gini Index and Economic Freedom. From nation to nation, there is no correlation, and Gini can't be used to accurately predict Economic Freedom or Economic Strength (measured in Chart 2 as GDP Per Capita.) However, in the overall observation, nations on the less Economically Free side have a higher Gini Coefficient. While one could assume this is False Cause and Correlation, it does good to note that almost every nation in the world is on this page.

The Heritage Foundation measures Economic Freedom in terms of regulations and freedom from government. The four categories (made up of 10 measurements total) used to determine Economic Freedom are Government Size, Market Openness, Regulatory Efficiency, and Rule of Law [http://www.heritage.org...]. The measurements do not include economic mobility, strength, or how wealthy the general population is. Economic Freedom is then not caused by the Wealth Equality, but by Government. Lower Wealth Inequality does not lead to Economically Freer countries, less government intervention and financial freedom does. Because lower Gini Coefficient cannot be the cause of Economic Freedom, it is likelier that Economic Freedom leads to a lower Gini Coefficient. The question is how?

Chart 2 shows how economically freer countries have higher GDP Per Capita, by a long shot. Nations with an Economic Freedom rating above 75 averaged at a GDP Per Capita of $42,662. Nations ranging from 60 to 75 averaged a much lower $19,984. Nations from 50 to 60 averaged an even lesser $3,324. Nations from 25 to 50 averaged at a higher $4,652, which is a testament to how low it would be if not for the economically strong Equatorial Guinea. It's important to note that while the cause of Economic Freedom is not listed on the chart, the data for which it's based can be found at the Heritage Foundation"s page [http://www.heritage.org...]. Economic Freedom leads to economically stronger nations. It's not easy to claim otherwise (the political issue is with who is being exploited for that economic strength, and who is benefitting). Which leads us to the first possible cause to the first mentioned correlation:

1: Job Growth
Not in reference to the Job Market, but referencing the growth of a specific job. Richer companies that form in economically freer countries can afford to give more raises and promotions as incentives. A worker in the US can expect to see more raises per decade than a worker of the same level in China. There is also room for growth in the workplace. As Milton Friedman says in Capitalism and Freedom, market openness and competition provides workers with more choices in job. If you do not like being a cook for Restaurant A, you can be a cook for Restaurant B. While opportunity slows down in a recession, this principle does still exist. It's not uncommon for employees to leave their position for a better one, and a position better than yours to now be open. There is a stronger upwards mobility in economically stronger nations. There is a common theory that higher Wealth Equality leads to better upwards mobility, but it might actually be the other way around.

2: Investments in the Poor.
In nations were it is harder to make a profit or a successful investment, and capital isn't as common among the rich, the wealthy might seek to only invest in the wealthy. In economically freer countries, the wealthy get very rich, an obvious observation that leads us to expect a higher Gini Coefficient from freer economies. In reality, this excess of capital and lower risk could lead the wealthy to invest more often in the poor. It's easier for the poor to get a loan in economically stronger countries, and the bank has more faith in the Middle Class to succeed and pay back the loan.

3: The Poor"s use of the Wealthy.
Economically stronger countries leads into a vast number of companies and numerous ways the poor can use them. We see the use of businesses by the poor in the form of Amazon, EBay, Game Stop, YouTube Partnerships, Word Press, Resale shops, Pawn shops, and numerous other websites and companies where people can make a living investing their time and effort into. The excess of large companies also provides a continuous source of income for small contractors and companies that make their living by doing work for these companies. There is a vast amount of investments and small opportunities to make money off of from larger companies in an economically freer country.

4: Personal Freedom and Choices.
As Milton Friedman explains, Economic Freedom is Personal Freedom. Lesser tariffs mean more choices, and fewer restrictions mean that a poor person"s opportunity to invest is much larger. Economic Freedom doesn"t just open doors for the wealthy, because the economy is just as much a part of a poor person"s life. It"s entirely possible to spend less with many options available and to utilize one"s own power instead of relying on a service company or vice versa to find the cheapest alternative. Instead of needing the cloth washing store, I can afford my own clothes washer because I have choices, or use the Clothes Washing store because I have choices. This possibility is heavily related to the 3rd theory.

5: The Misuse of Regulations.
The biggest theory as to why higher Economic Freedom leads to higher Wealth Equality it that the excessive regulation of companies can be counter-productive. Too many regulations can make the game easier to abuse by smarter businessmen, who can play the system for profit. The complexity of the system makes it easy to use for private gains that do not benefit the bottom class. There is a level of regulation necessary in any free society, but too many, and it's hard to stop abuse. A smart company can use one law to justify breaking another, or find usable holes in others. The excessive intervention of the Government can make it too easy to misuse the law and Government for personal gains, making the wealthy extremely rich without benefiting the poor.
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donald.keller
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1/29/2014 10:55:55 PM
Posted: 2 years ago
We know from Chart 1 and 2 that Minimum Wage increases with Economic Freedom. This is likely because of the correlation between Economic Freedom and Economic Strength. Economically stronger nations have always been more economically liberal. This is seen when observing economically strong moments in the US. Tax hikes are common during these moments, while tax cuts are seen in economically weaker moments. People are more economically liberal in strong economies and more economically conservative during weak economic times. As far as Minimum Wage is concerned, the general population is already more liberal, so even in a recession, the strength of the economy in the top nations still lead to the desire to raise minimum wage. The increase in Minimum Wage may also influence the Gini Coefficient. Looking at Chart 1, we see that Gini almost always increases as Minimum Wage decrease. A prior study I did makes me believe Minimum Wage, while influential in increased wages, only does so to an extent. It appears that Minimum Wage stops increases the National Median Income after $6-$7.00 an hour.

Income Taxation:
Income Taxation does not often correlate with Gini, however. It is easy to find correlations, but not often enough to assume there is a cause. Quite often, in Fact, higher taxes show up with higher Gini Coefficient more often than Expected. This happens more often in Economically Stronger nations. Overall, there just isn"t a large enough correlation to assume there truly is a cause here.

Cooperate Taxation:
Cooperate Tax does, however, have a consistent correlation. Higher Cooperate Tax tends to correlate with higher Gini Coefficient often enough to assume there might be a cause. Some good examples of these correlations can be seen in Chart 3 and 4, between Chile and Sweden, Iceland and South Korea, Israel and France, Slovenia and Benin. Correlations continue all though out the chart, all the way to the end. There are actually more correlations saying higher Cooperate Tax correlates with higher inequality than vice versa. This could just be a correlation without causation, but the correlation is constantly reoccurring. If there is more than just a correlation here, it could likely be because higher cooperate tax doesn"t affect the CEO"s paycheck, but depletes how much employees can be paid. However, with a small list of incomes and the CPI Index, we see that a higher CPI exists in nations with higher incomes, which would indicate that instead that removing income from employees, company"s likely raise costs instead. This started becoming apparent with I observed that higher Cooperate Tax correlates with higher Income, which was confusing, until it occurred to me that companies would find raising costs to be an easier and more affordable alternative. The higher taxation is actually an effect of the strong economy that also produces higher incomes. As mentioned earlier, strong economies tend to lead to more liberal economic policies like higher Income taxes and Cooperate taxes, while also leading to larger incomes, making the two seem to correlate. Instead of firing employees or lowering paychecks, both of which are economically disastrous and highly unpopular, respectively, raising costs and making CPI go up is the more economic approach (although still not every economic). A nation like the US would escape this because of its huge array of foreign goods, while American Made appliances are rather pricey in comparison.

Conclusion:
For whatever the theory, it is none-the-less apparent that Economic Freedom correlates positively with the Gini Coefficient. While not a consistent correlation from nation to nation, and neither a truly accurate prediction of the other, they do correlate in the overall picture. Nations that are economically freer also have more Wealth Equality. Even if you don"t believe there to be a cause to all the numbers, it is still interesting to observe them and see how they correlate or don"t correlate.
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donald.keller
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1/29/2014 11:54:11 PM
Posted: 2 years ago
If the site still isn't working, come to this page: https://docs.google.com...

Using the FILE < DOWNLOAD button, you should be able to download and see it clearly.
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donald.keller
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1/30/2014 12:41:12 AM
Posted: 2 years ago
At 1/29/2014 10:55:55 PM, donald.keller wrote:
We know from Chart 1 and 2 that Minimum Wage increases with Economic Freedom. This is likely because of the correlation between Economic Freedom and Economic Strength. Economically stronger nations have always been more economically liberal. This is seen when observing economically strong moments in the US. Tax hikes are common during these moments, while tax cuts are seen in economically weaker moments. People are more economically liberal in strong economies and more economically conservative during weak economic times. As far as Minimum Wage is concerned, the general population is already more liberal, so even in a recession, the strength of the economy in the top nations still lead to the desire to raise minimum wage. The increase in Minimum Wage may also influence the Gini Coefficient. Looking at Chart 1, we see that Gini almost always increases as Minimum Wage decrease. A prior study I did makes me believe Minimum Wage, while influential in increased wages, only does so to an extent. It appears that Minimum Wage stops increases the National Median Income after $6-$7.00 an hour.

Income Taxation:
Income Taxation does not often correlate with Gini, however. It is easy to find correlations, but not often enough to assume there is a cause. Quite often, in Fact, higher taxes show up with higher Gini Coefficient more often than Expected. This happens more often in Economically Stronger nations. Overall, there just isn"t a large enough correlation to assume there truly is a cause here.

Cooperate Taxation:
Cooperate Tax does, however, have a consistent correlation. Higher Cooperate Tax tends to correlate with higher Gini Coefficient often enough to assume there might be a cause. Some good examples of these correlations can be seen in Chart 3 and 4, between Chile and Sweden, Iceland and South Korea, Israel and France, Slovenia and Benin. Correlations continue all though out the chart, all the way to the end. There are actually more correlations saying higher Cooperate Tax correlates with higher inequality than vice versa. This could just be a correlation without causation, but the correlation is constantly reoccurring. If there is more than just a correlation here, it could likely be because higher cooperate tax doesn"t affect the CEO"s paycheck, but depletes how much employees can be paid. However, with a small list of incomes and the CPI Index, we see that a higher CPI exists in nations with higher incomes, which would indicate that instead that removing income from employees, company"s likely raise costs instead. This started becoming apparent with I observed that higher Cooperate Tax correlates with higher Income, which was confusing, until it occurred to me that companies would find raising costs to be an easier and more affordable alternative. The higher taxation is actually an effect of the strong economy that also produces higher incomes. As mentioned earlier, strong economies tend to lead to more liberal economic policies like higher Income taxes and Cooperate taxes, while also leading to larger incomes, making the two seem to correlate. Instead of firing employees or lowering paychecks, both of which are economically disastrous and highly unpopular, respectively, raising costs and making CPI go up is the more economic approach (although still not every economic). A nation like the US would escape this because of its huge array of foreign goods, while American Made appliances are rather pricey in comparison.

While higher incomes are created by strong economies, so are higher taxes. Instead of cutting paychecks, employers raise costs. The increase in costs can be drastic, with much of Europe 30-50% more expansive than the US. This doesn't effect the wealthy, who already purchase high price items, but it hurts the poor. With such a drastic increase in cost of living, the wealth of the poor is slowly drained into paying to live. With higher Cooperate Tax causing the increase in costs, it's not likely employees will see a large pay increase to match. Higher costs of living have a negative effect on the middle class. Looking at the data, increased Cooperate tax will either correlate with CPI or Income, seldom not correlating. This would explain how in almost every case, larger Corporate Tax is matched by an identical increase in Wealth Inequality.

Conclusion:
For whatever the theory, it is none-the-less apparent that Economic Freedom correlates positively with the Gini Coefficient. While not a consistent correlation from nation to nation, and neither a truly accurate prediction of the other, they do correlate in the overall picture. Nations that are economically freer also have more Wealth Equality. Even if you don"t believe there to be a cause to all the numbers, it is still interesting to observe them and see how they correlate or don"t correlate.
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donald.keller
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2/2/2014 7:35:37 PM
Posted: 2 years ago
Hello? Anyone alive here?
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TheHitchslap
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2/3/2014 4:23:12 PM
Posted: 2 years ago
At 2/2/2014 7:35:37 PM, donald.keller wrote:
Hello? Anyone alive here?

I'll reply to this later... there is a lot wrong here.
Thank you for voting!
donald.keller
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2/4/2014 8:56:30 PM
Posted: 2 years ago
Says there is alot wrong and will reply later, doesn't reply... leaves me nervously hanging for a day and a half.
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wrichcirw
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2/4/2014 9:08:08 PM
Posted: 2 years ago
At 2/4/2014 8:56:30 PM, donald.keller wrote:
Says there is alot wrong and will reply later, doesn't reply... leaves me nervously hanging for a day and a half.

umadbro?

At least I'll be honest...tl;dr. =)
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
wrichcirw
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2/4/2014 9:09:46 PM
Posted: 2 years ago
FYI, just a suggestion...this is just my opinion, take it or leave it:

For these kind of massive posts, I'd highly recommend a teaser outline at the beginning, so people have an idea what they're reading and why they're reading it. Since this is essentially a mini-dissertation, a mini-abstract would seem appropriate. Just my two cents. =)
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
donald.keller
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2/4/2014 9:18:29 PM
Posted: 2 years ago
At 2/4/2014 9:09:46 PM, wrichcirw wrote:
FYI, just a suggestion...this is just my opinion, take it or leave it:

For these kind of massive posts, I'd highly recommend a teaser outline at the beginning, so people have an idea what they're reading and why they're reading it. Since this is essentially a mini-dissertation, a mini-abstract would seem appropriate. Just my two cents. =)

At least you replued with an actual reply instead the promise of one lol.

I'll try again in time, and have an outline next time :)
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