Inequality and the concept of income

["Per Gunnar Berglund" <BergP867@xxxxxxxxxxxxx>]

Barkley,

My initial point was this: Income, when measured (1) in nominal terms
and (2) exclusive of capital gains on wealth, still appears rather
evenly distributed in Sweden. But that might not give the full picture,
because:

(1) Prices on the categories of consumer goods that low-income groups
depend upon (rent, food, etc) are likely disproportionately high
compared to other countries, which a comprehensive statistical study
based on PPPs might reveal. In other words, a disaggregated approach in
which differently weighted price indices are used for each income
decile, according to the composition of their spending, might yield
quite different GINI coefficients than the ordinary, nominal (or
"one-CPI-fits-all") approach.

(2) Capital gains in Sweden are beyond all imagination. In 1999, the
comprehensively defined General Index for the Stockholm bourse climbed
some 65 percent. The index, which is continuously re-weighted to reflect
the changing composition of the components (i.e. their value relative to
the total bourse value), takes 1979 as its base year, so that 1979=100.
Today's reading is well over 6,300 (it peaked at some 6,800 before the
Microsoft verdict). In other words, the bourse has increased 63-fold in
20 years! Nominal GDP increased less than fourfold. In 1999, the capital
gains in bourse equity alone amounted to some 75% of GDP -- and this
does not even account for the gains in other property!

The concept of income was defined by Haig-Simons and Lindahl as 'the
maximum amount of consumption that will leave the wealth intact', which
concept would include capital gains, at any rate 'real' ones, in
relation to the consumer prices. In Sweden there has been no inflation
since 1993, so this adjustment need not be done. The capital gains on
the bourse would count as 'income' in the Haig-Simons-Lindahl sense, and
considering the extremely concentrated ownership of equity, that income
accrues to a very small fraction of the population. An inclusion of
capital gains, therefore, would certainly yield much bigger GINI
inequality coefficients than we are accustomed to. Indeed, I suspect an
inclusion of capital gains would put Sweden in the same league as e.g.
Brazil as far as inequality is concerned.

On a general level, I find it most remarkable that the 'pussycat' view
of Sweden lingers on with American liberals in spite of 25 years of
accelerating and mismanagement of the economy, a process which has now
reached grotesque proportions by any standards.

The truth is that few (if any) of the characteristic features of the
'good old' Sweden remain today. Robert Heilbroner, being aware of the
tendency to depict the country in rather too rosy terms, would talk
about the 'Slightly Imaginary Sweden' that we all know and love. While
this was no doubt accurate, say 15 years ago, I fear the discrepancy
between the Imaginary and the Real Sweden has grown too big to be called
'slight' anymore.

Best,
Per

____________________________________________
Per Gunnar Berglund
CEPA    80 Fifth Avenue, 5th floor    New York, NY 10011
Tel: (212)229-5923    Fax: (212)229-5903



>>> "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx> 04/09 3:22 PM >>>
Geoffrey,
      Sweden's wealth remains rather unevenly distributed,
the Wallenbergs still holding most of their holdings.  But,
income is among the most evenly distributed of any in
Europe, although not as much so as prior to ten years ago,
even taking account of high prices for certain necessity items.
Barkley Rosser