Income inequality: Just another word for diversity

I have long suspected that income inequality is less about market 'failures' in the private economy than a simple reflection of how diverse a country is.  The more diverse, the more unequal because groups who are very different or live in very different places confront different opportunities and issues which must ultimately be reflected in their economic behavior.  So I decided to see if there's a relationship between ethnic homogeneity - the proportion of the population that is part of the dominant race and culture and income inequality as measured by pretax, pre transfer Gini. And here's what I found:

As you can see, there is a strong correlation between ethnic and racial homogeneity and income equality - the US State Correlation Coefficient is -.60 which is moderately strong.  I've also plotted the five nordic countries (in red) and rerun the analysis.  Thety plot very consistently and the correlation coefficient including them rises to -.63 which suggests that almost 40% of the variation in inequality is directly related to the level of racial homogeneity.   Finland, at the high edge of the dispersion is nordic but not ethnically scandanavian while Iceland at the very bottom is wildly more homogenous than any other country in the world.  The three core urbanized Scandinavian countries all perform consistent with their American peers.  I say peers because these countries have smallish populations and are far more akin to a mid-sized state like Missouri or Minnesota (or Wyoming if you're Iceland) than the USA.

Now the clever chaps in the booming academic field of Envy Studies* would sagely point out that the after tax and transfers of the Nordics track significantly lower than that of the United States. Unfortunately no one that I can find has calculated the Post-Gini for the 50 states and they won't give me the data so I am forced to make a macro adjustment.  So in honor of the Green Eyed monster, I have calculated a Nordic Trak Post-Gini (available online for $399 in 5 easy payments) that calculates just how many Gini points taxes and transfers shift the US versus the 5 nordics.  And here is what I found:

All of these countries redistribute income from the rich to the poor, nordic countries, with the surprising exception of Iceland, redistribute more.  The US redistributes enough to reduce Gini by roughly .11, the Nordics by 16 (Norway) to 21 (Finland) points.  Iceland only moves .08 is guess Iceland is small and already so homogenous that elaborate redistribution just doesn't matter as much. No doubt if US states had the same policy control that the Nordics have we'd see states behaving more like the Nordics, but the US has a national redistribution policy that is driven by a very complex and diverse electorate and consistent with public choice theory, people are less willing to accept redistribution and collective solutions the less 'like' each other they are.  Nordics are very homogenous so they do more redistribution.  It is notable, however that Sweden, the most diverse Nordic has moved strongly rightward in its tax and economic policies over the last 20 years.

But Gini says nothing about well being.  Red China had a very low Gini while tens of millions were starving to death.  It is no achievement to be equally poor.  And there are tradeoffs between more government intervention to ensure equal outcomes and economic growth and prosperity.  We know that the Nordics deliver the same level of 'native' inequality as similarly situated American states.  They achieve their vaunted front of the class status soley through state coercion rather than voluntary action.  This has had a cost.   Like you produce less wealth, you get to take less of it home and while you get some free stuff, you have to buy it, even if  you don't want it.

So what do we know now?   First, our income inequality when looked at at a relevent state level is what you would expect it to be given our levels of diversity.  And given our national diversity we don't do as much taxing and spending ans homogeneous Nordics do.  So if you want income equality it's best to make sure everyone looks and thinks like you.  That diversity thing that everyone says is so swell:  it's hell on equality.  Oh and live in teeny tiny country - that helps too.  But even if you do you'll pay a significant price for the 'right' numbers:  in freedom, in standard of living and in autonomy from the state bureaucrats.  The Nordics, given their historical homogeneity and the quirks of living in a deep freeze have made their trade offs one way.  In the US we've made them a different way.  And given our powerful and oppressive Federal superstate, we've made one choice rather than letting people with different values in different regions choose for themselves.

So lets not have anymore of this nonsense about Nasty Unequal America.  If you're to lazy or cynical to do the work to understand the data you really shouldn't play the game.  OK Mr. President?

*Actually it's been booming for a long time and changed its name.  After all, what were Marxist studies other than screams of envy dressed up as dialectical didgery-doo and class blood lust?  Or racial studies if not honky hating Marxists or gender studies which...well you get the picture:  envy is big, big, big among the professoriate, but not as big as science - come to think of it, science is dominated by testosterone poisoned honkies, it's not fair!  Why do the pale males get more than we do? We're a science too! Give us more or our self esteem will collapse all over you!