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Designer suits and macroeconomics…

January 24th, 2009
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Take a look at this suit.  Take a good look.  Is it worth $40K?  Some people seem to think so.  More importantly however, is that at least 30 of these Brioni Vanquish II suits have sold in the midst the worst financial crisis since the Great Depression.

So what does this fantastically priced suit have to do with macroeconomics?  As it turns out, there is an answer to that question.  Let me explain.

Today, in my macroeconomics class, we studied the Brazilian economy under presidents Cardoso and Lula.  Most of the details are not relevant to this blog post.  What is relevant; however, is Brazil’s poor economic condition and a concept that was introduced in class called the Gini coefficient; which measures income inequality.  Gini coefficient scores can range from 0 to 1; 0 being the best score and 1 being the worst score.

The latest data shows that Brazil has a Gini coefficient of 0.57 and the United States scores 0.41.  For added context, it is worth noting that both Japan and Sweden have a Gini coefficient of 0.25.  If Brazil ranks near the worst amongst United Nations members, in terms of income and/or wealth inequality, the United States is not too far behind.

The income/wealth inequality in the United States as indicated by its Gini coefficient might explain why some Americans can’t afford to heat their homes this winter while others stock up on $40K suits.  Are there macroeconomic factors at play here?  I think so.  Perhaps I will have the answer before the end of the semester.

Photo credit jcreport.com.

1 response to "Designer suits and macroeconomics…"

Thomas
January 28, 2009 | 11:33:00

Hey Walter,

Great article and observations. I would argue also that macroeconomics are at play for certain when someone can by a $40k in down economy or in a country that has great disparity of income.

I would be hesitant to posit Gini coefficient as a possible explanation as to why some cannot heat their homes. The Gini coefficient seeks to describe the ratios of net income at national levels provide less insight into what microeconomic factors could be influencing short-term trends such as rising costs of gas, goods and services and unemployment…all of which affect the net income.

I do think also that is quite interesting that countries such as Denmark and Cananda that do have better Gini indexes they also have parliamentary governments and constitutional monarchies with successful ‘welfare’ programs that seem to balance the distribution of public services, etc for its people. They “share” better than we do. :-)

Our constitutional democracy is not good and looking out for the people as a whole. It’s a battle of special interests with big money. Coupled with that is the capitalistic society where economies of scale are highly technology driven and where mind power over man power wins the day.

There will always be manual laborers and manual laborers but without significant social reforms for education and training, personal initiative by citizens and the entrepreneurial spirit for service the growing disparity between the poor in rich will on become more so.

Technology introduces complexity of skill and efficiency of processes. Those who “know” will grow, those who don’t, won’t. Information workers and an age of advanced technology are contributors to the gap here in the US.

This is not an all-inclusive explanation. Just some of my thoughts. I’m not necessarily advocating gov’t as being in charge of taking care of it’s citizens entirely either yet I do think the a solution is somewhere there in the middle. But hey, I’m not and economist or politician. ;-D

~Thomas

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