Domain NamesEconomics

The Gini is out of the bottle

By December 4, 2009 February 27th, 2017 11 Comments

The Gini coefficient is a topic that I expect we will be hearing a lot more about in the coming months.  For domainers, it is worth understanding because it is a reliable indicator of seismic changes in national economies.  It also happens to be good news for domainers.

What is the Gini coefficient
Simply described, the Gini coefficient is a mathematical index for income inequality. The coefficient has a value of between 0 and 1, where  1 represents complete inequality and 0 represents complete equality. Is this a useful statistic? The CIA uses the Gini coefficient as one predictive indicator of social unrest. If you look at a database of national Gini coefficients, you see some patterns. Countries like Switzerland, Sweden, Canada, and Japan have Gini coefficients in the range of .25 to .35. Countries like Zimbabwe, Namibia, South Africa, and Argentina are all above 0.5.  For calibration, the US was just under 0.5 before the Great Recession, and is now probably at or above 0.5. This is troubling, particularly when you consider that this is national average.

Should we care about income inequality?
My wife, Jill, and I were out for dinner this evening. At one point, Jill asked the young server how it was going. To which, the college-aged man replied “I am doing great. Earning minimum wage … Living the American dream!” He said it with the type of cynical optimism that just tugged at your heart. People are frustrated, and increasingly vocal and upset. The tone is shifting from forward-looking hope to growing despair. As a right-leaning, serial entrepreneur, I am all for free markets but this is crazy. The Gini is out of the bottle.  To put the Gini coefficient into historical context, here is a useful trendline:

Gini coefficient in USA

Gini coefficient in USA

Anyone longing for the 60’s, may well be “Dreaming of Gini” — when the US experienced its lowest Gini coefficient in recorded history. Incidentally, the last time the US Gini coefficient was at 0.5 was in 1929 — the end of “The Roaring 20’s” and right before the Great Depression. In other words, when the separation between “haves” and “have nots” gets this wide, the historical precedent is that a major intervention occurs.

What’s a Government to do?
The US Federal government is scrambling. This week’s Jobs Summit was a blatant appeal to the private sector for employment creation. Don’t hold your breath — these businesses are competing globally for customers and capital at a time when labor is plentiful. Keynesian public works projects are a replay of the FDR formula of the 1930’s — roads, bridges and public transportation. It worked well in the 1930’s. Yet, the situation is different this time. Why? Over the last 80 years, we have gone through 3 distinct cycles:

1. Tax and spend —  The New Deal, under FDR, public works were funded through taxation. The term “Tax and Spend” comes from the FDR era. It worked.

2. Borrow and spend — This was the growth formula under Reagan, Bush I and Bush II. Cut taxes, and borrow the difference. It too worked.

3. Print and spend — The current practice of Quantitative Easing, whereby the Federal Reserve “prints” currency which the US Treasury then borrows.

The United States is executing the plan that looks rather similar to Zimbabwe and the Weimar Republic. For the moment, the US is getting away with it, in part because of the brand strength of the US dollar as international reserve currency, overwhelming military superiority of the US, and hat-in-hand diplomacy by our Commander in Chief. The following cartoon, courtesy of Ramsay Devreux, tells the story well:

how-to-greet-foreign-leaders

Looking ahead to 2010, Healthcare Reform, a lot more public works projects, more extended unemployment benefits, and now the surge in Afghanistan, will come at the cost of debasing the US Dollar since raising interest rates would just increase the deficit even faster. The alternative would be massive tax increases, notably on the rich. The problem this time around is that (1) the rich are a shrinking population, and (2) the truly rich hold capital that is not captive to the boundaries of any sovereign nation.  Wealth, and the people who control it, can live anywhere and work anywhere.

Implications for domainers
So, what does rising inequality in the US mean for domainers.  If we get Great Depression II, I believe domains are a better store of value than currency.  However, in the more moderate U or W scenarios, I believe there are tectonic shifts in the value chain that are equally interesting for domainers. Here are a few examples:

  • Products — As more products are sold online, more producers will go direct to consumers.  The US retail shakeout is far from over. During 2010, I expect that producers will be looking for more ways to sell directly to consumers. Concerns about channel conflict will be trumped by the need to protect profit margins. Producers that are selling online through Amazon, Wal-Mart and Target, are getting squeezed by free shipping and price comparison. At what point do these producers start selling directly to consumers in a risky effort to regain pricing control? It will happen and when it does, these producers will need memorable, trademark-safe, SEO-friendly domain names on which to sell their products. Advantage: domainer.
  • Content — Book publishers, Newspapers, TV and Radio are all feeling the heat. The cost of production and distribution has plummeted and now anyone can produce and distribute content. If it is good content, the world will discover it because social media has leveled the playing field.  Content producers no longer need printing presses or broadcasting towers to distribute content. However, once a content producer’s brand is established, why not take control of the online brand and host the content on your own domain name? Content producers — notably journalists and authors — are finally waking up to to this and the mainstreaming of eReaders will be a huge accelerant. Advantage: domainer.
  • Professionals — The unemployment trend in 2009 has not bottomed yet. In normal economic cycles it would have bottomed by now. It has not. Jobs are still being lost on a monthly basis, though at a decelerating rate.  Sooner or later, people will realize that to an increasing degree we are living in the era of “You, Inc.”.  In a growing number of professions, providers will be better off selling their services directly to consumers. I actually expect this trend to accelerate in 2010.  These newly independent professionals will need their own websites through which to ply their trade. If they can’t get a great TrademarkAttorney.com, they might settle for a subdomain, e.g. Seattle.TrademarkAttorney.com. Advantage: domainer.

In summary, I believe the real path out of rising inequality is not more taxation or more public works. It is entrepreneurial courage by capable producers who are currently underutilized.  The Founding Fathers of the United States knew this well:

“A government big enough to give you everything you want, is strong enough to take everything you have.”

Thomas Jefferson, Founding Father and 3rd President of the United States (1801-1809)

Join the discussion 11 Comments

  • Tim says:

    Nice article.

    Your point about retailers striking out to protect their profit channels makes sense to me. I’ve been thinking a lot about this lately.

    Google has of late started to subvert their organic search positions by taking up most of the section “above the fold” and making it a directory. Once businesses realize that being in the number one position, but below the directory, does not make any real money many of them will come to see Google as their enemy and will strike out for additional advertising channels and methods to regain market share. Even Amazon, eBay, and others are sucking the life out of small and medium size retailers with new prodservs and those retailers will have to strike out in a big way to keep their profit channels producing.

    It seems to me there is a strorm brewing with a quiet consolidation of powers among the largest retailers and search engines are morphing from pure-play search engines into a mixture of search, lead generation, retail sales, etc…. thus sucking life out of countless other businesses. All those businesses will be facing decimation if they don’t make strong strides towards customer control and reach.

    • Rob Monster says:

      @ Tim — Thanks for the comment. I think your assessment is correct. Retailers who can’t make it on scale, will need to make it on “the long tail”, i.e. win as a specialist rather than attempting to compete as a generalist. Amazon cannot win on selection and price in every niche. This creates a window for producers and retailers to mine their niche and achieve leadership in that niche. The search engines clearly have a large role to play here and are the de facto kingmakers when it comes to these specialty portals. Price comparison will be increasingly commodity. On the other hand, editorial perspective on what’s the right product for the individual consumer is still ownable in a large number of segments where human intelligence can be scaled using the internet as the delivery platform. The transformative impact of the internet is gaining momentum.

  • Aron says:

    Rob,
    great post!
    Very informative and thoughtful… great read.

    It’s funny that you bring up Zimbabwe… I’m going to do a short post about
    them this morning.

    Great post, again!

    Aron

  • Aron says:

    Actually, your post was great… no need for mine on Zimbabwe.

    I have a 100 TRILLION dollar bill from Zimbabwe.
    Obviously, I have it as a joke.
    This is what happens when your government prints money…
    the dollar is heavily devalued.

    Zimbabwe has since abandoned their dollar, after prininting $50,000 bills — then $1,000,000 bills, and then obviously printing bills up to 100 TRILLION!
    That’s a $1,000,000,000,000 bill.

    If the US continues to print their way out of trouble… our dollar will drop greatly.
    Gold/Silver are the best bet — and I see your point on domains (if business has
    to continue).

    I’m always thinking worse case scenario — to survive.

    Gold and silver have value worldwide.

    Again,good post!

  • Aron says:

    Correction 100 trillion is:

    $100,000,000,000,000

    WOW

  • joseph davidovic says:

    Joseph Davidovic – Great article! I like your insight and we should all take steps to become more competitive rather than complacent.

    Joseph Davidovic

  • owen frager says:

    Superb analysis Bob. Spot on!

  • Yaron says:

    Rob,
    It is always a pleasure to read your blogs!
    I Always say that domains are virtual commodities, so inflation will increase their value.

  • Dale Buckey says:

    Rob,

    Impressive insight. The Geni Coefficient is increasing in the US and my take on it is- if you reside in the “have nots” percentage, you better not rely on the gov’t to save you this time.

    It IS the era of “You.inc.” and this should help the value of generic non-trademarked domains.

    By the way, I’m impressed with your time management skills. You seem to be in a lot of places, and make the most of a 24 hour day. Perhaps I’m swimming in a shallow pool, but I don’t know anyone else who would put a thought provoking post like this together?

    Best,
    Dale

  • Well, in that case I am looking forward to 2010.
    Great post

  • Ramsay says:

    My 2 cents: The ugly truth is that the USA is being brought down to its knees on purpose. Obama is an obedient pooch.

    Drilling down we find the diabolical plan for global control plodding along like Buffet’s new toy trains.

    1) David Rockefeller lauds China’s domestic policy of 40 million murders in 1973.
    He wrote: The social experiment in China under Chairman Mao’s leadership is one of the most important and successful in history.” New York Times, 8-10-1973.

    2) He continued to insured China’s participation in effecting similar change here in the USA back in 2001. (https://www.china.org.cn/archive/2001-09/29/content_1019862.htm)
    a) China’s slaves take over USA manufacturing. b) USA unemployment rises permanently as soon as the most recent bubble is burst and the money flow dries up. (The creation of ‘money’ – actually debt – is almost entirely from bank ‘loans’ to us sheeple.)

    To exert global control the global banking elite must bring the USA down a few notches. They are well into the process. Education, media, and food additives have done wonders to dumb us down.

    They are now foreclosing on the planet with draconian edicts issued by the Bank of International Settlements and the World Bank. Money is tight because they are tightening it. Runaway inflation like Zimbabwe or Weimar is not in the cards for the dollar. Those events were due to short selling currency by banking elites.

    The global plan is for all fiat money to fail after natural resources and infrastructures are confiscated. The bankers caused the problem so that they can offer its solution. We hear of calls for a new global currency from all quarters. It will be Digital Gold, and they will have the gold (along with the ability to turn off your digital wallet if thou protests too much).

    Their only fly in their ointment is the internet. It’s no coincidence that the legislative effort for central control of the internet is championed by David Rockefeller’s nephew Jay. (https://www.youtube.com/watch?v=Ct9xzXUQLuY&feature=player_embedded)

    So, the answer: Let’s take the power to create money back. (www.WebOfDebt.com)

    While we’re at it let’s Reinvent the media, education, government, medicine and food production; giving it back to benefit the people.

    Easy, right?

    Rob, I hope you can make us plenty of money!

    In any event, while the ruler of this world may be temporarily having his way, his day of reckoning is coming. Come to think of it, so is all of ours. Thank God there is some Gospel (good news)!

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