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:
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:
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:
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)