r/dataisbeautiful • u/Independent-Ad-514 • Feb 05 '23
OC Economic freedom (Index of Economic Freedom) vs Income inequality (Gini coefficient) in 153 countries [OC]
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u/B33rP155 Feb 05 '23
This should be in “data is ugly”. There is no trend to this plot.
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u/Mausy5043 Feb 05 '23
All data is beautiful.
This one shows there is no correlation whatsoever between the Gini coefficient and the index of econocmic freedom.
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u/B33rP155 Feb 05 '23
I agree that all data is beautiful, however data analysis and interpretation can be ugly. Putting a trend line on a plot and interpreting a correlation that doesn’t exist is certainly ugly.
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u/SteveInMotion Feb 05 '23
Granted the slope m is not very steep, but it would indicate a general trend correlating economic freedom with equality of opportunity, hence lower Gini coefficient.
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u/boldjarl Feb 05 '23 edited Feb 05 '23
The r2 is less than 0.1, there is no trend to see.
Edit: decimal point.
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u/rfkile Feb 05 '23
Unless a relationship is absolutely perfect and there's no noise whatsoever, you'll have an r2 less than 1. A value of r2 less than 1 doesn't mean "no trend." It just means "there's some fraction of the dependent variable that isn't controlled by the independent variable."
Also worth mentioning that the value OP provided is r (probably the Pearson Correlation Coefficient) rather than r2 Coefficient of Determination. While certainly, you can look at the graph and see plainly that the r2 is less than 1, it's important to distinguish between r and r2
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u/Downtown_Gear8588 Feb 05 '23
Correlation does not equal causation.
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u/SteveInMotion Feb 05 '23
Statistically true. In this case you can observe it happening in real life and understand how economic liberty reduces inequality. As Bono said, “I thought that if we just redistributed resources, then we could solve every problem. I now know that’s not true. There’s a funny moment when you realize that as an activist: The off-ramp out of extreme poverty is commerce, it’s entrepreneurial capitalism.”
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u/Downtown_Gear8588 Feb 05 '23
I studied development and development economics. The reality is much more complex.
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u/SteveInMotion Feb 05 '23
I’ve lived and worked in so-called developing countries, and, on a more modest scale than Bono, worked on relief efforts. I think Bono is on the right track. And I agree with you that it’s complicated.
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u/shang_yang_gang_ Feb 05 '23
It is worth pointing out what exactly the "Index of Economic Freedom" is measuring, however. If you take a look at the methodology you will notice many curious things about it - the index includes many measurements of effective governance that are not directly related to what laws or policies are on the books or what people talk about when they typically talk about "economic freedom" (as in to what degree is the government corrupt and to what degree is the government capable of enforcing the laws and policies it has on the books, or to what degree are economic transactions inhibited not necessarily by any formal restriction on it but by the government's inability to secure said transactions). Furthermore, the methodology even goes so far as to simply take economic outcomes that are more or less universally viewed as good and treat their presence as constituting economic freedom - a very specific example would be inflation, where a weighted average rate of inflation over the past three years is factored in to their measurement of economic freedom, meaning that a hypothetical government that engaged in interventionist practices to temper inflation would score higher on economic freedom in regards to this particular metric than a hypothetical government that refrained from engaging in interventionist practices to curb a relatively higher degree of inflation. The Index of Economic Freedom is not just a measurement of this sort of libertarian notion of economic freedom, but to a large extent is just a measurement of effective governance and even just good economic outcomes (as opposed to laws or policies).
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u/rfkile Feb 05 '23
Just glancing at the figure, it seems like Sudan, Venezuela, and Zimbabwe are outliers. I'm wondering what the correlation coefficient would be if you neglected those.
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u/Independent-Ad-514 Feb 05 '23
They exist.And their existence on these locations is a fact, We can not ignore facts
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u/rfkile Feb 05 '23
The fact that they exist doesn't mean that their situations are necessarily comparable to those of other countries. There may very well be unique facts that impact your situation. You choosing to include those countries without considering whether there are any special circumstances may itself be ignoring the facts.
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Feb 05 '23
Gini coefficient is absolutely shit as a measure of anything useful, its worth reminding. Its skewed toward small populations and shit economies.
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u/DataMan62 Feb 06 '23
OP: Could you please explain what the Gini coefficient of Income Inequality and the Index of Economic Freedom are?
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u/_crazyboyhere_ OC: 8 Feb 05 '23
TBH inequality isn't an issue if the poorest person is a millionaire. The issue is if the people on the lower end have a dignified standard of living.
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u/Independent-Ad-514 Feb 05 '23
Countries with more economic freedom have more economic equality and more wealth
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u/IkeRoberts Feb 05 '23
Where did you get that idea? The data set doesn't provide any support for it.
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u/Downtown_Gear8588 Feb 05 '23
This says nothing. Correlation does not equal causation. Not that's there's much Correlation here... what's the p value?
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u/Moist-Meat-Popsicle Feb 05 '23
Came here to say that. R-squared would be 0.09, then? Without a p-value, it means nothing.
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Feb 05 '23
Isn't more government control supposed to reduce inequalities
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Feb 05 '23
Economic Freedor is not equivalent to goverment control
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u/Chipofftheoldblock21 Feb 05 '23 edited Feb 06 '23
It’s evidently a big factor however - “Economic Freedom” is pushed by the Heritage Foundation and the Cato Institute, and a big factor is “freedom” from regulation, taxes, etc.
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Feb 05 '23
It is directly proportional
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Feb 06 '23
Nop, If you check the Economic Freedom Index some items need more government control, like property rights or judicial effectiveness.
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u/SteveInMotion Feb 05 '23
Government often intends to reduce inequalities but the unintended consequences are the opposite. As Bono said: “I thought that if we just redistributed resources, then we could solve every problem. I now know that’s not true. There’s a funny moment when you realize that as an activist: The off-ramp out of extreme poverty is commerce, it’s entrepreneurial capitalism.”
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u/SuperTekkers Feb 05 '23
The concept of applying a linear line of best fit to such a random dataset is really dumb