The state(s) we are in

Most people (voters) would like to see a fair income distribution across society.

The Gini Coefficient is the popular measure for income distribution - the higher the index the more unequally distributed income is.

In this regard, some economic development theorists are still debating Simon Kutznets' - who incidently gave the world the GDP concept - inverted 'U' curve theory of income distribution.

The theory states that at different levels of economic development there are different levels of income distribution - where poor economies are equally distributed when everyone has the same occupation, however, as economies get richer the returns to capital (people who own machinery) will exceed returns to labour (people who do manual labour), so there's bound to be some form of inequality there. At the last stage, capital-labour ratios would be more evened out and income will theoretically be more equally distributed.

Inverted U curve, adapted from Wikipedia

By that logic (if theory does indeed hold), it's not that hard to see which part of the curve Malaysia is on now.



The magic number?

Generally, economists like a specific number - a magic number, so to speak - to tell them how best to describe the situation. Failing which, there are always the local authorities who would be generous enough to draw that demarcation line for the rest of us.

Anyway, I don't know whether anyone else noticed, but there's a lot of emphasis on that RM3,000 per month wage lately... (am referring to the new credit card rules and the 100% loan given to prospective home buyers below that income threshold). But maybe it's just me reading too many Bank Negara reports.

From the chart above, that's a lot of people who are going to get affected (over 3 million households from the looks of it)... Am expecting slight changes in aggregate consumption and savings patterns in the near-term.

And before anyone asks, Malaysia's average household size in 2010 is around 4.3. But let's leave demographics for another day.