The story of India's economic surge is dominated by two conflicting narratives.
... Delving into the relationship between caste
and entrepreneurship, the researchers have found that scheduled castes
and tribes, the most disadvantaged groups in Hinduism's hierarchy, owned
very little businesses despite a decade of sprightly economic growth
and a long history of affirmative action.
Mining information thrown up by the 2005 economic census
covering more than 42 million enterprises, they found schedule castes
owned only 9.8% of all enterprises in India in 2005, well below their
16.4% share of the total population.
The scheduled tribes owned only 3.7% of non-farm enterprises despite being 7.7% of the population.
However, ownership of business among OBC's - an acronym for
Other Backward Castes or the "middle castes" who "neither suffering the
extreme social and economic discrimination of the Scheduled Castes, nor
enjoying the social privileges of the upper castes" - has grown.
OBCs comprise 41% of India's people. Their members owned
43.5% of all enterprises in 2005, and accounted for 40% of non-farm
employment.
This is a remarkable achievement considering that affirmative action for this group was widely introduced only in the 1990s.
The pattern of dismally low ownership of businesses among the
most disadvantaged groups, the researchers found, is not specific to
any one region or state in India. ...
Jerry Muller is one of my favorite economic historians. I think this piece offers an insightful analysis of inequality in advanced market economies. As I read this piece I kept thinking back to Robert Fogel's (another favorite economic historian) The Fourth Great Awkening and the Future of Egalitarianism, where he makes the case that the economic challenge of this century is going to be focused on human capital. I don't think the ideologies of the left or right have come to grips with this yet. Muller begins:
Inequality is increasing almost everywhere in the post-industrial
capitalist world. Despite what many think, this is not the result of
politics, nor is politics likely to reverse it. The problem is more
deeply rooted and intractable than generally recognized.
Inequality is an inevitable product of capitalist activity, and
expanding equality of opportunity only increases it -- because some
individuals, families, and communities are simply better able than
others to exploit the opportunities for development and advancement that
today's capitalism affords. Some of the very successes of western
capitalist societies in expanding access and opportunity, combined with
recent changes in technology and economics, have contributed to
increasing inequality. And at the nexus of economics and society is the
family, the changing shape and role of which is an often overlooked
factor in the rise of inequality.
Though capitalism has opened up ever more opportunities for the
development of human potential, not everyone has been able to take full
advantage of those opportunities or to progress very far once they have
done so.
Formal or informal barriers to equality of opportunity, for example,
have historically blocked various sectors of the population -- such as
women, minorities, and poor people -- from benefiting fully from all
capitalism offers. But over time, in the advanced capitalist world,
those barriers have gradually been lowered or removed, so that now
opportunity is more equally available than ever before. The inequality
that exists today arguably derives less from the unequal availability of opportunity than it does from the unequal ability to exploit opportunity.
And that unequal ability, in turn, stems from differences in the
inherent human potential that individuals begin with and in the ways
that families and communities enable and encourage that human potential
to flourish. ...
The bolded sentence is my doing. Read the whole thing. Thoughtful stuff.
1. The Economisthas an interesting graph showing the captialism has led to greater happiness in member countries of the Commonwealth of Independent States (former Soviet Union countries excluding the three baltic countries.)
There are two ways to define economic mobility: 1) absolute mobility, whether each generation is financially better off than the one before; and 2) relative mobility,
whether you can change your income rank vs. your parents. Most
Americans probably think both measures important. We want to be more
prosperous than mom and dad, but also be able to change our
circumstances and make our dreams come true. ...
... A San Francisco Fed study –
using data tracking families since 1968 — looks at both versions of the
American Dream, finding one healthier than the other. Looking
at absolute mobility, researchers Leila Bengali and Mary Daly find the
United States “highly mobile.” Over the sample period, 67% of US adults
had higher family incomes than their parents, including 83% of those in
the lowest birth quintile, or bottom 20% (versus 54% for children born
into the top quintile, or top 20%.) ...
... It’s true that conservatives’
standard proposals for privatizing Social Security and
voucherizing Medicare would shift risk onto beneficiaries -- but
this plainly isn’t a necessary consequence of the basic
principle. I agree with Konczal that adequate insurance against
economic risk, underwritten by the government, is essential. I
also agree that most conservatives aren’t interested in
providing that guarantee. That’s exactly why liberals ought to
take up the ownership society themselves.
Ownership entails risk, it’s true, but insurance can
minimize it. Ownership also provides control, independence and
self-respect -- things it wouldn’t hurt liberals to be more
interested in. And when it comes to inequality and stagnating
middle incomes, ownership can give wage slaves a stake in the
nation’s economic capital.
Done right, an equity component in government-backed saving
for retirement could be the best idea liberals have had since
the earned-income tax credit (oh, sorry, that started out as a
conservative idea as well). ...
FMRI scans of volunteers' media prefrontal cortexes revealed unique brain activity patterns associated with individual characters or personalities as subjects thought about them.
Researchers already knew humans, animals and plants have evolved in
response to Earth's gravity and they are able to sense it. What we are
still discovering is how the processes occurring within the cells of the
human and plant bodies are affected by the more intense gravity, or
hypergravity, that would be found on a large planet, or the microgravity
that resembles the conditions on a space craft.
According to estimations, engineers expect the the store to generate
around 265,000 kilowatt hours (kWh) per year. Store operation will only
require 200,000 kWh, so perhaps that extra wattage could be pumped back
into the grid or used to power nearby utilities.
When people can browse potential dates online like items in a catalog, geo-locate hook-ups on an exercise bike just seven feet away, arrange a spontaneous group date with the app Grouper or arrange a bevy of blind dates in succession with Crazy Blind Date, it makes me wonder if all this newfound technological convenience has, in fact, made romance that much more elusive. Now, we may be more concerned with what someone isn't rather than what they are. And as that twenty-something entrepreneur reminded me over coffee, services like OkCupid, and even Facebook, sap a lot of the mystique out of those first few dates. So, sure, it may be easier than ever to score a date, but what kind of date will it really be?
Many of us have read the Bible as if it were merely a mosaic of little
bits – theological bits, moral bits, historical-critical bits, sermon
bits, devotional bits. But when we read the Bible in such a fragmented
way, we ignore it’s divine author’s intention to shape our lives through
its story. All humanity communities live out some story that provides a
context for understanding the meaning of history and gives shape and
direction to their lives. If we allow the Bible to become fragmented, it
is in danger of being absorbed into whatever other story is
shaping our culture, and it will thus cease to shape our lives as it
should. Idolatry has twisted the dominant cultural story of the secular
Western world. If as believers we allow this story (rather than the
Bible) to become the foundation of our thought and action, then our
lives will manifest not the truths of Scripture, but the lies of an
idolatrous culture. Hence the unity of Scripture is no minor matter: a
fragmented Bible may actually produce theologically orthodox, morally
upright, warmly pious idol worshippers! (p. 12).
I wish someone had taught me basic leadership skills.
“I was well grounded in theology and Bible exegesis, but seminary did
not prepare me for the real world of real people. It would have been
great to have someone walk alongside me before my first church.”
I needed to know a lot more about personal financial issues.
“No one ever told me about minister’s housing, social security,
automobile reimbursement, and the difference between a package and a
salary. I got burned in my first church.”
I wish I had been given advice on how to deal with power groups and power people in the church.
“I got it all wrong in my first two churches. I was fired outright from
the first one and pressured out in the second one. Someone finally and
courageously pointed out how I was messing things up almost from the
moment I began in a new church. I am so thankful that I am in the ninth
year of a happy pastorate in my third church.” ...
... The math of wealth is actually pretty simple: It all boils down to
four things: 1. How much you start with, 2. How much income you make, 3.
How much of your income you save, and 4. How good of a rate of return
you get on your savings.
So one obvious thing we could do to make wealth more equal is - surprise! - redistribution. It turns out that income redistribution and wealth
redistribution have much the same effect on the wealth of the poor and
middle-class. Income redistribution is probably a bit better, for two
reasons. First, people with higher incomes tend to save more, meaning
they build wealth more rapidly. Second, people with higher incomes tend
to have less risk aversion, meaning they are more willing to invest in
assets like stocks (which get high average rates of return, although
they are risky) rather than safe assets like savings accounts and CDs
that get low rates of return.
In other words, giving the poor and middle-class more income will boost the amount they are able to save, the percentage they are willing to save, and the return
they get on those savings. Part of the reason America's wealth
distribution is so unequal in the first place is that our income
distribution is very unequal.
But there are reasons to believe that redistribution can't fix all of
the problem, or even most of it. If you do the math, you discover that
in the long run, income levels and initial wealth (factors 1 and 2 from
above) are not the main determinants of wealth. They are dwarfed by
factors 3 and 4 -- savings rates and rates of return. The most potent
way to get more wealth to the poor and middle-class is to get these
people to save more of their income, and to invest in assets with higher
average rates of return.
As I mentioned, income redistribution helps these things a bit, but
it doesn't account for the whole difference. The rich probably save more
than the poor for many more reasons besides the simple fact that
they're rich. In fact, being willing to save more is probably a big part
of how the rich got rich in the first place. "Cheap" is an insult, but
being cheap is how you get rich. If you consume everything you earn,
your consumption will be higher today, but lower twenty years down the
road; in our consumption-focused society, a lot of people are caught in
this trap. And government can and should help them get out. ...
I heard a lecture by economist Peter Rodriquez of the University of Virginia sometime back. He believes our saving problems of the past generation are partly tied to globalization. As emerging markets grew they had more money to invest than their local economies could profitably absorb. American markets were more stable and reliable so the trend was to invest in the American economy. That meant a flood of capital, keeping borrowing cost low, and rising real estate values as foreigners bought up land for investment, making borrowing to buy real estate seem inordinately attractive. Combine this with weak consumer protection against nefarious lending practices and a poorly overseen financial sector, and the circumstances were ripe for disaster.
The great majority of people who become wealthy without having been born into wealth do so through frugal living and dogged investing. Yes, some get hit with challenges that wipe them out and others get lucky breaks, but the bulk of wealth creation happens through discipline practiced over a lifetime. Somehow we have to recover these values.
1. The United States had its financial bubble. Europe is having one too. Is China next? If it is, it could reshape the global economy and radically reshape Chinese government. Here is an interesting piece about China's real estate bubble.
... I like the idea of a breaking the Industrial Revolution into stages,
but I would define them in more fundamental terms. The first Industrial
Revolution was the harnessing of large-scale man-made power, which began
with the steam engine. The internal combustion engine, electric power,
and other sources of energy are just further refinements of this basic
idea. The second Industrial Revolution would be the development of
interchangeable parts and the assembly line, which made possible
inexpensive mass production with relatively unskilled labor. The Third
Industrial Revolution would not be computers, the Internet, or mobile
phones, because up to now these have not been industrial tools;
they have been used for moving information, not for making things.
Instead, the rise of computers and the Internet is just a warm-up for
the real Third Industrial Revolution, which is the full integration of information technology with industrial production.
The effect of the Third Industrial Revolution will be to collapse the
distance between the design of a product and its physical manufacture,
in much the same way that the Internet has eliminated the distance
between the origination of a new idea and its communication to an
audience. ...
... Eventually all of the creative ferment of the industrial revolution pays
off in a big “whoosh,” but it takes many decades, depending on where
you draw the starting line of course. A look at the early 19th century
is sobering, or should be, for anyone doing fiscal budgeting today. But
it is also optimistic in terms of the larger picture facing humanity
over the longer run.
5. What are the contours of income inequality in the United States? This 40 minute video by Emmanuel Saez offers some important insights.
6. Futurist Ray Kurzweil is a little too sensationalist for my taste but this vid offers interesting food for thought about nanotechnology and the future sports. We will even be able to have meaningful sports competition?
The recovered wealth - most of it from higher stock prices - has been
flowing mainly to richer Americans. By contrast, middle class wealth is
mostly in the form of home equity, which has risen much less.
The wealth gap between white and black families is growing — and that's
especially apparent in the housing market. Host Michel Martin talks to
Washington Post correspondent Michael Fletcher about the financial
disparities facing black families. ...
... MICHEL MARTIN, HOST:
We'd like to talk now about new
research on the wealth gap between white and black families in the U.S.
According to a federal survey, the median black family has five cents
for every dollar of wealth owned by their white counterparts. Now, that
gap is obviously very large, but it is also growing. We wanted to talk
more about this, so we've called Washington Post reporter Michael
Fletcher, who wrote about this recently. And he's with us from The
Washington Post's studios.
Welcome back to the program, Michael. Thanks so much for joining us. ...
This is a very informative interview. You can read the transcript at the link above or listen to the interview by clicking here.
Issue 104 examines the impact of automation on Europe and America and the varying responses of the church to the problems that developed. Topics examined are mission work, the rise of the Social Gospel, the impact of papal pronouncements, the Methodist phenomenon, Christian capitalists, attempts at communal living and much more.
"Despite the tough economy, many of the nation’s largest churches are
thriving, with increased offerings and plans to hire more staff, a new
survey shows.
Just 3 percent of churches with 2,000 or more attendance
surveyed by Leadership Network, a Dallas-based church think tank, said
they were affected “very negatively” by the economy in recent years.
Close to half — 47 percent — said they were affected “somewhat
negatively,” but one-third said they were not affected at all. ..."
... It's not surprising that younger entrepreneurial firms are considered more innovative. After all, they are born from a new idea, and survive by finding creative ways to make that idea commercially viable. Larger, well-rooted companies however have just as much motivation to be innovative — and, as Scott Anthony has argued, they have even more resources to invest in new ventures. So why doesn't innovation thrive in mature organizations? ...
... First, he says, the focus of an established firm is to execute an existing business model — to make sure it operates efficiently and satisfies customers. In contrast, the main job of a start-up is to search for a workable business model, to find the right match between customer needs and what the company can profitably offer. In other words in a start-up, innovation is not just about implementing a creative idea, but rather the search for a way to turn some aspect of that idea into something that customers are willing to pay for. ...
... discovering a new business model is inherently risky, and is far more likely to fail than to succeed ...
... Finally, Blank notes that the people who are best suited to search for new business models and conduct iterative experiments usually are not the same managers who succeed at running existing business units. ...
5. A fascinating, if sobering, look at the conflict over islands off the coast of East Asia. Trouble at sea
"President Barack Obama's proposed tilt of U.S. priorities toward the Pacific – and away from the historical link to Europe – represents one of the most encouraging aspects of his foreign policy. Although welcome, we should recognize that this shift comes about three decades too late and that it may miss the rising geopolitical centrality of sub-Saharan Africa and Latin America. The emergence of these longtime historically impoverished backwaters has been largely missed as American policy-makers and businesses are now obsessed with the challenges and opportunities posed by the emergence of China and, to a lesser extent, India. Sub-Saharan Africa, for example, over the past decade has produced six of the world's 10 fastest-growing economies. Through 2011-15, according to the International Monetary Fund, seven of the fastest-growing countries will be African, and Africa as a whole will surpass the slowing growth rates in Asia, particularly China.
This growth has caused the region's poverty rates, still unacceptably high, to fall from 56.5 percent in 1990 to 47 percent today. Further growth will likely push poverty levels down further."
8. New Geography also asks, Is the Family Finished? Some interesting thoughts about the impact of declining birthrates in the U.S.
Pew Research Center has compiled key findings from a new analysis of the
nation’s foreign-born population, based on U.S. Census Bureau’s 2011
American Community Survey.
With more than half the population of many U.S. cities who are
multicultural and Hispanics comprising more and more of the
U.S. population, when does it become meaningless and redundant to
execute marketing strategy that is directed to a general market and a
Latino market perceived to be homogenous?
11. Committee on Economic Development has an interesting piece looking at both the ideological and economic aspects underlying the debate about the minimum wage. Raising the Minimum Wage: “Which Side Are You On?”
"It is an easy call if you are either (a) a strict libertarian or (b) an
enthusiastic advocate of the less fortunate with limited concern about
the scarcity of resources. (If you belong to both of those groups,
there is little advice that I can offer.) However, in between those
poles of opinion, things become rather murky, rather quickly."
... Comparing the Democrat and Republican participants turned up differences in two brain regions: the right amygdala and the left posterior insula. Republicans showed more activity than Democrats in the right amygdala when making a risky decision. This brain region is important for processing fear, risk and reward.
Meanwhile, Democrats showed more activity in the left posterior insula, a portion of the brain responsible for processing emotions, particularly visceral emotional cues from the body. The particular region of the insula that showed the heightened activity has also been linked with "theory of mind," or the ability to understand what others might be thinking. ...
... The functional differences did mesh well with political beliefs,
however. The researchers were able to predict a person's political
party by looking at their brain function 82.9 percent of the time. In
comparison, knowing the structure of these regions predicts party
correctly 71 percent of the time, and knowing someone's parents'
political affiliation can tell you theirs 69.5 percent of the time, the
researchers wrote. ...
STERLING, Va. - Perched by a computer monitor wedged between shelves of cough drops and the pharmacy in a bustling Walmart, Mohamed Khader taps out answers to questions such as how often he eats vegetables, whether anyone in his family has diabetes and his age.
He tests his eyesight, weighs himself and checks his blood pressure as a middle-aged couple watches at the blue-and-white SoloHealth station advertising "free health screenings." ...
... As Americans gain coverage under the federal health law, putting increased demand on primary care doctors and spurring interest in cheaper, more convenient care, unmanned kiosks like these may be part of what their manufacturer bills as a "self-service healthcare revolution." ...
Recent developments in the field of nanotechnology might give new
meaning to the phrase “nothing gold can stay.” Atoms and bonds developed
not by Mother Nature, but by scientists, are gaining momentum as the
building blocks for cutting-edge materials.
Using nanoparticles as “atoms” and DNA as “bonds,” Chad Mirkin, the
director of Northwestern University’s International Institute for
Nanotechnology, is constructing his very own periodic table. So far Mirkin has built more than 200 distinct crystal structures with 17 different particle arrangements. ...
Since President Obama proposed an increase in the federal minimum wage in the U.S.,
from $7.25 per hour to $9 per hour and then index it to inflation, the
debate has been raging about whether or not this would make low wage
workers better paid or not paid at all (or in other words if they would
get unemployed).
The short answer is that it would be a little bit of both, but with
emphasis on little. To understand why we must first examine the issue
theoretically and then look at current U.S. conditions. ...
... If the legal minimum wage is lower or equal to the current pay level,
nothing happens at all. If it is higher than current pay but lower than
marginal productivity then workers get higher pay. If it is higher than
marginal productivity, workers lose their jobs.
Since minimum
wages are usually far below median pay, for most workers nothing
happens. For the small numbers that are affected some will receive a
raise, while others will lose their jobs. The exact proportion of
workers who are unaffacted, of workers who receive higher pay and of
workers who lose their jobs depend on the specific conditions in each
specific country (or state or city) and each specific period of time and
will therefore differ between different locations and different periods
of time ...
This fits makes sound economic sense to me. I think most people intuitively know that if you put the minimum wage at $30 you would wreck the economy. There is an upper limit on high you can go before businesses would be paying people more than the economic value of the labor they are getting in return. Presently, $9 is well below that threshold in most contexts and will therefore have only a modest impact on either improving wages or destroying jobs. I suspect the political and symbolic value is greater than the actual economic impact.
A concept promulgated by the right —
the notion of the hidden prosperity of the poor — underpins the
conservative take on the ongoing debate over rising inequality.
The
political right uses this concept to undermine the argument made by
liberals that the increasingly unequal distribution of income poses a
danger to the social fabric as well as to the American economy.
President Obama forcefully articulated the case from the left in an address on Dec. 6, 2011 at Osawatomie High School in Kansas:
This
kind of gaping inequality gives lie to the promise that’s at the very
heart of America: that this is a place where you can make it if you try.
We tell people — we tell our kids — that in this country, even if
you’re born with nothing, work hard and you can get into the middle
class. We tell them that your children will have a chance to do even
better than you do. That’s why immigrants from around the world
historically have flocked to our shores.
The
conservative counterargument – that life for the poor and the middle
class is better than it seems – goes like this: Even with stagnant or
modestly growing incomes, the poor and middle class benefit from the
fact that a stable or declining share of income is now required for
basic necessities, leaving more money for discretionary spending.
According to this theory, consumption inequality – the disparity between
the amount of money spent on goods and services by the rich, the middle
class and the poor — remains relatively unchanged, even while income
inequality worsens. ...
I like this article in that I think he does a fairly good job of laying out the conservative argument and then presents his counterargument in measured tones. There is a lot to process here, and there counterarguements to Edsall's arguements, but I appreciate articles that constructively frame issues.
Back in 1974, Richard Easterlin published a paper called "Does Economic
Growth Improve the Human Lot? Some Empirical Evidence" (available here and here,
for example). Easterlin raised the possibility that what really matters
to most people is not their absolute level of income, but their income
level relative to others in society. If relative income is what matters,
then an overall rise in incomes doesn't make me any better off relative
to others, and so my happiness does not increase. Income becomes a sort
of arms race: even as we all race to get more, it doesn't actually make
us any happier. ...
He concludes with:
... For my own part, I confess that I find happiness surveys both intriguing
and dubious. It seems to me that higher levels of income are typically
correlated with more health, education, travel, consumption, and a
higher quality of recreation, so it's not a surprise to me it seems to
me that happiness rises iwth income. On the other side, it does seem to
me that survey questions about life satisfaction are answered in the
context of a particular place and time. If a person says that their life
satisfaction was a 7 in 1960 on a scale of 0-10, and another person
says that their life satisfaction is a 7 in 2013, are those two people
really equally satisfied? To put it another way, if the person from 2013
was transported by a time machine back to live in 1960, with all their
memories and knowledge of the technologies, medicines, foods, education,
and travel available in 2013, would that time traveller really be
equally happy in either time period? I suspect that when most people are
asked to rank happiness on a scale of 0-10, they don't say to
themselves: "Well, people living 100 years from now might have
extraordinarily high levels of income and technology, so compared with
them, I'm really no more than a 2." At best, survey questions on a scale
of 0-10 seem like an extremely rough-and-ready way of measuring life
satisfaction across very different countries or across substantial
periods of time.
Millions of newly affluent people in emerging economies are reshaping
and resizing the global middle class. The world’s middle class will
swell from 2 billion to almost 5 billion by 2030, with most of that growth coming from developing countries, according to the Organisation for Economic Co-operation and Development. The world population in 2030 is expected to be about 8 billion.
The
OECD defines “middle class” as making $10 to $100 a day, adjusted for
the purchasing power of each currency. Today, people in developing
countries make up almost 30% of the world’s consumer spending, up from
18% a decade ago as they become middle class. This change, what the US
National Intelligence Council called a ”tectonic shift,” is one the most important trends for the next several decades. ...
Many women have trouble asking for more money at work—but it doesn't have to be that way.
... Many women don't know how to ask for the money. So many, in fact, that Carnegie Mellon runs a Negotiation Academy for Women co-founded by Linda C. Babcock, a professor of economics. Babcock has also co-authored two books on the subject, Women Don't Ask and Ask For It. In her first book, she offers some troubling statistics:
Men initiate negotiations about four times as often as women.
When asked to choose a metaphor to describe the negotiation process, women picked "going to the dentist." For comparison, Men chose "winning a ballgame."
Women enter negotiations with pessimistic expectations about what wage increases are available, and thus if they do negotiate, they don't ask for much: 30 percent less than men.
20 percent of adult women say they never negotiate at all, even when it may be appropriate.
"If you don't ask, you don't get," said Holly Schroth, who holds a doctorate in social psychology and is a senior lecturer at Berkeley's Haas School of Business. ...
Schroth urges female students to vie for larger bonuses and salary increases and offers several strategies. In her experience, women have proven more successful with off-cycle requests, meaning they seek opportunities to negotiate outside of year-end reviews. The best time, Schroth strongly believes, is in the wake of an achievement. ...
A National Bureau of Economic Research paper by Edward N. Wolff, a New
York University professor and one of the leading U.S. experts on wealth
shares, shows that in 1998, the richest one percent of Americans owned
38.1 percent of the nation's wealth. It has fallen fairly steadily since
then to the current level of 35.4 percent.
And then shows this graph:
The preceding sentence doesn't match the data. The percentage dropped nearly five points between 1998 and 2001, and then began to slowly rise again, though it is true that it has not risen to all-time highs.
I find that median wealth plummeted over the years 2007 to 2010, and by
2010 was at its lowest level since 1969. The inequality of net worth,
after almost two decades of little movement, was up sharply from 2007 to
2010. Relative indebtedness continued to expand from 2007 to 2010,
particularly for the middle class, though the proximate causes were
declining net worth and income rather than an increase in absolute
indebtedness. In fact, the average debt of the middle class actually
fell in real terms by 25 percent. The sharp fall in median wealth and
the rise in inequality in the late 2000s are traceable to the high
leverage of middle class families in 2007 and the high share of homes in
their portfolio. The racial and ethnic disparity in wealth holdings,
after remaining more or less stable from 1983 to 2007, widened
considerably between 2007 and 2010. Hispanics, in particular, got
hammered by the Great Recession in terms of net worth and net equity in
their homes. Households under age 45 also got pummeled by the Great
Recession, as their relative and absolute wealth declined sharply from
2007 to 2010.
I'm having trouble with my SSRN account so I haven't yet been able to look at the article. Lots of interesting facts that need to be reconciled.
Evidence is mounting that moderate minimum wages can do more good than harm
... America’s academics still do not agree on the employment effects. But
both sides have honed their methods and, in some ways, the gap between
them has shrunk. Messrs Card and Krueger moved on to other work, but
Arindrajit Dube at the University of Massachusetts-Amherst and Michael
Reich of the University of California at Berkeley have generalised the
case-study approach, comparing restaurant employment across all
contiguous counties with different minimum-wage levels between 1990 and
2006. They found no adverse effects on employment from a higher minimum
wage. They also argue that if research showed such effects, these mostly
reflected other differences between American states and had nothing to
do with the minimum wage.
Messrs Neumark and Wascher still demur. They have published stacks of
studies (and a book) purporting to show that minimum wages hit jobs. In
a forthcoming paper they defend their methods and argue that the
evidence still favours their view. But even they are no longer blanket
opponents. In a 2011 paper they pointed out that a higher minimum wage
along with the Earned Income Tax Credit (which tops up income for poor
workers in America) boosted both employment and earnings for single
women with children (though it cost less-skilled, minority men jobs).
Britain’s experience offers another set of insights. The country’s
national minimum wage was introduced at 46% of the median wage, slightly
higher than America’s. A lower floor applied to young people. Both are
adjusted annually on the advice of the Low Pay Commission. Before the
law took effect, worries about potential damage to employment were
widespread. Yet today the consensus is that Britain’s minimum wage has
done little or no harm.
The most striking impact of Britain’s minimum wage has been on the
spread of wages. Not only has it pushed up pay for the bottom 5% of
workers, but it also seems to have boosted earnings further up the
income scale—and thus reduced wage inequality. Wage gaps in the bottom
half of Britain’s pay scale have shrunk sharply since the late 1990s. A
new study by a trio of British labour-market economists (including one
at the Low Pay Commission) attributes much of that contraction to the
minimum wage. Wage inequality fell more for women (a higher proportion
of whom are on the minimum wage) than for men and the effect was most
pronounced in low-wage parts of Britain.
This new evidence leaves economists with lots of unanswered questions.
What exactly is going on in labour markets if minimum wages do not hurt
employment but reduce wage gaps? Are firms cutting costs by squeezing
wages elsewhere? Are they improving the productivity of the lowest-wage
workers? Some of the newest studies suggest firms employ a variety of
strategies to deal with a higher minimum wage, from modestly raising
prices to saving money from lower turnover. ...
Ever wonder why the red and white striped pole is displayed outside many barbershops? Neither have I. Not until I stumbled across a morsel of obscure history about this symbol. I was immediately drawn in.
In the middle ages surgeons and barbers performed most of the operations. Yes, that’s right – barbers. Blood-letting was the most commonly prescribed treatment of the day, a cure for almost every ailment. Surgeons would order it, barbers would do the cutting. The red-and-white-striped pole outside the barbershop was the signpost that blood-letting was performed here. The red represents the blood being drawn, the white represents the tourniquet used, and the pole itself represents the stick squeezed in the patient’s hand to dilate the veins. Interesting, eh?
What I found even more interesting, however, was that for more than 3000 years, from antiquity until the advent of modern scientific medicine, blood-letting was universally accepted as the most effective remedy for almost every disease. It was recommended for the treatment of countless ailments ranging from cholera to cancer, tetanus to tuberculosis, gout to gangrene. It was even prescribed to treat acne and hemorrhoids. Before the circulatory system was understood, a prevailing theory was that blood could stagnate in the extremities. A build-up of bad blood could cause all manner of maladies. The cure was purging.
Every one bought in. For eons. Even in ancient cultures like the Mesopotamians and Egyptians. The Talmud (ancient Israel’s sacred writings) specified certain days for blood-letting. Hippocrates (the father of modern medicine) accepted the practice as good medicine some 500 years before the birth of Christ. So did Socrates and Plato. Early Christian writings offer advice on which saints’ days were favorable for blood-letting. Well into the scientific era the practice continued to prevail. The more blood drawn the better, even to the point of losing consciousness. Many sessions would only end when the patient began to swoon. 1799 George Washington, suffering from a throat infection, requested that he be bled heavily (nearly four pints) and died shortly thereafter.
One typical course of medical treatment began the morning of 13 July 1824. A French sergeant was stabbed through the chest while engaged in single combat; within minutes, he fainted from loss of blood. Arriving at the local hospital he was immediately bled twenty ounces “to prevent inflammation”. During the night he was bled another 24 ounces. Early the next morning, the chief surgeon bled the patient another 10 ounces (285 ml); during the next 14 hours, he was bled five more times. Medical attendants thus intentionally removed more than half of the patient’s normal blood supply—in addition to the initial blood loss which caused the sergeant to faint. Bleedings continued over the next several days. By 29 July, the wound had become inflamed. The physician applied 32 leeches to the most sensitive part of the wound. Over the next three days, there were more bleedings and a total of 40 more leeches. The sergeant recovered and was discharged on 3 October. His physician wrote that “by the large quantity of blood lost, amounting to 170 ounces [nearly eleven pints], besides that drawn by the application of leeches [perhaps another two pints], the life of the patient was preserved”.
“The life of the patient was preserved” by draining thirteen pints of his blood?! Outrageous! Sounds totally absurd today. But is it any more absurd than the widely accepted practice of draining off the strength of able-bodied adults by “curing” them with dependency-producing subsidies? Can we legitimately claim to be “preserving the life” of the needy by weakening their capacity to become self-sufficient? And how absurd is it to measure the effectiveness of our remedy by the volume of recipients who return for repeated “treatments”?
Is harmful medical treatment better than no treatment at all? The French sergeant who survived the blood-letting would doubtless answer “yes”. His surgeon acted upon the best knowledge that was available at the time. Is harmful charity better than no charity at all? Recipients would doubtless urge its continuation. But just as it took centuries of malpractice before the medical profession finally realized that blood-adding, not blood-letting, actually saves lives, so charitable malpractice may have to run its course.
Bloodletting persisted into the 20th century. Not until Pasteur (1822-1895) figured out that germs, not bad blood, cause diseases did the practice begin to fall out of favor. It took many more decades before the practice was finally abandoned. The modern science of microbiology finally brought a 3000 year practice to an end. I can’t help wondering how long it will take the tradition-steeped compassion industry to recognize the need for a fundamental change of practice.
I've actually incorporated the bloodletting metaphor in some writing I've
been doing on economic issues. (Stay tuned.) For millennia, bloodletting was
the preferred method for treating illness. Only in the past century or two have
we learned enough about the human body to see that this is not effective, even
destructive. For millennia, the preferred method for treating poverty was
generosity. Poverty was an inadequate distribution of a fixed amount of wealth.
Only in the past century or two have we really unlocked the powers of
productivity and exchange. Poverty is now more appropriately seen as exclusion
from networks of productivity and exchange.
No metaphor is perfect. Generosity had limited effectiveness over the
millennia and generosity still has a critical role to play today, particularly
in times crisis. But the revolution in productivity and exchange has radically
altered how we address challenges we face.
All my life I've heard that the Bible talks about wealth and poverty more
than any other topic, yet I find very few theologians who have ever taken even
one class in economics. I can probably count on one hand the number who have
had formal training in economics. The irony is that it is often those who most
contextualized the Bible on a range of issues ranging from science, to gender
roles, to slavery, to war, and to government, who I find become the most wooden
and "fundamentalist" on economic questions ... unable (unwilling?) to
make a leap from the advanced agrarian societies of the Bible era to modern
economies, sometimes even pining for retreat from the dark dystopian present
back to the bucolic bliss of the past. (And just to be fair, those that are
most "fundamentalist" on so many other issues want to baptize our
present economic order as the "biblical" model.) We aren’t going back,
and idealistic models like distributism and liberationism, or any other model
that doesn’t seriously take into account issues of productivity and exchange, offer
no guidance for the future.
There are many challenges confronting the church of Jesus Christ but I
continue to be convinced that it is the church's inability to come to grips
with modern economic order, and by extension the inability to help people find
meaning in the our present context and equip them for ministry in our present
context, that is at the top of the list of challenges.
... The principle of solidarity is a sense of the common good, of the
natural and supernatural connections that bind us one to another, and of
our responsibility toward one another.
In individual cases, the
application of the principle is a reminder of the clear moral imperative
that the wealthy exercise their sacred obligation to aid the less
advantaged and to work toward the betterment of everyone. ...
... This principle of
solidarity in relationship to government action means that state
government — and many times the federal government — are appropriate
vehicles to direct the use of wealth collected through taxes or
otherwise for the common good. We see this in such things as
unemployment insurance and in Social Security. ...
... Subsidiarity is the principle that says that in matters economic and
political, the preference is always to be given to the most local level
of authority that can handle the matter. We don’t appeal lemonade stand
issues to state regulatory authority; at least I hope not. So, too, with
questions such as traffic, employment issues and health concerns
solutions should be found at the most local level possible.
This
principal does not negate the idea that sometimes the federal government
must be involved, but the preference is clearly for solutions to be
found at the local level if possible. ...
... Catholic social teaching emphasizes the application of both the
principle of subsidiarity and the principle of solidarity. The two are
not meant to be mixed and balanced; instead one principle acts as a
check on the other principle.
There is no Christian doctrine that
clearly defines when and how the two principles are to be applied, when
one is meant to be used to check the other. Instead, the application of
the two principles — subsidiarity and solidarity — where one principle
limits the over-application of the other principle, is an exercise of
prudent judgment.
A pretty good summary. What more would you add or what would you qualify? Did you see my post from earlier today? Moderation Polerization Through Polarity Management. Do solidarity and subsidiarity form a polarity?
Why did inequality never become the
defining issue of the 2012 campaign? It appears that voters,
intuitively, don’t see it as the problem some politicians would
have us believe.
Even economists disagree over how bad inequality is, the
correct way to measure it, why it’s increasing and what to do
about it. And most Americans, no matter how humble their
circumstances, don’t resent the wealthy so much as strive to get
rich, too. One point on which economists do seem to agree is
that income inequality by itself isn’t harmful -- except when
it’s so great that the scales of opportunity tilt. On that
score, the U.S. has reason to worry.
Median household income is lower than it was a decade ago.
At the same time, the gap between rich and poor has widened.
Economists recently reported that the top 1 percent receive
about a fifth of the national income -- up from less than a 10th
in 1970 -- and control about a third of the country’s wealth.
The data, however, overstate inequality by not counting
government transfers such as food stamps, unemployment insurance
and Social Security. When these things are included, every
income group shows modest gains from 1997 to 2007. When health
benefits are also calculated, income disparity really drops off,
with the bottom 20 percent registering income growth of about 26
percent. The top 5 percent show a 63 percent increase. ...
... Where does this leave us? If income inequality by itself
isn’t bad, and if it’s not a zero-sum game, it’s debatable
whether the tax system should be used to close the rich-poor
chasm. Redistributing income might choke off growth. But with
the opportunity gap growing, the tax code certainly shouldn’t
encourage more inequality, as it now does. In that spirit, here
are three tax and education reforms that might help rebalance
the opportunity scales:
The estate tax is a good starting point. ...
Restricting these breaks would help make the tax code more
progressive without redistributing income by raising rates. ...
Another idea catching on with lawmakers in both parties is
education savings accounts, which work like 401(k) retirement
plans. ...
Bono has learned much about music over more than three decades with U2.
But alongside that has been a lifelong lesson in campaigning — the
activist for poverty reduction in Africa spoke frankly on Friday about
how his views about philanthropy had now stretched to include an
appreciation for capitalism.
The Irish singer and co-founder of ONE,
a campaigning group that fights poverty and disease in Africa, said it
had been “a humbling thing for me” to realize the importance of
capitalism and entrepreneurialism in philanthropy, particularly as
someone who “got into this as a righteous anger activist with all the
cliches.”
“Job creators and innovators are just the key, and aid is just a
bridge,” he told an audience of 200 leading technology entrepreneurs and
investors at the F.ounders tech
conference in Dublin. “We see it as startup money, investment in new
countries. A humbling thing was to learn the role of commerce.” ...
Poverty is not first and foremost an absence wealth. Poverty is
exclusion from networks of productivity and exchange. Inclusion into
those networks is the solution.
Economic development has three stages, much like triage. Stage 1 is
relief. The bleeding has to be stopped and the patient has to be
stabilized. Stage 2 is rehabilitation. Wounds need to be healed and the
person needs to be nurtured to health. Stage 3 is development. Assisting
a relatively healthy patient toward greater health and flourishing.
In the face of a natural disaster like a tsunami or a hurricane, we
must do relief. Water, food, clothing, shelter, and medical care are
paramount. Once the situation is stabilized comes a time of rebuilding
basic infrastructure. But if we want to help beyond relief and
rehabilitation, the focus must be upon expanding inclusion in networks
of productivity and exchange. All three stages are necessary but all
three have a different focus.
The propensity of Western advocates for the poor is to see most
instances of poverty as problems needing relief, with maybe some cases
needing rehabilitation. Economic development isn't even on the radar.
(And in fact, words like "markets" and "development" are voiced with
derision in some quarters.) But at any given moment, very few poor
nations are in need of significant relief, some could use rehabilitative
work, and most need economic development. We treat countries needing
economic development as victims needing relief. The consequences can be
devastating.
Here is a graph from the Hope International website. (It comes from Bill Easterly's The White Man's Burden, page 47. I have unsuccessfully looked for an updated chart with this data.)
When
aid grows to be about 7% of nation's economy a transformation begins to
take place. National leaders turn their attention away from their
domestic business sector. They feel less and less accountabile to making
their domestic economy work or to being responsive to their
constituents. Their energies turn toward the aid giver. The mission
becomes retention and expansion of aid.
Yet Western advocates talk in terms of the West has X% of the world's
wealth while sub-Saharan African countries have only Y%. Solution? Give
wealth to equalize the difference and "relieve" the poverty. As Bono
has learned, this "relief" orientation is not only not the answer, it is
a contributor to sustained impoverishment. Development and expansion of
networks of productivity and exchange are the answer.
Each week I spend considerable time scanning headlines as I look for stories to blog about at the Kruse Kronicle. I clip them into an Evernote Notebook and usually twice a day I select one or two to link and discuss. A number of interesting stories never make it on to the blog.
So this week I'm beginning what I hope will be a regular Saturday feature. Each Saturday I will post links I did not use the previous week. For now I will call it "Saturday Links." Happy clicking!
3. Icon of the American Libertarian movement, Murray Rothbard, once asked, "Why won't the left acknowledge the difference between deserving poor and
undeserving poor. Why support the feckless, lazy & irresponsible?" Chris Dillow gives a libertarian response affirming the need to Support the undeserving poor.
"I can easily imagine my graph in a Julian Simon or Steven Pinker chapter
on human progress and the decline in violence. Even though I have no
philosophical objection to the death penalty, it's hard not to interpret
this 400-year pattern as a strong sign of human betterment."
Income inequality is a big topic these days, but there are some who argue that income inequality data doesn't tell the whole picture. Income data typically uses pre-tax and pre-transfer income (meaning people at the top have less than it appears because of the taxes they pay, and the people at the bottom have more because of assistance they recieve.) There are other factors that muddy the waters as well.
The American Enterprise Institute released a study last summer that focuses on consumption differences. Yes, I know many of my readers will roll their eyes at AEI. I'll say that I've seen similar arguements made in peer-reviewd articles. Here is a piece in the New York Times four years ago written by two Fed Reserve folks making similar arguements, You Are What You Spend. The AEI report is A new measure of consumption inequality. Below is the executive summary, which can be found at the AEI website.
Does seeing inequality in terms of consumption clarify anything? What are the advantages or disadvantages of looking at things this way?
Executive Summary
In recent times, the debate surrounding middle-class welfare has
tended to focus on the issue of income inequality. In a popular 2006
paper, economists Thomas Piketty and Emmanuel Saez use tax return data
from the Internal Revenue Service to suggest that income inequality has
widened significantly over the period 1913 to 2010.[1] Another
frequently cited statistic is that in 2010, approximately half of all
reported income went to the top 10 percent of earners.
We argue in this paper that income data are not the best measure of
overall welfare. What matters for household well-being is consumption,
since households are better able to smooth consumption rather than
income over their lifetime. To that end, we use two alternative sources
of data to assess changes in consumption inequality.Our first source,
the Consumer Expenditure (CEX) Survey, shows aggregated changes in
consumption expenditures for households at all levels of the income
distribution. Using these data, we find that consumption inequality has
increased only marginally since the 1980s. Further, consumption
inequality narrows in periods of recessions, such as during the
2007–2009 recession. We also construct Gini coefficients from the CEX
data and find that they have remained relatively stable over time,
suggesting that the inequality has not widened significantly.
The second data source we use
is the Residential Energy Consumption Survey (RECS), which allows us to
assess consumption inequality in durable goods. Consumption of durable
goods is recorded less well in the CEX data but is important in
thoroughly assessing consumption inequality. The RECS survey includes
questions on household use of appliances such as microwaves,
dishwashers, computers, and printers. Simple tabulations of these data
across years suggest that a higher percentage of low-income households
is able to afford and possess these items. In addition, the quality of
dwelling spaces has improved and more low-income households have heating
and air conditioning today than at any time in the past.
To see if these differences are statistically significant, we present
regression tables showing the likelihood that a household owns any of
these items. The results suggest a significant narrowing of the gap
between low-income and other households in certain durable-goods items,
such as color televisions, microwaves, refrigerators, and air
conditioners. In other items, like computers and printers, the gap was
small to begin with but widened as usage of these items became more
widespread and cost of these items declined. However, in recent times,
even this gap has narrowed. For a third category of items, including
clothes washers, clothes dryers, and dishwashers, the gap has tended to
be fairly stable over time. Even in a statistical sense, there is a
trend toward narrowing the consumption gap between low-income and other
households.
Note
1. Thomas Piketty and Emmanuel Saez, “The Evolution of Top Incomes: A Historical and International Perspective,” AEA Papers and Proceedings: Measuring and Interpreting Trends in Economic Inequality 96, no. 2 (May 2006): 200–205, http://elsa.berkeley.edu/~saez/piketty-saezAEAPP06.pdf
(accessed June 6, 2012). For updated data, see Emmanuel Saez, “Striking
It Richer: The Evolution of Top Incomes in the United States” (working
paper, University of California–Berkeley, March 2, 2012), http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf (accessed June 6, 2012).
If machines are capable of doing almost any work humans can do, what will humans do?
... Bill Joy's question deserves therefore not to be ignored: Does the
future need us? By this I mean to ask, if machines are capable of doing
almost any work humans can do, what will humans do? I have been getting
various answers to this question, but I find none satisfying.
A typical answer to my raising this question is to tell me that I am a
Luddite. (Luddism is defined as distrust or fear of the inevitable
changes brought about by new technology.) This is an ad hominem attack
that does not deserve a serious answer.
A more thoughtful answer is that technology has been destroying jobs
since the start of the Industrial Revolution, yet new jobs are
continually created. The AI Revolution, however, is different than the
Industrial Revolution. In the 19th century machines competed with human
brawn. Now machines are competing with human brain. Robots combine brain
and brawn. We are facing the prospect of being completely out-competed
by our own creations. Another typical answer is that if machines will do
all of our work, then we will be free to pursue leisure activities. The
economist John Maynard Keynes addressed this issue already in 1930,
when he wrote, "The increase of technical efficiency has been taking
place faster than we can deal with the problem of labour absorption."
Keynes imagined 2030 as a time in which most people worked only 15 hours
a week, and would occupy themselves mostly with leisure activities.
I do not find this to be a promising future. First, if machines can
do almost all of our work, then it is not clear that even 15 weekly
hours of work will be required. Second, I do not find the prospect of
leisure-filled life appealing. I believe that work is essential to human
well-being. Third, our economic system would have to undergo a radical
restructuring to enable billions of people to live lives of leisure.
Unemployment rate in the US is currently under 9 percent and is
considered to be a huge problem.
Finally, people tell me that my
concerns apply only to a future that is so far away that we need not
worry about it. I find this answer to be unacceptable. 2045 is merely a
generation away from us. We cannot shirk responsibility from concerns
for the welfare of the next generation. ...
Vardi's point?
We cannot blindly pursue the goal of machine intelligence without pondering its consequences.
One of the challenges of creative destruction is that we can
see what is being destroyed but it is exceedingly difficult to see what is
being created. As we have moved through the industrial era into the modern age,
this fear that change was about impoverish the masses has been a recurring
them. Futurists like Gene Rodenberry saw a day where most goods would be so
plentiful or easily created that there would be little need for money or
possessions. You wouldn’t need a job as a means to survival.
What do you think? Do Yardi’s concerns worry you? Or is the
arrival of AI a godsend?
A new form of radical centrist politics is needed to tackle inequality without hurting economic growth
... Does inequality really need to be tackled? The twin forces of
globalisation and technical innovation have actually narrowed inequality
globally, as poorer countries catch up with richer ones. But within
many countries income gaps have widened. More than two-thirds of the
world’s people live in countries where income disparities have risen
since 1980, often to a startling degree. In America the share of
national income going to the top 0.01% (some 16,000 families) has risen
from just over 1% in 1980 to almost 5% now—an even bigger slice than the
top 0.01% got in the Gilded Age.
It is also true that some measure of inequality is good for an
economy. It sharpens incentives to work hard and take risks; it rewards
the talented innovators who drive economic progress. Free-traders have
always accepted that the more global a market, the greater the rewards
will be for the winners. But as our special report this week argues, inequality has reached a stage where it can be inefficient and bad for growth.
That is most obvious in the emerging world. In China credit is
siphoned to state-owned enterprises and well-connected insiders; the
elite also gain from a string of monopolies. In Russia the oligarchs’
wealth has even less to do with entrepreneurialism. In India, too often,
the same is true.
In the rich world the cronyism is better-hidden. One reason why Wall
Street accounts for a disproportionate share of the wealthy is the
implicit subsidy given to too-big-to-fail banks. From doctors to
lawyers, many high-paying professions are full of unnecessary
restrictive practices. And then there is the most unfair transfer of
all—misdirected welfare spending. Social spending is often less about
helping the poor than giving goodies to the relatively wealthy. In
America the housing subsidy to the richest fifth (through
mortgage-interest relief) is four times the amount spent on public
housing for the poorest fifth.
Even the sort of inequality produced by meritocracy can hurt growth.
If income gaps get wide enough, they can lead to less equality of
opportunity, especially in education. Social mobility in America,
contrary to conventional wisdom, is lower than in most European
countries. The gap in test scores between rich and poor American
children is roughly 30-40% wider than it was 25 years ago. And by some
measures class mobility is even stickier in China than in America.
Some of those at the top of the pile will remain sceptical that
inequality is a problem in itself. But even they have an interest in
mitigating it, for if it continues to rise, momentum for change will
build and may lead to a political outcome that serves nobody’s
interests. Communism may be past reviving, but there are plenty of other
bad ideas out there.
Hence the need for a True Progressive agenda. Here is our suggestion,
which steals ideas from both left and right to tackle inequality in
three ways that do not harm growth. ...
Suggested remedies include attacking monopolies and vested interests (whether on Wall Street or state-owned enterprises), school reform that offers more choices, reforming labor laws and residency restrictions in some countries, refocusing social welfare toward the young and poor instead of the old and rich, and reform the tax system, particularly by eliminating subsidies and deductions that go to the wealthy. As the adage goes, the devil is in the details, but I think the general thrust of ideas is correct.
Tim Worstall has in interesting piece about income inequality in Fortune, The Amazing Thing About American Inequality: How Equal The Country Is. Here are some of his observations. Remember that for the GINI index, 0 = perfect equatity, and 1 (sometimes 100) equals perfect inequality:
Census has just released the figures on income inequality in the
United States. Fascinating reading it makes too. Well, OK, fascinating
for the data geeks like myself perhaps. For there’s an interesting
little misunderstanding about these figures. There’s an awful lot of
people using them to tell us how amazingly unequal the United States is.
When in fact the figures show that the country is nothing out of the
ordinary for an advanced industrialised nation.
The problem is that people are looking at the US figures as released
and comparing them to those of other countries. Something that you
really cannot do given the way that the various sets of figures are
collected. Here’s an example at the New York Times:
The Gini index value for the United States in 2011 was
0.475, higher than it was in 2010 at 0.469. The index rose in 20 states
last year (including New York); there was no statistically significant change in the rest of the states and the District of Columbia (which, at 0.534, has a higher index value than any state).
The Gini index value for New York State was 0.503, which means the
state’s household incomes are about as equally distributed as those in
Costa Rica, at least according to the most recent international data
available.
The figures they use for a comparison are here.
Looking at those you might think, well, if the US is at 0.475, Sweden
is at 0.23 (yes, the number of 23.0 for Sweden is the same as 0.23 in
this sense) then given that a lower number indicates less inequality
then Sweden is a less unequal place than the US. You would of course be
correct in your assumption: but not because of these numbers.
For the US number is before taxes and before benefits. The Swedish
number is after all taxes and all benefits. So, the US number is what we
call “market income”, or before all the things we do to shift money
around from rich to poor and the Swedish number (in, fact, the numbers
for all other countries) are after all the things we do to reduce
inequality.
There are two more points we might make about all of this. From the NYT again:
Of all American states, New York again has the most unequal
income distribution, according to a new report from the Census Bureau.
Wyoming has the most equitably distributed income.
Well, yes, that’s something that we would pretty much expect
actually. The larger your data set the more variance you expect to have
in your data set. We would rather expect to have greater income
inequality between the 20 million odd in NY State than we would in the
500,000 in Wyoming. ...
... Which brings us to the 300 million people in the US. Is it really fair
to be comparing income inequality among 300 million people with
inequality among the 9 million of Sweden? ...
And ...
... Which brings us to the second point. Even here the US number is
(marginally) over-stated. For even in the post-tax and post-benefit
numbers the US is still an outlier in the statistical methods used. In
looking at inequality, poverty, in the US we include the cash that poor
people are given to alleviate their poverty. But we do not include the
things that people are given in kind: the Medicaid, SNAP, Section 8 and
so on. It’s possible (I’m not sure I’m afraid) that we don’t include the
EITC either.
This article got me curious so I went to the Wikipedia data and created the following table for select OECD countries:
The table confirms Worstalls points. "Market income" inequality in the United States is fourth highest on the list but not radically differenet from other nations. But the really inetersting insight for me is that inequality has risen for sixteen of the seventeen nations over the last quarter century, with the United States being right at the average rate of change. That says to me that something is going on beyond factors that are particular to the United States.
One thing nearly all these nations have in common is aging populations. In agregate, people make more as they get older and that could be skewing income numbers. I doubt that explains it all. The data makes me wonder if there is something systemic about the nature of post-industrial societies that leads to more income inequality.
The income ineqaulity after taxes and transfers for the United States has grown a little faster over the last quarter century, putting us in first place. Worstall raises an important issue about the Earned Income Tax Credit. EITC has grown in significance in recent years as policy tool. It isn't clear that it is included in the U. S. GINI. If not, I suspect adding it in with in-kind transfers would put the U. S. at least as low as the U. K. or Canada. I've also read other sources that emphasize that nation to nation GINI comparisons aren't strictly accurate because of different standards for what consitutes income and transfers. Still, I think a general statement can be made that inequality after taxes and transfers has been growing across the board as well.
Growing inequality is an interesting development that continues to be quite a conundrum, despite the various populist interpretations that float about.
Here's a finding that would have made for great occupy sign last
year: American income inequality may be more severe today than it was
way back in 1774 -- even if you factor in slavery.
That stat's not
actually as crazy (or demoralizing) as it sounds, but it might upend
some of the old wisdom about our country's economic heritage. The
conclusion comes to us from an newly updated study by
professors Peter Lindert of the University of California - Davis and
Jeffrey Williamson of Harvard. Scraping together data from an array of
historical resources, the duo have written a fascinating exploration of
early American incomes, arguing that, on the eve of the Revolutionary
War, wealth was distributed more evenly across the 13 colonies than
anywhere else in the world that we have record of.
Suffice to say, times have changed. ...
... We are much richer nation, and much better
off today, than 240 years ago. In the 1770s, America was a heavily
agrarian country of yeoman farmers, merchants, and tradesmen, with an
economy that accounted to just a few billion dollars in present values.
Like India or Russia today,
both of which technically enjoy more income equality than the United
States, early Americans were relatively poor compared to us. They were
just relatively poor together. The first wave of industrialization in
the 19th century increased living standards, but also offered bigger
rewards to factory owners than their workers. That pattern neatly fits
our classic understanding of what's supposed to happen when economies
move from farming to manufacturing. And by now, we've gone through
several epic rounds of economic upheaval that have left us with a vast
gulf between the rich and the rest, as well as a welfare state that
tries to mitigate some of the side effects of that difference.
So,
awful as it might sound, the fact that the United States is less
economically egalitarian than during its rural, slave-society ancestors
is not inherently a reason to fret. ...
... But a new paper
from Bruce D. Meyer and James X. Sullivan says it's missing everything.
"We may not have won the war on poverty, but we are certainly winning,"
they write.
When they looked at poorer families' consumption
rather than income, accounted for changes in the tax code that benefit
the poor, and included "noncash benefits" such as food stamps and
government-provided medical care, they found poverty fell12.5 percentage points between 1972 and 2010.
The
graph below tells the story. The official poverty rate (shown in DARK
BLUE) is higher today than it was in the early 1970s. But when you
measure after-tax income (RED) or consumption (GREEN), the story
changes: Poverty rates have declined steadily, and dramatically, since
the 1960s.
A Census report signals that for much of America, the economic downturn has produced not one lost decade but two.But the data also show that federal safety-net programs helped keep people out of poverty. ...
... Economists haven't reached a consensus about what forces have caused the middle-class stagnation, but they have pointed to some that may be involved to varying degrees:
Globalization: The rest of the world is playing catchup to the nation that came to dominate in technology and sheer productive muscle during the 20th century. In theory, the US can still prosper as emerging nations from China to Brazil rise, but recent years have seen fierce global competition. America needs to boost its skills faster to stay in the game.
Technology: As with globalization, in theory this isn't a job-destroying force, just one that causes the nature of jobs to change. But some argue that rapid technological advances are having an especially hard impact on many middle-wage jobs that can be largely automated.
Inequality: A wage premium for the educated, the decline of labor unions, and the failure of the minimum wage to keep up with inflation have been among the factors widening the income gap between the rich and the middle class or poor. Some economists say that gap makes for a less vibrant nation. "Lack of opportunity means that its most valuable asset -- its people -- is not being fully used," Joseph Stiglitz of Columbia University has argued. When the rich are able to win big tax cuts it "leads to underinvestment in infrastructure, education and technology, impeding the engines of growth."
Debt and government: Another line of reasoning, taken by some conservative economists, is that economic growth is slowing as America becomes more of a European-style welfare state, with more people receiving public services and government spending accounting for a larger share of the economy. Some say the rising level of public debt, in particular, is emerging as an obstacle to be reckoned with. Others cite high levels of regulation and "crony capitalism," in which government policies favor some industries or companies at the expense of others.
Two other factors, mentioned by Census officials as affecting the recent data, are demographic aging of the population (income typically goes down as people hit retirement age) and a skewing of new jobs in 2011 toward the lower end of the wage spectrum.
The prescriptions for the road ahead depend on the diagnoses of causes, but many economists agree on the need for stronger education, better matching of skills with job opportunities, and an effort to overhaul the nation's fiscal policy, including taxes.
Some economists also argue for policies targeted to boost the level of innovation and entrepreneurship. ...
Economist Andrew Gelman took at look at this and explored alternative presentations of the data here is what he came up with:
Then I thought of plotting the incomes over time (all these income values are inflation-adjusted, of course):
I like this one a lot. In particular, it shows that the drop from
2000-2010 is really a drop since 2007. (Although I suppose Cowen would
argue that the drop was really happening earlier and it was just that
the economy was doing a Wiley E. Coyote, standing in midair and not
actually going into freefall until people realized they had gone off the
edge of the cliff).
Still, even the time-trends graph is not quite a replacement for the
original bar plot which shows so much drama. I think my recommended
solution is to give the bar plot for the initial impression and then
follow up immediately with the time-trends graph, which shows the big
picture much more clearly.
... The study looked at tax returns for people with reported earnings of
$50,000 or more from the year 2008 – the most recent year for which data
was available. The report found that for people earning between $50,000
and $75,000, an average of 7.6 percent of discretionary income was
donated to charity. For those earning $200,000 or more, just 4.2 percent
of discretionary income was donated.
Turns out lower giving among the rich likely has much more to do with where they live and who they live near.
As this accompanying article
from the journal notes, when the rich are highly concentrated in
wealthy enclaves, they're less likely to give as compared with the rich
living in more economically diverse neighborhoods. The report found that
in neighborhoods where more than 40 percent of taxpayers reported
earning $200,000 or more, the average giving was just 2.8 percent of
discretionary income.
In other words, concentration of wealth is also isolation from the less fortunate. ...
And this, of course, leads to a chicken or the egg question. Is isolation what results in lack of generosity or are less generous people more likely to seek isolation? Probably an element of both is my guess.
Many humans have highly developed senses of fairness and morality. Some monkeys may not be far behind. Watch as one gets cucumbers and the other gets delicious, delicious grapes.
The author says that income inequality tends to makes us unhappy. That needs qualifiaction. The degree of national inequality is not that relevant to personal happiness. People don't evaluate their personal lives in those terms. Inequality figures in when we are talking about people in our immediate socal networks, especially neighbors and family. As some have quipped, inequality is when my brother-in-law makes 10% more than I do.
... Equal opportunity, once core to the nation’s identity, is now a tertiary concern. If America really wants to change that, if the country wants to take advantage of all its human capital rather than just the most privileged two-thirds of it, then people are going to have to make some pretty uncomfortable decisions.
Liberals are going to have to be willing to champion norms that say marriage should come before childrearing and be morally tough about it. Conservatives are going to have to be willing to accept tax increases or benefit cuts so that more can be spent on the earned-income tax credit and other programs that benefit the working class.
Political candidates will have to spend less time trying to exploit class divisions and more time trying to remedy them — less time calling their opponents out of touch elitists, and more time coming up with agendas that comprehensively address the problem. It’s politically tough to do that, but the alternative is national suicide.
There’s a chart flying around the blogosphere that seems to show that American families were wealthier in 1983 than in 2010, and the figures in it are attributed to me. I never made that claim, because I have no idea whether or not it’s accurate. What I can say is that American families were wealthier in 1989 than in 2010. There is no solid information for years before that, at least from the Federal Reserve.
The story of the chart that took on a life of its own gives some insight into how memes are created and circulated on the Internet. It started life at Reuters with a sensible disclaimer, but as it circulated those disclaimers have been sandpapered off. It has popped up on the Washington Post website, the PBS NewsHour’s Rundown blog, Brad DeLong’s tumblr feed, and probably some other places I haven’t seen yet.
THE past four years have seen an economic crisis coincide with a food-price spike. That must surely have boosted the number of the world’s poor (especially since food inflation hits the poor hardest)—right? Wrong. New estimates of the numbers of the world’s poor by the World Bank’s Development Research Group show that for the first time ever, poverty—defined as the number and share of people living below $1.25 a day (at 2005 prices)—fell in every region of the world in 2005-08. Half the long-term decline is attributable to China, which has taken 660m people out of poverty since the early 1980s. But the main contribution to the recent turnaround is Africa. Its poverty headcount rose at every three-year interval between 1981 and 2005, the only continent where this happened. But in 2008, it fell by 12m, or five percentage points to 47%—the first time less than half of Africans have been below the poverty line. The bank also has partial estimates for 2010. These show global poverty that year was half its 1990 level, implying the long-term rate of poverty reduction—slightly over one percentage point a year—continued unabated in 2008-10, despite the dual crisis.
The rapid rate of development in China manifests itself most clearly in its cities. With some populations rising into the tens of millions, China’s cities are the economic powerhouses of the country, and are helping to create a whole new era of financial prosperity. For some observers, this translates into 1.3 billion people who now have the money to afford the sort of commercial goods many of the country’s factories had previously been producing for the affluent populations of other countries. China is seeing its own affluence rise, and some surmise that this will translate into a Western-style nation of relatively well-off consumers; that, as this report from the McKinsey Global Institute suggests, China’s middle class is emerging to help propel the country’s economic success even higher.
The only problem is that this middle class doesn’t actually exist. And unless decades-old rules change, it won't.
In a recent paper published in the journal Eurasian Geography and Economics, geographer and University of Washington professor Kam Wing Chan argues that all of the country’s urban growth and prosperity is not actually filtering down to the majority of the rising urban population. The reason is that the majority of the urban population is prevented from fully participating in the booming urban economy because of a Mao-era rule that draws a harsh line between those from urban areas and those from rural ones.
Established in 1958, hukou establishes a two-tiered population structure of rural and urban citizens. Urban citizens are given access to social services and welfare programs, including public education and affordable housing. Rural residents are not. Status is hereditary, meaning that once a family is in one tier it will always remain in that tier. This has been a problem for many rural residents who want to leave their agricultural lifestyles to earn the higher wages in cities working in factories or construction, but who are faced with slum-like living conditions and an effective low ceiling over their social and economic mobility. ...
A poll contradicts what we thought we knew about income and happiness
... Two conclusions emerge. Large, fast-growing emerging markets do not share rich industrialised countries’ pessimism. The already large “very happy” cohort rose 16 points in Turkey, ten points in Mexico and five points in India. Even rich-country pessimism is uneven. The share of “very happy” people rose six points in—of all places—Japan, defying tsunami and nuclear accidents. But growth amid global misery does not explain everything: the biggest falls in happiness also occurred in large emerging markets, in Indonesia, Brazil and—a perennial miseryguts—Russia.
The second conclusion challenges the received notions of mankind’s moods. A tenet of political science is that happiness levels rise with wealth and then plateau, usually when a country’s national income per head reaches around $25,000 a year. “The richer a country gets,” argued Richard Wilkinson and Kate Pickett in “The Spirit Level”, an influential book of 2009, “the less getting still richer adds to the population’s happiness.” Many on the left have concluded that pursuing further economic growth is pointless. Even right-wing politicians such as Britain’s prime minister, David Cameron, and the French president, Nicolas Sarkozy, have set up projects to study “gross national happiness”.
But the Ipsos study shows the highest levels of self-reported happiness not in rich countries, as one would expect, but in poor and middle-income ones, notably Indonesia, India and Mexico. In rich countries, happiness scores range from above-average—28% of Australians and Americans say they are very happy—to far below the mean. The figures for Italy and Spain were 13% and 11% (Greece was not in the sample). Most Europeans are gloomier than the world average. So levels of income are, if anything, inversely related to felicity. Perceived happiness depends on a lot more than material welfare.
As of 2009, more than half of all children born to women under 30 were born to unmarried women.
Unmarried mothers, in some areas, have become the norm, no longer stigmatized by society. Regular readers of this blog will know that while births among teenagers are down in recent years, the majority of commenters here, at least, would support, not shun, a teenager of their acquaintance with a baby. That tolerance clearly extends to all unmarried mothers. Many of us pride ourselves on the modernity of this relatively new way of thinking — who would insist that only a family mirroring some 50’s-sitcom image of “nuclear” can raise a happy, healthy child?
But is our pride misplaced? Fifty-three percent of all children born to women under 30 is an awful lot of children born outside of what’s been considered, for more than a handful of years, the most stable family structure. ...
... Overwhelmingly, the more educated you are, the more likely you are to marry before having children. Bearing children outside of wedlock is a trend that’s most strongly affecting young adults who are already at an economic disadvantage, and that means that its impact is deeply tangled within a host of other problems, from the decline in blue-collar jobs to the difficulty of finding affordable child care. ...
There is a lot of talk today about income inequality today. It is worth noting that the poverty rate for two parent families, families headed by a father only, and families headed by a mother only have all declined significantly in recent years. Yet the overall rate of poverty, and especially poverty for children has gone up. How is that possible?
The poverty rate for a two-parent household is very low, something around 4.5%. That is down from 6.5% three decades ago. The poverty rate for female headed households has declined from the mid-30% range to about 30%. What has changed is that the share of households that are female headed has grown by a third. And as the article indicates, this trend is most pronounced among those who are at the bottom end of the economic ladder, further depressing the chances of children raised in this environment from achieving any economic mobility.
The devolution of family is almost certainly on of the major contributors to rising income inequality and decreasing economic moblity.
... But what about all the other potential reasons, beyond what their Gini Coefficient was in 1985, for varying levels of social mobility between countries as diverse as Japan, France, and New Zealand?
The most obvious example is just the size of the countries. It’s at least plausible that much bigger countries contain more variety. In fact, if you do something as simple as recreate the Great Gatsby Curve, but use the population of each country as the X-axis, you get a very strong a statistical relationship (log-linear R2 = .64). Big countries have higher IGE [Intergenerational Earnings Elasticity]. Call it the Moby Dick Curve.
Alternatively, we might see that some countries tend to specialize more than others. As a practical example, part of the reason that a country like Finland can have so much equality and social mobility versus America might be that many more of the relatively poorer farmers who trade food for Finnish mobile phones live and reproduce in other countries. If so, then we might see that if we replace the X-axis with exports as a % of GDP, there could be another statistically significant relationship with IGE. Check (R2 = .48).
Alternatively, different countries might be more or less populated by heterogeneous subgroups that are more likely to reproduce for non-economic reasons with others within their own group. Religious fractionalization versus IGE? Check (R2 = .57). ...
... As for my take, Justin is painting himself into a corner here of his own making. Let’s step back for a moment. I see two big and very real problems: slow income growth for many income classes and a problem with excessively high returns to finance at the very top. (As an aside, both of these problems contain elements of both “left-wing concerns” and “right-wing concerns,” and both problems are deeper than any particular ideology can solve and they should make virtually everyone rethink their views).
Those are the problems and we should try to fix them.
If we could fix these problems, that would mean a smaller financial sector, less moral hazard, better allocation of capital, and for most/all income classes rates of income growth comparable to the 1948-1972 period, chop it up as you wish. Imagine that everyone’s income went up three percent a year, every year, and every generation was about twice as rich as the parents. Whether there then would be more or less marginal “churn” in the relative income rankings is not a matter of irrelevance but having somewhat more churn should not be viewed as a major social goal per se. It would depend on the reason for the immobility, and the real focus of our concern would be the reason (e.g., bad schools? some kind of unfairness?), and not the marginal change in the numerical churn per se.
Given that background, and those two very real problems, you can in fact create other “problems” by creating and manipulating more complicated statistics, based on the initial problems, and that can lead you to various measures of inequality and immobility. But not all inequalities are bad, or avoidable, and the same is true for immobilities. The valid problems, as embedded in the new complicated measures, still will boil down to the two simpler problems mentioned above. In the meantime, toying around with misleading and less transparent aggregate measures of inequality and immobility will bring confusion as to what is really at stake.
Focus on the two very real and fairly simple (as distinct from simple to fix) problems.
An interesting piece by Robert Lawson at SMU's Cox School of Business. He argues that income inequality isn't related to economic freedom. Furthermore, he argues that income mobility is more important than income inequality, and that income mobility is declining. His two primary solutions? 1. Let rich people fail, and 2. Let poor people get rich.
The ideal of an 'American way of life' is fading as the working class falls further away from institutions like marriage and religion and the upper class becomes more isolated. Charles Murray on what's cleaving America, and why.
America is coming apart. For most of our nation's history, whatever the inequality in wealth between the richest and poorest citizens, we maintained a cultural equality known nowhere else in the world—for whites, anyway. "The more opulent citizens take great care not to stand aloof from the people," wrote Alexis de Tocqueville, the great chronicler of American democracy, in the 1830s. "On the contrary, they constantly keep on easy terms with the lower classes: They listen to them, they speak to them every day."
Americans love to see themselves this way. But there's a problem: It's not true anymore, and it has been progressively less true since the 1960s.
People are starting to notice the great divide. The tea party sees the aloofness in a political elite that thinks it knows best and orders the rest of America to fall in line. The Occupy movement sees it in an economic elite that lives in mansions and flies on private jets. Each is right about an aspect of the problem, but that problem is more pervasive than either political or economic inequality. What we now face is a problem of cultural inequality. ...
... To illustrate just how wide the gap has grown between the new upper class and the new lower class, let me start with the broader upper-middle and working classes from which they are drawn, using two fictional neighborhoods that I hereby label Belmont (after an archetypal upper-middle-class suburb near Boston) and Fishtown (after a neighborhood in Philadelphia that has been home to the white working class since the Revolution).
To be assigned to Belmont, the people in the statistical nationwide databases on which I am drawing must have at least a bachelor's degree and work as a manager, physician, attorney, engineer, architect, scientist, college professor or content producer in the media. To be assigned to Fishtown, they must have no academic degree higher than a high-school diploma. If they work, it must be in a blue-collar job, a low-skill service job such as cashier, or a low-skill white-collar job such as mail clerk or receptionist.
People who qualify for my Belmont constitute about 20% of the white population of the U.S., ages 30 to 49. People who qualify for my Fishtown constitute about 30% of the white population of the U.S., ages 30 to 49.
I specify white, meaning non-Latino white, as a way of clarifying how broad and deep the cultural divisions in the U.S. have become. Cultural inequality is not grounded in race or ethnicity. I specify ages 30 to 49—what I call prime-age adults—to make it clear that these trends are not explained by changes in the ages of marriage or retirement.
In Belmont and Fishtown, here's what happened to America's common culture between 1960 and 2010. ...
... The only thing that can make a difference is the recognition among Americans of all classes that a problem of cultural inequality exists and that something has to be done about it. That "something" has nothing to do with new government programs or regulations. Public policy has certainly affected the culture, unfortunately, but unintended consequences have been as grimly inevitable for conservative social engineering as for liberal social engineering.
The "something" that I have in mind has to be defined in terms of individual American families acting in their own interests and the interests of their children. Doing that in Fishtown requires support from outside. There remains a core of civic virtue and involvement in working-class America that could make headway against its problems if the people who are trying to do the right things get the reinforcement they need—not in the form of government assistance, but in validation of the values and standards they continue to uphold. The best thing that the new upper class can do to provide that reinforcement is to drop its condescending "nonjudgmentalism." Married, educated people who work hard and conscientiously raise their kids shouldn't hesitate to voice their disapproval of those who defy these norms. When it comes to marriage and the work ethic, the new upper class must start preaching what it practices.
Changing life in the SuperZIPs requires that members of the new upper class rethink their priorities. Here are some propositions that might guide them: Life sequestered from anybody not like yourself tends to be self-limiting. Places to live in which the people around you have no problems that need cooperative solutions tend to be sterile. America outside the enclaves of the new upper class is still a wonderful place, filled with smart, interesting, entertaining people. If you're not part of that America, you've stripped yourself of much of what makes being American special.
Such priorities can be expressed in any number of familiar decisions: the neighborhood where you buy your next home, the next school that you choose for your children, what you tell them about the value and virtues of physical labor and military service, whether you become an active member of a religious congregation (and what kind you choose) and whether you become involved in the life of your community at a more meaningful level than charity events.
Everyone in the new upper class has the monetary resources to make a wide variety of decisions that determine whether they engage themselves and their children in the rest of America or whether they isolate themselves from it. The only question is which they prefer to do. ...
His new book is sure to be controversial. Businessweek had a book review.
This is a very lengthy article that is well worth reading. I'm just presenting the opening and the conclusion here. In short, to quote a former US President from eighty years ago, "... let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." FDR
Whether or not you agree with all the author's analysis, I do think it is wise for us to reflect from time to time on our own characterization of things, on our tendency to manufacture bogeyman on to which we can project our fear, on our temptation to use fear as a means of political gain.
In this moment of economic challenge, it can be difficult to keep our problems in perspective. The scale of the financial crisis and the subsequent recession, the weakness of the recovery, the persistence of high unemployment, and the possibility of yet another shock — this time originating in Europe — have left Americans feeling deeply insecure about their economic prospects.
Unfortunately, too many politicians, activists, analysts, and journalists (largely, but not exclusively, on the left) seem determined to feed that insecurity in order to advance an economic agenda badly suited to our actual circumstances. They argue not that a financial crisis pulled the rug out from under our enviably comfortable lives, but rather that our lives were not all that comfortable to begin with. A signal feature of our economy in recent decades, they contend, has been pervasive economic risk — a function not of the ups and downs of the business cycle, but of the very structure of our economic system. According to this view, no American is immune to dreadful economic calamities like income loss, chronic joblessness, unaffordable medical bills, inadequate retirement savings, or crippling debt. Most of us — "the 99%," to borrow the slogan of the Occupy Wall Street protestors — cannot escape the insecurity fomented by an economy geared to the needs of the wealthy few. Misery is not a marginal risk on the horizon: It is an ever-present danger, and was even before the recession.
But compelling though this narrative may be to headline writers, it is fundamentally wrong as a description of America's economy both before and after the recession. When analyzed correctly, the available data belie the notions that this degree of economic risk pervades American life and that our circumstances today are significantly more precarious than they were in the past. Even as we slog through what are likely to be years of lower-than-normal growth and higher-than-normal unemployment, most Americans will be only marginally worse off than they were in past downturns.
The story of pervasive and overwhelming risk is not just inaccurate, it is dangerous to our actual economic prospects. This systematic exaggeration of our economic insecurity saps the confidence of consumers, businesses, and investors — hindering an already sluggish recovery from the Great Recession. It also leads to misdirected policies that are too zealous and too broad, overextending our political and economic systems. The result is that it has become much more difficult to solve the specific problems that do cry out for resolution, and to help those Americans who really have fallen behind.
Only by moving beyond this misleading exaggeration, carefully reviewing the realities of economic risk in America, and restoring a sense of calm and perspective to our approach to economic policymaking can we find constructive solutions to our real economic problems. ...
And the conclusion:
POLITICS BY HORROR STORY
Because we have yet to crawl out of the worst downturn since the Great Depression, many Americans are willing to believe every negative description of our economic circumstances, no matter how inflated. But it is important to remember that the economic doomsayers did not originate with the recession. They were active in the 1980s, claiming that de-industrialization would be the death knell of the middle class and that Germany and Japan were destined to leave us in the dust. Their claims were prevalent through most of the 1990s, when outsourcing was said to foreshadow disaster for American workers in the midst of a "white-collar recession" (which subsequent research showed had not hit professionals nearly as hard as popular accounts suggested). And the gloom was apparent in the pre-recession 2000s, in all the talk of jobless recoveries, "stagnating" living standards, and families running to stand still.
The unfortunate irony is that, in proclaiming economic doom, these Cassandras may do more to harm the truly disadvantaged than to help them. Economist Benjamin Friedman and sociologist William Julius Wilson have independently argued that societies are more generous to those in need when economic times are good. It is not clear why convincing the broad middle class that it is teetering on the brink should be more likely to inspire solidarity than to inspire tight-fistedness and hoarding.
The horror stories harm workers in other ways as well. In good times, scaring workers may make them less willing to demand more from their employers in the way of compensation or better working conditions. Former Federal Reserve chairman Alan Greenspan famously cited job insecurity as a primary reason for low inflation (and therefore low wage growth) in the late 1990s; on the left, former labor secretary and American Prospect co-founder Robert Reich concurred.
In bad times, meanwhile, scaring workers (as well as consumers, investors, and entrepreneurs) only delays recovery. Digging out of our current hole will require businesses to create jobs, which will happen only when consumers start feeling comfortable enough to spend money again and when investors start feeling comfortable enough to take risks again. We do not have to whitewash the seriousness of economic conditions to talk more hopefully (and accurately) about the enduring strengths of our economy.
Exaggerating economic problems has political costs, too. It is hard to read Confidence Men, journalist Ron Suskind's recent account of the first two years of economic policymaking in the Obama administration, without concluding that health-care reform distracted the president and his advisors from thinking about how to shore up the flagging economy. Even now, the huge political lift — and fiscal cost — of the Affordable Care Act has made it vastly more difficult to enact policies truly capable of fostering economic growth.
Such effective economic policies and reforms will need to build on our economy's strengths in order to address its weaknesses. By badly distorting our understanding of both, the bogeyman narrative adopted by too many analysts, activists, and politicians makes it more difficult to help those Americans who do face very real hardships and dangers. If we are to effectively confront the fiscal and economic challenges of the 21st century, we will need to begin by seeing things as they really are.
NEW YORK (CNNMoney) -- Nearly one third of Americans who were raised in the middle class dropped down the economic ladder as adults -- and that's before the Great Recession hit.
"Being raised in the middle class is not a guarantee that you'll have that same status as an adult," said Erin Currier, project manager at Pew's Economic Mobility Project. "With all the economic turmoil in the past four years, there's good reason to think that downward mobility is more severe."
Later it says:
The middle class is defined as those between the 30th and 70th income percentile.
Well if 33% of the people in 30-70th percentile range dropped lower, then someone from either below or above moved in! That means some combination of people in the 0-30th percentiles moved up and some of the people in the 70-100th percentiles moved down (and in the later case that means some people moved up from lower tiers into the top tiers.)
By the story's definition, the middle class can't decline (or grow)! It is statistically impossible for them to change as a proportion of the whole. The underlying implication of this story is that there is significant churn going up and down the ladder but the story lifts out one isolated number to support a predetermined news angle. In other words, this is really bad reporting.
... There are several reasons why wealth does not translate into power so easily. First, effective philanthropy is extremely difficult to achieve, especially if that philanthropy is trying to counteract prevailing social trends. Nor should it be assumed that non-profits are always the drivers of change. Second, the wealthy in groups do not always coordinate very effectively, to say the least. Each is used to being in charge (remember when the Lakers had Karl Malone and Gary Payton as well as Bryant and O’Neal?) Third, many of the very wealthy choose to consume ego rents rather than effectiveness. Fourth, “democracy” and “the market” control large chunks of modern life, and it is hard for outsiders to commandeer those processes. Most of the major functions of government are there because people want them to be there, for better or worse.
The best way to think about wealth and power is with some ideas from Harry Eckstein. There will be, for reasons of spontaneous order, a general concordance between the status and influence of groups in the broader world, and the power of those groups when it comes to government. American economic policy, for instance, really is more pro-business than in much of Europe, and that does stem from the more commercial nature of our republic. That said, the ability of the rich at the margin to control policy through intentional acts, either individually or in groups is much overrated.
Wealth does protect you from the depredations of others, such as being treated very badly by the police or legal system. In this defensive sense wealth can give you a good deal of power.
Overall the quality of argumentation and evidence on this topic is extremely low.
THE gap between rich and poor has grown ever wider in wealthy countries over the past three decades. A new report by the OECD has reams of data on this phenomenon and is well worth looking at. The Gini coefficient, a measure of inequality in which zero corresponds to everyone having the same income and one means the richest person has all the income, increased by almost 10% from 0.29 in 1985 to 0.32 in 2008, for working-age people in OECD countries. The trend is caused by earnings: the pay of the richest 10% of employees has increased at a far greater rate than that of the poorest 10% of employees. Within the upper echelons, the top 1% have reaped the greatest gains. Technology has disproportionately benefited high-earning workers, who also spend far longer at work than do low-earners. High earners marry other high earners. And governments are doing less to redistribute wealth than they have done in the past. So far, so familiar. But the report also argues that globalisation is not a significant cause of inequality, and that one of the many reasons for the rise in income inequality is that more people are in work now (or at least they were before the financial crisis hit) compared with the 1970s.
(This is a great piece but I don't advise reading it until you've had your morning coffee. It is a bit complex to think about it but he raises some important clarifications.)
... One way to assess the extent of mobility is to ask whether people tend to be better off than their parents were at the same age — whether they experience upward absolute mobility. Research for EMP conducted by my colleagues at the Brookings Institution Julia Isaacs, Isabel Sawhill, and Ron Haskins shows that two-thirds of 40-year-old Americans are in households with larger incomes than their parents had at the same age, even taking into account the fact that the cost of living has risen. That’s pretty impressive, but it actually understates the improvement between generations. Household size declined over these decades, so incomes now are divided up among fewer family members, leaving them better off than bigger households of the past. Another EMP study shows that when incomes are adjusted for household size, four out of five adults today are better off than their parents were at the same age.
The finding of pervasive upward absolute mobility flies in the face of liberal accounts of a stagnant middle class. These accounts generally conflate disappointing growth in men’s earnings with growth in household income, which has been impressive. Growth in women’s earnings has also been impressive, but economic pessimists have twisted these bright spots to fit a gloomy narrative. They claim that household incomes have kept pace only because wives have been forced into work to make up for the shrinking bacon their husbands bring home. That ignores the long-term trend of women’s obtaining more education in industrialized nations around the world, presumably with an intention to put it to use in the work force someday. It also ignores the evidence that married men rationally chose to reduce their work hours as their wives increased theirs (even as single men continued working the same hours), and the fact that employment grew more among the wives of better-educated men than among the wives of less-educated men.
Nevertheless, incomes have not grown as fast in recent decades as they did in the middle of the 20th century. While the vast majority of Americans end up better off than their parents, the difference is probably not as great as the improvement of their parents over their grandparents was.
There’s another way to look at intergenerational mobility — asking whether those whose parents were at the bottom or at the top relative to Americans as a whole end up in the same place in adulthood. This is the question of relative mobility. You may have a higher income than your parents did, but if that is generally true of your generation, then your rank may be no different than your parents’ rank was. It may even be lower. And having less than others can figure more prominently in our assessment of our well-being than does merely having more than our parents did — as may be the case with scarce commodities, such as homes in the best school districts or slots at the best universities. ...
... If the size of the boost that children get from greater parental income differs between countries, that could be either because parental income buys more access to the best opportunities in one country than it does in the other, or because the best opportunities are compensated more highly in one country than the other. It may be no more unusual for Americans from modest origins to become top executives than it is for similarly situated Danes, but American CEOs make a lot more money than Danish CEOs do. In this scenario, it’s not that opportunities to obtain the best slots in the United States are less fairly distributed than in other countries, it’s simply much more lucrative to occupy those slots here.
So, which is it? Research suggests that by the time they were in their 40s, American children born in the 1950s should have experienced the same earnings mobility as their Swedish counterparts if the economic payoff for additional schooling were not so much higher in the United States — and, more important, if that payoff had not grown so much between generations. And educational mobility in the two countries — the connection between parent and child schooling — was actually very similar for this generation. Opportunity for top slots may therefore have been as widespread in the United States as in Sweden.
However, evidence indicates that American children born since the 1950s have had lower educational mobility than children in Sweden and other Western nations. And recent research indicates that the link between parental income and educational advantages on one hand and child academic outcomes on the other is stronger in the United States than in other Western countries. So it may be that higher pay for better slots and narrower opportunities to occupy the best slots both now contribute to lower earnings mobility in the United States. Still, our country does not look particularly bad in terms of occupational mobility — the degree of similarity between the desirability of parents’ and children’s jobs. And in the broadest sense, that may be the best measure of opportunity for different slots. ...
... Where to look to encourage more upward relative mobility? Begin with the fact that just 16 percent of those who start at the bottom but graduate from college remain stuck at the bottom, compared with 45 percent of those who fail to get a college degree. There is a legitimate debate about whether pushing academically marginal students into college will give them the same benefits that current college graduates receive, but there are surely financially constrained students who would enroll — or who would stay enrolled — if they could afford to.
EMP research has also shown that children with divorced parents are less likely to escape the bottom than other children. Just as it is not incontestably established that sending more disadvantaged kids to college would increase upward relative mobility, it is also debatable whether reducing divorce would do so. But reducing the number of unplanned pregnancies would unquestionably reduce the number of children experiencing divorce and other disadvantages. Since it is more common among parents in the bottom than elsewhere, reducing unplanned pregnancy would lower the number of children starting out at the bottom and thereby reduce the number of children stuck there down the road. And it would improve the mobility prospects of many of the adults avoiding pregnancy.
Finally, remaining in the bottom is much more common among black families than white families. While much remains to be learned about why this is so, another EMP report starkly shows that black and white children grow up in entirely different economic worlds. Simply put, two-thirds of black children experience a level of neighborhood poverty growing up that just 6 percent of white children will ever see. That is a national tragedy. It’s certainly hard to see how the kids are to blame.
Broad-based economic growth, international competitiveness, and the ideals composing the American Dream all require that policymakers heed Governor Daniels’s call. Increasing upward absolute mobility — for all, but with a particular focus on those who start out at the bottom — should be the primary goal of policymakers. The first political party that commits itself to putting upward mobility first and that credibly takes on the challenge will be ascendant.
Each year, the U.S. Census Bureau releases data on the income levels of America’s households. A comparison of the annual data over time reveals that the income of wealthier households has been growing faster than the income of poorer households—the real income of the wealthiest 5 percent of households rose by 14 percent between 1996 and 2006, while the income of the poorest 20 percent of households rose by just 6 percent.
As a result of these differences in income growth, the income of the wealthiest 5 percent of households grew from 8.1 times that of the income of the poorest 20 percent of households in 1996 to 8.7 times as great by 2006. Such figures commonly lead to the conclusion that income inequality in the United States has increased. This apparent increase in income inequality has not escaped the attention of policy makers and social activists who support public policies aimed at reducing income inequality. However, the common measures of income inequality that are derived from the census statistics exaggerate the degree of income inequality in the United States in several ways. Furthermore, although many people consider income inequality a social ill, it is important to understand that income inequality has many economic benefits and is the result of—and not a detriment to—a well-functioning economy.
An Inaccurate Picture
The Census Bureau essentially ranks all households by household income and then divides this distribution of households into quintiles. The highest-ranked household in each quintile provides the upper income limit for each quintile. Comparing changes in these upper income limits over time for different quintiles reveals that the income of wealthier households has been growing faster than the income of poorer households, thus giving the impression of an increasing “income gap” or “shrinking middle class.”
One big problem with inferring income inequality from the census income statistics is that the census statistics provide only a snapshot of income distribution in the U.S., at a single point in time. The statistics do not reflect the reality that income for many households changes over time—i.e., incomes are mobile. For most people, income increases over time as they move from their first, low-paying job in high school to a better-paying job later in their lives. Also, some people lose income over time because of business-cycle contractions, demotions, career changes, retirement, etc. The implication of changing individual incomes is that individual households do not remain in the same income quintiles over time. Thus, comparing different income quintiles over time is like comparing apples to oranges, because it means comparing incomes of different people at different stages in their earnings profile.
The U.S. Treasury released a study in November 2007 that examined income mobility in the U.S. from 1996 to 2005. Using data from individual tax returns, the study documented the movement of households along the distribution of real income over the 10-year period. As shown in Figure 1A, the study found that nearly 58 percent of the households that were in the lowest income quintile (the lowest 20 percent) in 1996 moved to a higher income quintile by 2005. Similarly, nearly 50 percent of the households in the second-lowest quintile in 1996 moved to a higher income quintile by 2005. Even a significant number of households in the third- and fourth-lowest income quintiles in 1996 moved to a higher quintile in 2005.
The Treasury study also documented falls in household income between 1996 and 2005. This is most interesting when considering the richest households. As shown in Figure 1B, more than 57 percent of the richest 1 percent of households in 1996 fell out of that category by 2005. Similarly, more than 45 percent of the households that ranked in the top 5 percent of income in 1996 fell out of that category by 2005.
Thus it is clear that over time, a significant number of households move to higher positions along the income distribution, and a significant number move to lower positions along the income distribution. Common reference to “classes” of people (e.g., the lowest 20 percent or the richest 10 percent) is quite misleading because income classes do not contain the same households and people over time.
Another problem with drawing inferences from the census statistics is that the statistics do not include the noncash resources received by lower-income households—resources transferred to the households—and the tax payments made by wealthier households to fund these transfers. Lower-income households annually receive tens of billions of dollars in subsidies for housing, food and medical care. None of these are considered income by the Census Bureau. Thus the resources available to lower-income households are actually greater than is suggested by the income of those households as reported in the census data.
At the same time, these noncash payments to lower-income households are funded with taxpayer dollars—mostly from wealthier households, since they pay a majority of overall taxes. One research report estimates that the share of total income earned by the lowest income quintile increases roughly 50 percent—whereas the share of total income earned by the highest income quintile drops roughly 7 percent—when transfer payments and taxes are considered.
The census statistics also do not account for the fact that the households in each quintile contain different numbers of people; it is differences in income across people, rather than differences in income by household, that provide a clearer measure of inequality. Lower-income households tend to consist of single people with low earnings, whereas higher-income households tend to include married couples with multiple earners. The fact that lower-income households have fewer people than higher-income households skews the income distribution by person. When considering household size along with transfers received and taxes paid, the income share of the lowest quintile nearly triples and the income share of the highest quintile falls by 25 percent.
Is Policy Needed?
Income inequality will still exist even if the income inequality statistics are adjusted to account for the aforementioned factors. Given the negative attention income inequality receives in the media, it is important to ask whether reducing income inequality is a worthy goal of public policy. It is important to understand that income inequality is a byproduct of a well-functioning capitalist economy. Individuals’ earnings are directly related to their productivity. Wealthy people are not wealthy because they have more money; it is because they have greater productivity. Different incomes reflect different productivity levels.
The unconstrained opportunity for individuals to create value for society—and the fact that their income reflects the value they create—encourages innovation and entrepreneurship. Economic research has documented a positive correlation between entrepreneurship/innovation and overall economic growth. A wary eye should be cast on policies that aim to shrink the income distribution by redistributing income from the more productive to the less productive simply for the sake of “fairness.” Redistribution of wealth increases the costs of entrepreneurship and innovation, with the result being lower overall economic growth for everyone.
Poverty and income inequality are related, but only the former deserves a policy-based response. Sound economic policy to reduce poverty would lift people out of poverty (increase their productivity) while not reducing the well-being of wealthier individuals. Tools to implement such a policy include investments in education and job training.
Income inequality should not be vilified, and public policy should encourage people to move up the income distribution and not penalize them for having already done so.
Zambia and Ghana are the 27th and 28th countries the World Bank has reclassified as middle-income since the year 2000.
... The World Bank did its annual assessment of poor countries last week. Low-income countries are those with average gross national incomes (GNIs) of less than $1,005 per person per year.
And there are only 35 of them remaining out of the countries and economies that the World Bank tracks. That's down from 63 in 2000.
New middle-income countries this year include Ghana and Zambia. Lower middle-income countries are those with per capita GNIs of between $1,006 and $3,975 per year; while upper middle-income countries are those with per capita GNIs between $3,976 and $12,275.
The remaining 35 low-income countries have a combined population of about 800 million. Tanzania, Burma, the Democratic Republic of the Congo, Ethiopia and Bangladesh account for about half of that total, and there are about 350 million people living on under $1.25 a day in the remaining low-income countries. ...
... What shall we take from this? Three things. First, consider the good news that there are fewer poor countries around. Not least, it suggests that public and private investment (including aid) can help even the poorest countries get rich(er). This is one more reason why optimism should come back into fashion.
Second, the World Bank country classifications - which are used to help determine types and levels of support provided by many aid agencies - may need a rethink. ...
... Third, as countries develop their own resources, fighting poverty becomes increasingly about domestic politics. Not surprisingly, this means inequality is rising up the agenda. New research shows that the emerging middle classes may have a big role to play. Who they side with - the poorest or the economic elite - will determine what kind of development emerges in the new middle income countries.
In short, even the poorest countries can get richer – and that's a good news story.
... There is no doubt that income inequality is the single biggest threat to social stability around the world, whether it is in the United States, the European periphery, or China. Yet it is easy to forget that market forces, if allowed to play out, might eventually exert a stabilizing role. Simply put, the greater the premium for highly skilled workers, the greater the incentive to find ways to economize on employing their talents. ...
... As skilled labor becomes increasingly expensive relative to unskilled labor, firms and businesses have a greater incentive to find ways to “cheat” by using substitutes for high-price inputs. The shift might take many decades, but it also might come much faster as artificial intelligence fuels the next wave of innovation.
Perhaps skilled workers will try to band together to get governments to pass laws and regulations making it more difficult for firms to make their jobs obsolete. But if the global trading system remains open to competition, skilled workers’ ability to forestall labor-saving technology indefinitely should prove little more successful than such attempts by unskilled workers in the past.
The next generation of technological advances could also promote greater income equality by leveling the playing field in education. Currently, educational resources – particularly tertiary educational resources (university) – in many poorer countries are severely limited relative to wealthy countries, and, so far, the Internet and computers have exacerbated the differences.
But it does not have to be that way. Surely, higher education will eventually be hit by the same kind of sweeping wave of technology that has flattened the automobile and media industries, among others. If the commoditization of education eventually extends to at least lower-level college courses, the impact on income inequality could be profound.
Many commentators seem to believe that the growing gap between rich and poor is an inevitable byproduct of increasing globalization and technology. In their view, governments will need to intervene radically in markets to restore social balance.
I disagree. Yes, we need genuinely progressive tax systems, respect for workers’ rights, and generous aid policies on the part of rich countries. But the past is not necessarily prologue: given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.
... The teacher then divides the students into three groups. In her class of 30 students, one group is made up of 4 students, a second group is 10 students and the third group is 16. The teacher then sets the cake before them, and announces that she will divide the cake according to food distribution norms among “first, second and third world countries”.
The group of four students will then enjoy half the cake. The second group of students will get about three-quarters of the remaining cake, and the smallest piece will go to the group of 16 students. Of course, protests will follow, along with a discussion of how unfair it all is. ...
The goal of the teacher will be, of course, to see if the students with the most cake will share their cake with the other two groups. If they don’t, that choice will be discussed as well. The students will come away with the idea that everyone will have an equal piece of cake if only those with more share what they have.
This is a noble lesson, and we should of course share what we have, regardless of how much that is. (After all, Scripture doesn’t encourage only the rich to tithe.) Unfortunately, the lesson is wrong: it’s based on the idea that there is only one cake, and we can’t possibly get any more.
I have to admit, that as a teacher, I used lessons similar to this one. And never once, did I or any of my students suggest a most obvious answer: bake another cake. ...
Which countries match the GDP and population of India's states and territories?
How big is Uttar Pradesh, India’s most populous state? One way of answering the question is to take its total area: 95,000 square miles (246,000 sq km). Another way is to think of it as a country. If Uttar Pradesh were to declare independence, it would be the world’s fifth most populous country (as the map below shows, it has about the same number of residents as Brazil). Yet its economy would only be the size of Qatar, a tiny oil-rich state of fewer than 2m people. That makes it poor on a per person basis. Despite India’s two decades of rapid growth, Uttar Pradesh’s GDP per head is close to that of Kenya. The map below presents country equivalents for India’s states and territories in terms of GDP, GDP per person (in PPP terms) and population. Please play around with it and tell us what you think.
This is an interesting look into income disparities across the second largest nation in the world.
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