Economics Can’t Answer Why Inequality Sometimes Declines
peterturchin.com
peterturchin.com
Before globalization, some people (e.g. American auto workers) held extremely privileged positions by virtue of threats of violence against economic competitors - particularly those overseas. Globalization has reduced (though not eliminated) these violent threats and has drastically reduced inequality.
This is one of Milanovic's key graphs: http://www.demos.org/sites/default/files/imce/fig2_0.png
This is his other key graph: http://2.bp.blogspot.com/-0we_c3Ob8Ds/UrDEMjcK3MI/AAAAAAAAEb...
One of his more detailed arguments: http://siteresources.worldbank.org/INTPOVRES/Resources/47722...
Economics has already answered why inequality has dropped drastically in the past 20-30 years. Some folks just don't like the fact that the answer is capitalism.
Obviously, if you move the production to other countries you are investing in those countries. That should raise the living standards for the people there (and this is a good thing).
But this don't, I think, invalidate Piketty and others arguments that tell us about the general trend in the system.
Maybe, you don't like that capitalism as answer to everything is not a good answer.
Markets are great as tools but terrible as goods.
Piketty's entire case is looking at stats in the US, UK and France, ignoring the east and the world as a whole. He mentions Balzac more frequently than India and China, which is ridiculously myopic in a book on inequality.
Ignoring his other flaws (which I've discussed at length) global data does invalidate him.
If (rate of return on capital > rate of growth) then inequality happens. This is not a so absurd thing to say. In support of this, he contribute massive data where data was available.
You can agree with it or not, but it should discuss in its own merits and don't dismiss it because it is not convenient.
Pikettys message (or at least your interpretation of it) is simply wrong. You need more than r>g as simple math examples show:
https://www.chrisstucchio.com/blog/2014/piketty_and_inequali...
(Piketty does have a paper where he provides sufficient, albeit wildly unrealistic, conditions where it is true. I.e. you need a lot more than r>g.)
I'm also arguing that brankovics data is more complete than pikettys, and invalidates it.
This is precisely an argument against rather than a dismissal. Dismissal is what the op did to brankovic - ignore the argument rather than show why it's wrong.
Entropy is going down in India and China but it's going up in the States and Europe.
Does it means that the entropy trend, of all the system, is going down or up?
So speaking of averages is actually rather misleading.
You're right that globalization has helped reduce inequality between various countries, it's not always for the obvious reasons (my wife's country of origin subsists almost entirely on money sent from the US and Canada back to family members - there are more migrants abroad than people left in her country).
And while India has certainly become richer as a whole, it's still one of the most unequal countries in the world.
Last but not least, Piketty chose to focus on France especially, not only because he's French and writing for that audience, but because they have BY FAR the best data accumulated from the 19th century to the present day.
India is a more equal country than the US. I have no idea why people think it is unequal - its as if people conflate poverty and inequality or something.
You are correct that free trade - including remittances - can reduce inequality. Weren't you just disputing this?
Data (which is widely reported and easy to find) shows China has far more inequality today than before reforms. It's a bit more difficult to find data on India, but the OECD says that inequality has doubled in India during the last 20 years as well: http://www.bbc.com/news/world-asia-india-16064321
> You are correct that free trade - including remittances - can reduce inequality. Weren't you just disputing this?
Free trade doesn't reduce overall inequality, it just shifts it. It transfers wealth from rich countries to poor countries, although it provides the poor country with far less wealth than it transfers from the rich country, with the difference becoming profit for the industrialist.
Transfer payments are something different altogether in that they are a direct transfer of wealth, but it's a planned action (on the part of those sending the money), not necessarily a market force.
If you look at data, inequality is increasing in most western countries, indeed in most developed and developing countries. https://www.quandl.com/collections/demography/gini-index-by-...
It transfers wealth from rich countries to poor countries, although it provides the poor country with far less wealth than it transfers from the rich country, with the difference becoming profit for the industrialist.
This is the very mechanism of inequality reduction. You are sounding a bit right wing, suggesting that the main mechanism of inequality reduction is destroying wealth. Is that your intent?
You are wrong about the total quantity being negative in this case, however - look at Milanovic's graph to see that everyone has become richer, it's just that the poor got richer faster.
Apart from this one point you seem to be agreeing with me about everything I've said.
Maybe it reduces inequality between countries, but does it reduce inequality between people (different social classes within countries)?
> some people (e.g. American auto workers) held extremely privileged positions by virtue of threats of violence against economic competitors - particularly those overseas
Really? I thought they produced cars mainly for the internal market.. I don't see much evidence of any "threats of violence" coming from auto workers to the rest of the world.
To make myself more clear, I am willing to accept the globalization (or capitalism) reducing inequality globally as a positive thing, if it wouldn't increase inequality inside the developed countries. But that's not what really happened (profits of Western corporations are all-time high) and that's why it's a cause for concern.
I don't see much evidence of any "threats of violence" coming from auto workers to the rest of the world.
Think about what happens when a Mexican attempts to walk to Detroit and apply for a job at GM. Violence will be used against him, and against GM, if they voluntarily transact.
Or think of what happens today when a Brazilian sugar manufacturer attempts to sell sugar to willing purchasers in the US.
If you care so much about inequality within political boundaries, why not just move the boundaries to reduce inequality?
GM and Mexicans can't also voluntarily transact in my kitchen or in the foyer of my building regardless of what impact it would have on inequality. Violence would be used against them if they tried.
Other citizens have certain rights, that are a lot like property rights in condominiums or HoAs for example, to decide what happens in their country. If GM and Mexicans want to voluntarily transact, they can do it in Mexico, should Mexicans allow it, or some third country where they're both welcome.
Your argument is basically an argument for communism (as in common ownership, not any particular political system): if some people have what others need, why not just redistribute it?
I'm arguing for capitalism, and against economic protectionism. Where do you get the idea that I favor redistributing wealth?
You argue that people who currently have a right to their country (citizens) should abolish its borders and allow anyone to move in. Which would be like residents of a building allowing anyone into the shared space. The value of access to that shared space is what would be redistributed from residents to non-residents (leaving its depreciation in the process aside). The step from this intangible to more concrete wealth is minor, especially since, as you've pointed out, it has significant dollar value.
Between some people yes. But here's the big problem; we know the causal force for this "inequality reduction", and it's not that someone wanted to make Chinese or Mexican workers richer (or that they would get better at demanding better pay). The causal force was that capitalists in the U.S. and small group of people outside the U.S. (usually people in power in developing countries, like members of the Chinese communist party) wanted to get richer at expense of everybody else.
Based on this known causal force, there is no reason to think that capitalism itself causes more equality. (And in fact, globalization has been shown to counteract ability of countries to compete, see for example book Kicking Away the Ladder from Ha-Joon Chang, who is korean. Countries that depend on internal demand and supply rather than foreign investment and exports tend to fare much better in closing the economic gap with respect to developed world.)
Except this isn't quite true. In most countries inequality has increased, although baseline poverty has indeed been raised somewhat (and probably for different reasons than you think).
> Some folks just don't like the fact that the answer is capitalism.
In countries where inequality has actually decreased, it's been mainly because of socialist-style politics. Even the decrease in base poverty in many countries is caused by transfers of wealth from migrants back to their families.
The reduction in inequality this century was because of 2 world wars, and 50+ years of Marxism/communism in various parts of the world.
Data shows that in many countries (especially fiercely capitalist ones) inequality is actually increasing...
The author say: "In Piketty’s view, the only reason we don’t see such extremes is because some kind of random event always intervenes before we get to it"
And then: "I think Walter is on to something, and his theory can be made endogenous. That is, when inequality becomes too high, the chance of a state collapse or transformative revolution increases."
What are those but crisis of capitalism?
The whole point of technology is to increase the power of the individual wielding it. As such, military and surveillance technology enables smaller groups of elites to maintain their position in the face of larger and larger groups of revolutionaries.
but i also agree with the point you made, but perhaps not quite so broadly.
It seems to me that political struggle can reduce inequality without necessarily [much] violence. Labor agitation in the US from the late 19th century through the 1950s played a large coercive role in reducing inequality. The US elite faced a choice, give labor a fairer share of the economic pie or eventually face revolution. Led by FDR and like minded actors, the political elite pushed the business elite to reduce inequality to avoid revolution. Whether this would have happened without two mass mobilization wars is an open question, but union organizing and the agitation of radical political parties struck fear into the elite, hence the Palmer Raids and Edgar Hoover’s excesses. But those creeps were middle class boys on the make, scaremongering the elites in the pursuit of elite position for themselves. They may have help the egalitarians be exaggerating the power of the “Reds.” A credible threat of revolution can coerce elites pretty effectively.
Even Gandhian non-violence can be very effective. If you can organize a large mass of non-elites fanatically committed to non-violence, the elite has to worry what might happen if the non-violent fanatics suddenly got violently angry. The CP of China seems to really fear apparently harmless mass organizations like Falun Gong. Apolitical mass organizations are a threat to elites if inegalitarian or otherwise unfair treatment of commoners is common. Any such organization can morph into violent resistance at the drop of an atrocity.
link to richerson's work: http://www.des.ucdavis.edu/faculty/richerson/richerson.htm
In general, we know many factors that decrease general level of trust (sometimes called "social capital") in the society. This is sometimes tied to inequality. But we don't know many reliable factors of how to actually increase trust, yet we intuitively understand that it is very closely related to well-being.
Heck, we don't even know how to reliably increase trust between individuals, for example in failing relationship. I think this is one of the biggest open problems in psychology and sociology.
Look at a simple example - health care. In developed contries, does an idividual "worth" 10x receive 10x better health care? Not realy. Is it 2x better? I doubt. Sould you get a cancer, wealth buys you comfort, but not chances for survival.
They do use life expectancy (which is a result of health standards) as a measure of inequality. Using my wife's country of origin as an example, their life expectancy is nearly 20 years less than Canada, France, or Japan.