7 ms·

Economics Can’t Answer Why Inequality Sometimes Declines

19 points by mazsa 11y ago

asgard1024 11y ago
This is so true and I wish economists and other social scientists would research that more. 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.
elmar 11y ago
There is a Very interesting talk about inequality and risk by Paul Graham. https://www.youtube.com/watch?v=RpD_Sz_ZWPk https://www.youtube.com/watch?v=RpD_Sz_ZWPk
yummyfajitas 11y ago
This article is a little odd - it mentions Branko Milanovic yet completely dismisses without argument Milanovic's primary and extremely well supported result: globalization drastically reduces inequality. 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 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/AAAAAAAAEb8/Izydk1Hsi8I/s1600/milanovic+1.jpg http://2.bp.blogspot.com/-0we_c3Ob8Ds/UrDEMjcK3MI/AAAAAAAAEb... One of his more detailed arguments: http://siteresources.worldbank.org/INTPOVRES/Resources/477227-1142020443961/Module5_chap9_10.pdf 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.
- RobertoG 11y ago
  Is it fair to talk about inequality inside a country and between countries as it is the same? 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.
  - yummyfajitas 11y ago
    I'm talking about inequality between humans - I care nothing about inequality between countries. I have lived in India, and I can state based on extensive experience that Indians are also humans. 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.
    - RobertoG 11y ago
      Piketty is trying to describe a trend in the system. His message is very clear: 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.
      - yummyfajitas 11y ago
        I am indeed arguing the claim has no merit, rather than simply dismissing it. 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_inequality.html 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.
kybernetikos 11y ago
I agree that technology probably works to increase inequality overall. 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.
- shoo 11y ago
  i'd argue that technology that enables information to be shared widely and freely might have a different effect. but i also agree with the point you made, but perhaps not quite so broadly.
- bjshepard 11y ago
  what do you think the result of the printing press on social stratification was?
  - AnimalMuppet 11y ago
    Not the OP, but I'll take a stab at it: In increased the separation between those who could read, and those who could not, because there was more to read. Note well: that separation was along a skill line, not along a class line (though the skill was largely but not completely correlated with class at that time).
bjshepard 11y ago
interesting comment from Peter Richerson: 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 http://www.des.ucdavis.edu/faculty/richerson/richerson.htm
vilda 11y ago
Question is whether we measure in/equality correctly. Is wealth really a good metrics of how equal we are? I would argue that it doesn't. 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.
- Mikeb85 11y ago
  > In developed contries, does an idividual "worth" 10x receive 10x better health care? Not realy. Is it 2x better? I doubt. 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.
RobertoG 11y ago
Lately I have the feeling that, because Marx have so bad press, people is reinventing Marxism with other name. 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?
mazsa 11y ago
"as the population gets larger wealth gets more concentrated. Even so, the very richest person holds a smaller fraction of the total wealth." http://www.overcomingbias.com/2012/01/future-wealth-inequity.html http://www.overcomingbias.com/2012/01/future-wealth-inequity...

19 points by mazsa 11y ago

This is so true and I wish economists and other social scientists would research that more. 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.

elmar 11y ago

There is a Very interesting talk about inequality and risk by Paul Graham. https://www.youtube.com/watch?v=RpD_Sz_ZWPk https://www.youtube.com/watch?v=RpD_Sz_ZWPk

yummyfajitas 11y ago

This article is a little odd - it mentions Branko Milanovic yet completely dismisses without argument Milanovic's primary and extremely well supported result: globalization drastically reduces inequality. 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 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/AAAAAAAAEb8/Izydk1Hsi8I/s1600/milanovic+1.jpg http://2.bp.blogspot.com/-0we_c3Ob8Ds/UrDEMjcK3MI/AAAAAAAAEb... One of his more detailed arguments: http://siteresources.worldbank.org/INTPOVRES/Resources/477227-1142020443961/Module5_chap9_10.pdf 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.

RobertoG 11y ago
Is it fair to talk about inequality inside a country and between countries as it is the same? 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.
- yummyfajitas 11y ago
  I'm talking about inequality between humans - I care nothing about inequality between countries. I have lived in India, and I can state based on extensive experience that Indians are also humans. 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.
  - RobertoG 11y ago
    Piketty is trying to describe a trend in the system. His message is very clear: 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.
    - yummyfajitas 11y ago
      I am indeed arguing the claim has no merit, rather than simply dismissing it. 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_inequality.html 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.

kybernetikos 11y ago

I agree that technology probably works to increase inequality overall. 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.

shoo 11y ago
i'd argue that technology that enables information to be shared widely and freely might have a different effect. but i also agree with the point you made, but perhaps not quite so broadly.
bjshepard 11y ago
what do you think the result of the printing press on social stratification was?
- AnimalMuppet 11y ago
  Not the OP, but I'll take a stab at it: In increased the separation between those who could read, and those who could not, because there was more to read. Note well: that separation was along a skill line, not along a class line (though the skill was largely but not completely correlated with class at that time).

bjshepard 11y ago

interesting comment from Peter Richerson: 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 http://www.des.ucdavis.edu/faculty/richerson/richerson.htm

vilda 11y ago

Question is whether we measure in/equality correctly. Is wealth really a good metrics of how equal we are? I would argue that it doesn't. 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.

Mikeb85 11y ago
> In developed contries, does an idividual "worth" 10x receive 10x better health care? Not realy. Is it 2x better? I doubt. 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.

RobertoG 11y ago

Lately I have the feeling that, because Marx have so bad press, people is reinventing Marxism with other name. 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?

mazsa 11y ago

"as the population gets larger wealth gets more concentrated. Even so, the very richest person holds a smaller fraction of the total wealth." http://www.overcomingbias.com/2012/01/future-wealth-inequity.html http://www.overcomingbias.com/2012/01/future-wealth-inequity...