In yet another poorly choreographed move, Venezuelan President Hugo Chavez strikes again. This time around, he has opened negotiations with Spain’s Banco Santander to nationalize the Bank of Venezuela, as part of his plan for “21st Century Socialism.”
Venezuela’s GINI coefficient is .48, and an estimated 37.9 percent of Venezuelans live below the national poverty line. Given Venezuela’s natural resource base and other assets, those numbers could be lower. Up until the 1980s debt crises, those numbers were lower across Latin America; however, such conditions were based on the unsustainable practices of Import-substitution Industrialization (ISI), when the nationalized firms dominated the formal economy.
Gabriel Garcia Marquez brilliantly captured, in One...
This is a joint posting with Martina Tonizzo
The World Bank has announced a new poverty line on the basis of revised estimates of Purchasing Price Parity (PPP) price levels around the world. In the working paper that explains the basis for the new line, poverty measurement guru Martin Ravallion and his co-authors make two proposals.
First, they suggest a new line below which people should be considered poor in absolute terms: $1.25. At 2005 prices $1.25 was the average "national" poverty line in the world's 15 poorest countries. That makes it a sensible line for a global absolute measure. Poor (below that line) in the poorest countries is surely absolutely poor. The Economist magazine may be right in worrying that the new poverty line of $1.25 will not have the...
While the Peruvian government has been busy figuring out how to talk about inequality and bold redistributive policies without scaring local and foreign investors and markets, the corporate sector has leap frogged them and is now – unlike the government – ready for radical policies. ...(read more)...
David Leonhardt:
In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.
This has never happened before, at least not for as long as the government has been keeping records.
Barbara Ehrenreich:
We say, “There’s something wrong with the economy,” rather than, “I’m getting screwed by the oil companies, the banks, and my employer.” Things get mystified and depersonalized. We say there’s a “recession,” as if were some sort of bad weather, rather than pointing our fingers at the people who brought it down on us...
To follow up yesterday’s post on Baltimore, here’s Ryan Avent on what I think was a key mechanism in the precipitous decline of many American cities:
During the great suburbanization wave of the postwar era, policies discouraged or prevented black suburban homeownership at every turn. Whites moved into appreciating assets in the suburbs, building wealth while they constructed a segregated and elite system of services for themselves–especially schools–constituting an upward-mobility engine. Blacks were relegated to the cash-strapped center, denied the ability to build wealth through homeownership, stuck in failing schools, plagued by crime. You want to find the root of differences in racial mobility, suburbanization and residential segregation is a good place to start....
The Wire is brilliant television, but there’s something I keep asking myself when watching it, though particularly the unremittingly bleak fourth season: Is Baltimore really this bad? Here are a few stats, with a comparison to London thrown in:
Baltimore lost 3% of its population between 2000 and 2006, while London gained about the same proportion.
14% of Baltimore’s housing units are vacant compared to about 3% of London’s.
On any given day, there are over 28,000 residents of Baltimore City who are incarcerated or under the supervision of probation or parole. That appears to be more than 4% of the total population. There aren’t any directly comparable figures for London but the total official capacity of its nine prisons is about 7,500, in a city more than...
This from Robert Reich is along similar lines to what I’ve said before:
Even though the winners from free trade could theoretically compensate the losers and still come out ahead, they don’t. America doesn’t have a system for helping job losers find new jobs that pay about the same as the ones they’ve lost – regardless of whether the loss was because of trade or automation. There’s no national retraining system. Unemployment insurance reaches fewer than 40 percent of people who lose their jobs – a smaller percentage than when the unemployment system was designed seventy years ago. We have no national health care system to cover job losers and their families. There’s no wage insurance. Nothing. And unless or until America finds a way to help the losers, the...
Dani Rodrik discusses one simple economic theory which suggests that more open trade has contributed to inter-national inequality. Here’s another.
In ‘Shifts in Economic Geography and Their Causes’ (pdf, html), Anthony Venables explains the key concepts of economic geography and some straightforward implications. The core insight, to put it very simply, is that there are increasing returns to proximity in terms of productivity, but also some increasing costs - which is why cities tend to be highly productive and diverse but also frequently more unpleasant, unhealthy or dangerous. ‘First nature’ geography creates exogenous differences between places in terms of productivity, and these “become amplified, as firms move into locations with good geography,...
There has been much talk in the American econoblogosphere recently of whether or not the ‘losers’ from shifts in trade should be somehow compensated, which brings me back to a Filter post I meant to comment on at the time. I sympathise with Anthony Evans and Steven Landsburg when they wonder why losers from foreign trade should be privileged over those who ‘lose out’ economically for some other reason, especially as those who lose today from trade may have been those who unduly gained yesterday. But for me this simply strengthens the case for a broader and stronger safety net funded by redistribution, which has the attractive side-effect of mitigating income inequalities that it’s not to hard to argue (given very low social mobility in countries like the US)...
This here IMF report linking globalisation to higher inequality seemed to hit a nerve with someone over at the Economist’s blog, who rants and raves for a while before asking
those of us not deranged by opposition to human co-operation across political boundaries will ask: What’s the problem?
Well, those of us not suffering from whatever’s eating you might be aware that inequality can be a big problem, particularly in poor countries. Nancy Birdsall, who is hardly a card-carrying member of the loony left, writes
The IMF report calls for more and better education as the solution to the problem of rising inequality. But education should not be the only domestic policy instrument for addressing the risks — in social tension and populist backlash — that high...
The Economist blog again:
Many on the left would like to ditch the current poverty measure for a relative standard that indexes the poverty line to, say, 50 percent of the median income, or the means to buy 80 percent of the average level of consumption on a socially determined set of “basic needs”. This would ensure that the poor will always be with us, by definition, even if the meekest among us haul in $1,000,000 per year, or if anti-gravity sky yachts come to be widely accepted as a “basic need”.
This is self-evidently wrong. Using the 50% of median income definition there would ‘by definition’ be no relative poverty if the poorest person had an income of 51% of the median. There is no logical or mathematical reason this can’t happen....
It seems a shame to let pass without further comment this post from The Economist’s Free Exchange blog, which from the tone I’m guessing was written by Megan McArdle of “So where are the Iraqi refugees??” fame. Here is the quote from an interview with Paul Krugman that starts things off:
GQ: I know you’re also concerned about the growing gap between rich and poor.
KRUGMAN: I have spent a lot of time looking back at what happened under FDR, when we narrowed the income gaps between rich and poor through stronger unions, wartime wage controls, and a change in tax policy. We can do some of that. …
GQ: Well, what happens if we let the income gap remain?
KRUGMAN: It’s bad for democracy. The ugliness of our politics is closely tied to...
Like the rational consumer I am, I see no reason to buy Bryan Caplan’s new book The Myth of the Rational Voter when there are skimmable summaries available for free online. As I understand it, Caplan’s thesis is that decisions about economic policy are too important to be left to ordinary people, because they are generally too stupid to understand what’s good for them. So democracies should have less influence over economics, and the size of government should be reduced according to the sagacious prescriptions of wise economists such as the author himself, who should perhaps be given some sort of ceremonial robes to wear (okay, I made up the last bit).
Caplan’s prime example is trade. People are too protectionist for their own good, he says, and this is due to...
Yesterday the New York Times profiled Lant Pritchett and sketched his proposal to create 16 million guest-worker jobs in rich countries for people from poor countries. His goal is to help people from very poor places make their lives better. The Times piece (subscription may be required) politely leaves the impression that this "eccentric" idea is "ahem, ahead of its time", and that poor Lant is in the grips of an impossible "panacea". Some of the interviewees go as far as to suggest that the whole shebang is darkly immoral.
By itself this reaction doesn't mean much; no idea that is new and important escapes it. Ben Franklin's eccentric petition to abolish slavery outright in 1790 was openly ridiculed in Congress on a long list of practical and moral grounds. Let's look...
The sudden resignation on Friday of Ambassador Randall Tobias, the first U.S. director of foreign assistance, stunned staff at the U.S. Agency for International Development (USAID) and the State Department and left the administration’s beleaguered aid reform effort without a leader. The acting deputy administrator of USAID, Jim Kunder, wrote to staff late in the afternoon that he had just received the "shocking" news that the White House would soon announce Tobias’s immediate resignation for "personal reasons."
Things got more shocking when news broke that Tobias had confirmed to ABC News that he had patronized a high-end call girl firm run by Deborah Jeane Palfrey. Federal prosecutors allege Palfrey was providing $300-an-hour prostitutes, and a grand jury indicted her in...
**This post is co-authored with CGD senior fellow David Wheeler
Today's Washington Post column by David Ignatius finally inches popular understanding in the U.S. a bit further in the right direction on why climate change could be so costly to human society. It isn't just the direct costs of seawalls and more destructive hurricanes that climate change will bring. It's the risk that institutional arrangements to deal with those costs will not be resilient and will collapse under the resulting pressure--so that, as Chinua Achebe suggested about post-colonial West Africa, things do literally "fall impart".
Americans are familiar with the idea because of our Katrina failure--the lack of agility and the absence of reasonable planning and coordination among local, state and...
I’ve had a go at Tim for claiming that world inequality is falling in spite of evidence that it isn’t, while PGL points out that Tim is using a radically oversimplified model of international trade. But let’s assume for a second that the theoretical and factual flaws in Tim’s argument do not exist and that he is right to say that poverty is falling fast in poor countries, that inequality is rising in rich countries as the rich get richer and the rest either stagnate or get poorer, and that the single force causing all this is ‘globalization’ (undefined), a natural and entirely ungovernable process.
Tim’s conclusion from all this is to proclaim his crushing triumph over Leftists everywhere, because if they oppose globalization due to its effect...
Twenty years ago this month I left China under less than ideal circumstances: I was one of a handful of reporters expelled during a crackdown on the incipient student democracy movement. After a dozen years of close involvement with China, first as a student, then as a tour guide, and finally as a journalist, I was suddenly cut off from the country, unable to return.
Today I am back in Beijing for the first time in two decades, attending the conference of the Global Development Network. The trip has enabled me to see first hand the remarkable changes that have occurred since I left. Nothing that I have read or seen in the media could fully prepare me for the breadth and depth of these transformations. A quick weekend trip to Shanghai, and a daylong tour of Bejing in the private...
Thanks to our friend Nick Seaver for posting on the Huffington Post one of the figures we created after playing around with some of the available stats on global income inequality. The idea was to get a very rough sense of what global income distribution looks like: Is it a bell curve? Where might an average American fit?
Ideally, we would have wanted income information on every person on the planet and then just line them up and see what it looks like. Of course, no such figures exist. The best we have is average income, plus some distribution data for large countries. So we took every country that was at least 1% of global population and disaggregated average incomes by decile (Iran and Japan by quintile), then added in every other country with their total population...
Just time to sum up a few things I’ve been too lazy to turn into proper posts before the clock runs out on 2006.
More on FairTrade. Just to follow up my last post on that Economist article about FairTrade, I like the point made by Brad Plumer:
Something in the “free” market was already preventing producers from switching to other crops. Maybe farmers were too poor to diversify. Who knows? At any rate, fair-trade coffee only comprised 1.8 percent of the U.S. market in 2004—a tiny fraction—so it’s hard to imagine that this is the chief thing stimulating overproduction.
And while we’re at it, am I completely crazy to believe that increased demand for FairTrade coffee would tend to decrease demand for non-FairTrade coffee, since they are more likely to...
Update to the last post. Tim has a lengthy go at me and correctly highlights a big mistake I made, which was to think that ‘tax unit’ in the Piketty and Saez data is the same thing as ‘individual’. So I got that wrong, and it turns out I know less about income dynamics in America than I thought. But I still don’t think this supports the argument made by David Henderson (based on Alan Reynolds’ figures), as I explain in detail in this comment to Tim’s post. Basically, even their data shows a big rise in inequality.
Secondly, Arnold Kling kindly gave a reference to the figures on income mobility he used in the post I slagged off. I’d love to do a post on this the next few days are going to be manic for me (hey, it’s party season in...
Hilarious. Over at DreckTechCentralStation, David Henderson extols the virtues of a new book from Alan Reynolds, describing it as “an empirical Howitzer … the most important book on the U.S. economy in 2006 and possibly one of the five most important in the decade”. This exciting tome apparently demolishes the myths perpetuated by those lousy liberals - you know, the myths about stagnating middle class incomes, increasing inequality and low social mobility in America. Myth number one comes courtesy of Paul Krugman, who wrote in an article on rising inequality in America back in 2004 wrote:
According to estimates by the economists Thomas Piketty and Emmanuel Saez—confirmed by data from the Congressional Budget Office—between 1973 and 2000 the average real income of...
I really like the sound of Joseph Stiglitz’s new book (Making Globalization Work), at least from the description of his recent World Bank talk on it by Christine at PSDblog:
The theme was the ways in which globalization has contributed to rising inequality, both across and within countries, and what to do about it. Rather than a rising tide to lift all boats, globalization is better described as “a riptide that can destroy lots of small, unprepared boats” … I’ll just pull out a few of his comments:
* The global intellectual property regime is a matter of life and death for developing countries. Negotiators of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) “signed the death warrants for thousands of people in...
I wasn’t going to comment on the recent flurry of free-marketeer blogger silliness over inequality, but now that Tim has kindly collected it all in one place the temptation is irresistable. Here’s what he says:
A highly amusing takedown of an all too common misconception over in the US blogs over the past couple of days … Brad Delong writes, “…a good chunk of the utility the rich derive from their conspicuous consumption is transferred to them from the poor”. That is, that it is not the having a lot, but having more, which makes the rich happier, exactly the same as Layard’s contention, that having less, whatever the absolute level, makes one unhappier.
All sorts of peoplethen pile in, Greg Mankiw, Arnold Kling, Don Boudreaux, and the ever...
So apparently I’m out of step with a consensus. A consensus Anthony defines around these words of Owen Barder’s:
Of course, every country should abolish all tariffs, quotas and subsidies, unilaterally and immediately, in their own interests as well as everyone else’s
I’m not so sure it is a consensus (unless Anthony just means a consensus among those who agree with him). Sure, most sensible commentators agree that the US, EU and other rich countries should open their markets, but to suggest that the same goes for every other country, no matter how poor, is nonsense. It’s widely recognised that different principles should apply to the poorest countries.
Why’s that? Well, ask a whole bunch of Third World farmers. Like it or not, a lot them currently...
What happens when you give a smart economist a weblog and too much time on his hands? According to my comprehensive survey of one isolated example, it seems they will start to talk rubbish. That isolated example is Bryan Caplan, who tells us
The homeless are different from you and me, and it’s not because they have less money.
Right - it’s because they have less home. No, wait, according to Caplan
It’s because they are extraordinarily low in what personality psychologists call conscientiousness. That’s my theory, anyway. A quite watchable documentary on Showtime (and that’s high praise from me, I strongly prefer fiction) puts my theory to the test. It’s called “Reversal of Fortune,” and it’s got a simple set-up: The film-makers...
It’s funny, but in almost the same breath that that they have been using to denounce (with what seems to be increasing urgency and even desperation) John Kenneth Galbraith as irrelevant AND a threat to the western civilization AND a commie-lover, the blogosphere’s free-marketeers can’t help but remind me how right he was about many things (though certainly not all) and how relevant he remains.
Take the twin anti-May Day rants unleashed by the Adam Smith Institute and Tim Worstall. First Madsen Pirie informs us without qualification that is only “the wealth-generating power of capitalism” that has improved workers’ lots, presumably as opposed to all that nasty freedom-stifling stuff like paid holidays, maternity leave, workplace safety regulation,...
The World Bank’s new(ish) report on Latin America is, in comparison to its past output, practically revolutionary:
According to the report, Poverty Reduction and Growth: Virtuous and Vicious Circles, while growth is key for poverty reduction, poverty itself is hindering growth in Latin American countries.
Latin America remains one of the most unequal regions in the world with close to one person in four living on less than US$2.00 a day.
The report looks at how poverty affects growth. It finds that a 10 percent drop in poverty levels, with other things being equal, can increase economic growth by one percent. In turn, a 10 percent increase in poverty levels can lower the growth rate by one percent and reduce investment by up to eight percent of GDP.
This, the report says, is...