The World of the Future?

g > m

I thought I'd get beyond the r > g mania and post about a more fundamental inequality:

g > m

to wit:




It started out close in the year of our births but then......

Inequality, Inequity, and Solidarity

What do Americans know about inequality? It depends on how you ask them

Kimmo Eriksson & Brent Simpson
Judgment and Decision Making, November 2012, Pages 741–745

Abstract: A recent survey of inequality (Norton and Ariely, Perspectives on Psychological Science, 6, 9–12) asked respondents to indicate what percent of the nation’s total wealth is — and should be — controlled by richer and poorer quintiles of the U.S. population. We show that such measures lead to powerful anchoring effects that account for the otherwise remarkable findings that respondents reported perceiving, and desiring, extremely low inequality in wealth. We show that the same anchoring effects occur in other domains, namely web page popularity and school teacher salaries. We introduce logically equivalent questions about average levels of inequality that lead to more accurate responses. Finally, when we made respondents aware of the logical connection between the two measures, the majority said that typical responses to the average measures, indicating higher levels of inequality, better reflected their actual perceptions and preferences than did typical responses to percent measures.

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Income inequality and solidarity in Europe

Marii Paskov &Caroline Dewilde
Research in Social Stratification and Mobility, December 2012, Pages 415–432

Abstract:  This paper studies the relationship between income inequality, a macro-level characteristic, and solidarity of Europeans. To this aim, solidarity is defined as the ‘willingness to contribute to the welfare of other people’. We rely on a theoretical idea according to which feelings of solidarity are derived from both affective and calculating considerations – we derive competing hypotheses relating the extent of income inequality to these ‘underlying’ motivations for solidarity. Using data from the 1999 European Values Study (EVS), we apply multilevel analysis for 26 European countries. Controlling for household income and a range of macro-level characteristics, we find evidence that in more unequal countries people are less willing to take action to improve the living conditions of their fellow-countrymen. This is true for respondents living in both low- and high-income households. According to our theoretical framework, this finding suggests that, at least when measured in terms of ‘willingness to contribute to the welfare of other people’, feelings of solidarity seem to be influenced more strongly by affective, rather than by calculating considerations.

Nod to Kevin Lewis

The Grand Game: Inequality Division

The gap between the way I would characterize the events of the last five decades, and how this person characterizes the events of the last five decades.... amazing.

He oscillates between making up facts, misinterpreting facts, and simply ignoring facts altogether. Enjoy.

"A Short History of NeoLiberalism"

It's just me and Christy, me and Christy, me, me, me & Christy!

Last week, I begged to differ with a guy claiming that manufacturing was indeed special because people earned a wage premium simply by entering the sector, or as he put it, that there were "labor market rents" associated with getting a manufacturing job.

Turns out Christina Romer has my back!

She points out that (a) on the low skill end, manufacturing pay premia have shrunk and likely will continue to shrink, and (b) increased technical sophistication in manufacturing has created more jobs that require higher skills. She points out that the number of manufacturing workers with some college education has more than doubled.  Thus, subsidizing manufacturing is NOT likely to reduce income inequality in the US.

Romer attributes the shrinking premium to low skill workers to increased international competition, while I attributed it to both that factor and the decline of union strength. She doesn't point out that there is an upside to increased international competition, namely lower priced goods for American consumers.

Krueger on Inequality

This would be Alan ("Nominal") Krueger, not Anne ("Real") Krueger. The problem is that Alan is not adjusted for infliction (of nonsense).

His screed on inequality and its causes.

The slides for the speech.

The topic is an important one. Dr. K's presentation of the problem are interesting. Not sure why he decided to go all simplistic on the "causes," tho. This is complicated.

(Nod to E-Chris)

Inequality, take II

So what I was saying yesterday is that graphs like this don't intrinsically bother me:

What is worrying to me is how we got to this graph, as described here:

CBO finds that, between 1979 and 2007, income grew by:

275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.

If we had gotten to the graph via say 75% growth in the bottom quintile with correspondingly faster growth in the other groups, I'd see no no problem at all.

But we didn't.

Incomes in the lower part of the distribution are not really growing. 18% growth in 29 years stinks. 40% growth in 29 years is really not much better either.

To me, it's the lack of absolute improvement in incomes at the bottom of the distribution that we need to address, not the big growth at the top.

And I just don't see how hammering the 1 percent is going to sustainably raise income growth for the bottom 20-40 percent.

We need to fix public education, and the problem there is not really a lack of overall expenditures.

We need to not put so many young people in prison and the problem there is not a lack of expenditure.

We need stronger and more stable family lives for more children. I am not sure if greater expenditure would help here. Maybe.

Inequality

To me, whether inequality is a problem/evil/worthy target of policy depends on how we reached that inequality.

For example, if the real incomes of bottom 20% were growing at 4% per year while the real incomes of the top 20% were growing at 6% per year, we would eventually arrive at a very unequal society. However, to my mind, it would not be a problem or a legitimate target of policy because the bottom quintile would be doing pretty well in an absolute sense.

Another way to say this is that I don't think policy in our current situation should be addressed at reducing inequality, I think it should be addressed at increasing opportunities for the group of people that are not doing well.

Another way to say this is that I'm not troubled by the super-rich, I'm troubled by the persistently high unemployment rates for people with limited education levels.

I could probably sign on to celebrate income inequality; but at the same time, I am very worried about the absolutely poor income trends for the bottom quintile.

It's just not obvious to me that taxing millionaires will help the job and earnings prospect of low skilled workers.

This is why Lefties say "It's ALL Luck!"

Social Insurance and Income Redistribution in a Laboratory Experiment

Justin Esarey, Timothy Salmon & Charles Barrilleaux
Political Research Quarterly, forthcoming

Abstract: Why do some voters support income redistribution while others do not? Public assistance programs have two entangled effects on society: they equalize wealth, but they also cushion people against random catastrophes (like natural disasters). The authors conduct a laboratory experiment to determine how individuals' responses to the environment are related to their self-expressed political ideology and their self-interest. The findings support the hypothesis that ideology is associated with a person's willingness to use redistribution to reduce income inequality that is caused by luck, but it is not related to preferences for inequality that are not related to luck.

(Nod to Kevin Lewis)

Does Where You Start Determine Where You End Up?

Sources of Lifetime Inequality

Mark Huggett, Gustavo Ventura & Amir Yaron
American Economic Review, forthcoming

Abstract: Is lifetime inequality mainly due to differences across people established
early in life or to differences in luck experienced over the working lifetime? We answer this question within a model that features idiosyncratic shocks to human capital, estimated directly from data, as well as heterogeneity in ability to learn, initial human capital, and initial wealth. We find that, as of age 23, differences in initial conditions account for more of the variation in lifetime earnings, lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime.

(Nod to Kevin Lewis)

Freedom update

Will W. nicely defends himself here and expands on the issue of inequality and freedom.

Plus, I have some further thoughts on freedom. There certainly are groups of people in the US who are less free than others. Gays and illegal immigrants come to mind. In the past, African-Americans and women had less freedom. I don't see any of those freedom issues as being related to income/wealth.

Find the cost of freedom

As part of a fascinating debate about measuring inequality, the generally excellent Interfluidity made the following remark that simply threw me for a loop:

In my view, freedom, not consumption, is the central distinction between rich and poor. It is odd that I should argue this point with libertarian Wilkinson.

I guess that I am somehow missing his point or else fundamentally misunderstanding what the word freedom means.

In the United States at least, we are all free to vote, speak, practice (or not practice) our religion, etc. etc. We are not all free to send our kids to expensive schools, but that's consumption. We are not all free to travel to other countries, but that's consumption.

Interfluidity only gives one concrete example, which throws me for another loop:

Indebtedness also entails a cost in freedom that we miss if we focus on consumption.

I think that, if anything, this is backwards. Having little to no collateral, the poor are not "free" to borrow money. The ability to take on debt is liberating. However, I would still argue that this shows up mainly in consumption.

I guess I could agree with a statement like "the poor are not free to smooth their consumption stream", but I'd still be quite conflicted about how exactly that is freedom.

I was bothering Mrs. Angus about this (she thinks I'm at least partly wrong, which means I probably am, but I honestly can't see it), and she brought up differences in life expectancy across identifiable groups, but again to me, that is an exceedingly tenuous use of the concept of freedom. Men are not free to live as long as women? (NB: that was NOT the example that Mrs. Angus used).

In Hansonian terms, I must recognize that Interfluidity, Mrs. Angus and Sen are all smart people, so I'm probably somehow wrong, but to me, freedom is nowhere near the central difference between the rich and the poor, at least not in the USA.

I have to go with Hemingway here people: The main difference between the rich and poor is that the rich have more money!

Does anyone want to go Kristofferson here: "Freedom's just another word for nothing left to lose".

Damn, I'm not the greatest Kevin in Oklahoma anymore

People, check out Kevin Durant's stat line for the month of January:

In 15 games, Durant averaged 32.1 points, 8.1 rebounds, 2.7 assists and 1.1 steals. He shot 51.9 percent from the field, 53.2 percent on 3-pointers, and 89.8 percent from the foul line.

I have sent out a paper, done 3 referee reports, taught my classes, put together a dissertation committee for one of my students and almost completed a draft of a new paper.

Somehow, it's just not the same, is it?

Assessing the damage in Honduras

Greg Weeks, one of my two go to guys for Latin America, points to this generally good article in FP (yes I know I once called it the the "People Magazine of international affairs).

Granted, this author also seems angry that the coup-makers "got what they wanted", but he does not urge non-recognition of the election results. 

However, he does point out that the election even if universally recognized will not mean that the underlying problems in Honduras have gone away:

Even better, international favor could have been conditioned on an effort to rethink a surreal constitution that leaves the country vulnerable to future democratic breakdowns. Or perhaps a serious introspection among the Honduran elite about the introduction of social reforms of the sort that are desperately needed in a country afflicted by the pervasive poverty and obscene inequalities that make Zelaya-style populism an irresistible temptation.

He also points out that Zelaya was his own worst enemy throughout the whole affair:

To be sure, this is no vindication of Zelaya, an irresponsible politician who is as much a part and a product of the Honduran elite as anyone. The ousted president played his hand poorly: His unsurpassed ability to ramble confirmed all the prejudices about him, and his racking up miles in Venezuelan President Hugo Chávez's plane proved a dead-end route to regaining the presidency. Zelaya will go down in history as the single biggest culprit in his own coup. He was right about one thing (revising the Honduran constitution) but for the wrong reasons (he wanted to tamper with term limits and re-election clauses).

All in all a good piece, well worth reading. Honduras did not start down the road of Venezuela, Bolivia, and Ecuador this time, but the underlying conditions that made Chavez and his minions so popular among big segments of their country's populations still exist in Honduras.