The Living Thing / Notebooks :

Economic inequality

Return to capital versus return to labour versus return to state of nature

Zach Wienersmith:

Will call your achievements meritocratic for food
Will call your achievements meritocratic for food

Piketty, Hayek, Marx, Pareto. The supercritical Matthew effect. Informational feedback Matthew effect.

What the hell is growth, and who does it? Do we care if only the minority does it? Is it a problem if technocapitalist god kings rule over a blasted landscape of diseased stunted serfs, or is that totally cool? If fine, is it sustainable? If not sustainable, does that really matter, or should we just go out with a billionaire yacht orgy on the swollen rotten oceans then blow the lights out with nukes?

Chris Dillow, on increasing income inequalities amongst companies

If all of this is right, and these are long-lasting changes – which is a big if – then we need to ditch some old mental models and rediscover some others. We should abandon the idea that competition equalizes profits and restrains monopolies and perhaps return to some older Marxian ideas.

Are intangibles worsening the productivity gap between leading firms and laggards?:

We wonder whether might be more going on here than just a failure of technological diffusion. Specifically, we suspect that the nature of what the winning businesses are doing is changing in a way that makes it harder for their competitors to catch up.

Amusing snark in covering Mansion magazine, the magazine of elite fancy housing.

Inequality and conflict

xhxhxhxhx summarises

We do have strong and consistent predictors of social conflict. They just don’t include inequality. Paul Collier and Anke Hoeffler, in “Greed and Grievance in Civil War” Oxford Economic Papers 56:4 (2004), found that many variables simply do not matter. Not inequality. Not political rights. Not ethnic polarization. Not religious fractionalization.

So what did matter? Chris Blattman and Edward Miguel’s review paper, “Civil War,” in the Journal of Economic Literature 48:1 (2010) tells us that two factors are robustly linked to civil war: “low per capita incomes and slow economic growth.” Håvard Hefre and Nicholas Sambanis, “Sensitivity Analysis of Empirical Results on Civil War Onset” Journal of Conflict Resolution 50 (2006), which tested standard predictors for robustness, identified a few more:

… large population and low income levels, low rates of economic growth, recent political instability and inconsistent democratic institutions, small military establishments and rough terrain, and war-prone and undemocratic neighbors.

I haven’t read the quoted studies, but I presume they assume that inequality doesn’t lead to conflict, controlling for economic growth, democratic institutions and so on. Leaving aside the question of whether one can select the true causal factors here with high probability from the awful data on natural experiments available, and presuming the authors have responsibly identified spurious influences by good choice of instruments and so on, this is interesting. FWIW though, the link between long-term inequality and long-term slow economic growth and weak democratic institutions is what I’m more interested in, and this does more to make me think that in fact I should be more concerned about inequality in the light of its potential indirect linkages to conflict.

Development version, Bo Rothstein, How the Trust Trap Perpetuates Inequality

I would like to add yet another factor to this discussion—trust, in two distinct forms. One is social trust, the extent to which people trust most others in their society. An important asset for any community, it influences how likely individuals are to participate in politics or civic organizations, how tolerant they are of minorities and even how optimistic they are about their life chances. The other kind is institutional trust—the extent to which people believe their public institutions can be trusted.[…]

I contend[…] that yet another factor stands at the head of the causal chain—having cascading effects on institutional trust, social trust and inequality. That fountainhead is corruption, which undermines not only trust in public institutions but also social trust. If people perceive that public servants are generally dishonest, incompetent or discriminatory, they are likely to make two inferences. To begin with, if you cannot trust the judges, police officers or tax collectors who are supposed to act in the public interest, why should you trust anyone else? If most people have to pay bribes or use personal contacts to get what they need from the public sector, how can they be trusted? If powerful, moneyed lobbies are observed to extract undue favors from the government, as seems all too common today, especially in the U.S., that too undermines institutional trust and, in consequence, social trust.

Crucially, corruption in the public sphere also increases inequality by transferring resources from the public to the elites and, more generally, from the poor to the rich. Studies in Africa and elsewhere show the poor have to pay more in bribes as a fraction of their income than both the rich and middle classes, who have ways to circumvent corruption or to take advantage of it. For example, corrupt countries have much less social mobility because the rich use their connections and their money to get their untalented or unambitious offspring into good schools and good jobs. In a corrupt system poor people have neither the contacts nor the money to help their children climb up.

In unequal societies these interlinked factors feed on one another in very destructive ways

To read