Friday, August 30, 2019

Waves of Inequality

I recently flagged the forthcoming Binyamin Appelbaum book, The Economists’ Hour: False Prophets, Free Markets and the Fracture of Society. But that's hardly the only interesting book coming out on the rise of inequality. I recommend this review essay by Liaquat Ahamed in the New Yorker which discusses not only the Appelbaum book but also Branko Milanovic's forthcoming Capitalism, Alone: The Future of the System That Rules the World. Ahamed does a good job of weaving together the themes of the Appelbaum and Milanovic book with past trends in inequality and future challenges.
I am especially looking forward to the Mianovic book.
"In [his previous book] “Global Inequality,” Milanovic traced the fluctuations of inequality back to the Middle Ages in Holland, Spain, and Italy, and showed that inequality has been going up and down in long and unpredictable waves ever since, responding to various contending forces.....
In “Capitalism, Alone,” Milanovic turns from the past to the future. With the rise of the emerging economies of Asia, he says, we now have two alternative forms of capitalism operating side by side. One is the “liberal meritocratic” version found in the West, and championed by the United States. The other is “political capitalism,” the less democratic and more authoritarian variant, which has taken shape, most notably, in China. Like all schematics, this one elides a lot of details, but it provides a useful conceptual frame.
In the “liberal meritocratic” world, inequality arises from the way capital is accumulated. The rich are able to save more than the poor, and thus come to own a disproportionate share of the capital and the wealth in the economy. Since the return on capital, a major source of income for the rich, tends to be higher than the growth of wages, the rich become richer. Almost as potent is the way the benefits of education are distributed: rich people tend to be more highly trained, and can earn higher salaries; they are also able to earn higher returns on their capital, since their wealth gives them greater tolerance for illiquidity and risk. In addition, they tend to marry other rich, educated people and are able to pass on more capital to their children, thereby perpetuating inequalities from one generation to the next.
The “political capitalism” of China has its own inequality-generating dynamics. Although China has become capitalist to the core—almost eighty per cent of the country’s industrial output is produced in the private sector—the commercial classes are under the thumb of a highly disciplined, autocratic bureaucracy. The rule of law is attenuated, decision-making can be arbitrary, property rights are not fully secure, and corruption is endemic. China is essentially going through a hugely accelerated version of the industrial revolution and the Gilded Age rolled into one. Add in the insidious impact of cronyism, and a very unequal society results. Income distribution in China, it turns out, is even more skewed than in the United States, approaching the sort of levels one finds in the plutocratic republics of Latin America....
Milanovic...belongs to a new generation of data-driven economists who have helped track what has happened to income distribution in recent years. They happen to include an unusually large band of French economists, among them François Bourguignon, Thomas Philippon, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman—it’s not for nothing that they come from the land of égalité and fraternité.
The cohort of European economists, including Milanovic and the French brigade, are following in the footsteps of Tocqueville. They have been able to hold up a mirror so that we Americans can better see ourselves. They’ve also succeeded in focussing public attention on the issue of inequality. They consciously moved away from quantifying inequality with opaque statistics such as the Gini coefficient, and instead popularized more readily understandable measures, like the share of income going to the very, very rich. The phrases “the top one per cent” and its obverse, “the ninety-nine per cent,” became potent political rallying cries during the Occupy Wall Street movement in 2011, and concern for the problem hasn’t dissipated. Inequality is a major political issue in the lead-up to the 2020 Presidential election; Democratic candidates are airing proposals for wealth taxes, steeper income taxes, more biting inheritance taxes, and a better social safety net. That’s another heartening reminder of the power of ideas to shape the course of history."
Get your pre-order in now! Pub date, October 15.
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Inequality comes in waves. The question is when this one will break.

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