How bad is global inequality, really?

from Jason Hickel

Most everyone who’s interested in global inequality has come across the famous elephant graph, originally developed by Branko Milanovic and Christoph Lakner using World Bank data. The graph charts the change in income that the world’s population have experienced over time, from the very poorest to the richest 1%.

We can update the elephant graph using the latest data from the World Inequality Database (WID), which covers the whole period from 1980 to 2016 using a method called “distributive national accounts”. Here’s what it looks like in real dollars (MER), developed in collaboration with Huzaifa Zoomkawala (click through for a series of interactive charts that Huzaifa has created):

The elephant graph has been used by some to argue that neoliberal globalization has caused inequality to decline since 1980. After all, it would appear that the biggest gains have gone to the poorest 60% of the world’s population, whose incomes have grown two or three times more than those of the richest 40%.

Is inequality within countries getting better or worse?

from Jason Hickel

In a recent Twitter post, Max Roser of Our World In Data claimed that the narrative about rising inequality within countries is incorrect. Inequality has been falling in as many countries as it has been rising, he said, “which should be really embarrassing for many news stories that suggest the opposite with great certainty.”

Roser’s tweet referred to an interesting blog post by Joe Hasell, with a graph illustrating the change in the Gini index within countries from 1990 to 2015. Countries above the 45-degree line have seen rising inequality, while countries below the line have seen falling inequality. It’s a pretty even split (although the majority of the world’s population live in countries that have seen rising, not falling inequality).

This seems like good news indeed. So which is it? Is inequality getting better or worse?

Inequality and unsustainable consumption

Source: Extreme Carbon Inequality (Oxfam, December 2015)

Can capitalism feed the world sustainably and fairly?

from Ken Zimmerman

In 1798, just before the beginning of the industrial revolution in the UK, Robert Malthus published “An Essay on the Principle of Population as it Affects the Future Improvement of Society, with Remarks on the Speculations of Mr. Godwin, M. Condorcet, and Other Writers.” The thesis for the book was simple. The natural human urge to reproduce increases human population geometrically (1, 2, 4, 16, 32, 64, 128, 256, etc.). However, food supply, at most, can only increase arithmetically (1, 2, 3, 4, 5, 6, 7, 8, etc.). Thus, since food is a necessity for human life, population growth in any area or on the planet, if unchecked, would lead to starvation. Malthus argued there are preventative checks and positive checks on the population that slow its growth and keep the population from rising exponentially for too long, but still, poverty and some starvation are inescapable and will continue. Preventative checks alter the birth rate. They include marrying at a later age (moral restraint), abstaining from procreation, birth control, and homosexuality. Malthus considered birth control and homosexuality vices, but recognized they are practiced. Positive checks increase the death rate. These include disease, war, disaster, and finally when other checks don’t reduce the population, famine. The fear of famine or the development of famine was, thought Malthus a major impetus to reduce the birth rate. Potential parents are less likely to have children when they believe their children are likely to starve.

Malthus considered these “laws of nature.” Turns out, it’s not quite so simple.

Chain-weighting the base-year problem

from Blair Fix, Jonathan Nitzan and Shimshon Bichler   

To reiterate, the base-year problem leads to uncertainty in the calculation of real GDP. But instead of openly reporting this uncertainty, government economists have devised a “fix”. Rather than using a single base year, they “chain” together many adjacent base years. This is a bit like a moving average. They calculate the growth of real GDP between consecutive years, using the first year in each pair as the base, and then “chain” together the resulting growth measures to calculate real GDP levels. This method claims to “fix” or at least lessen the base-year problem. It doesn’t.

The appeal of chain-weighting, according to economists, is that it gets closer to their theoretical ideal. According to this ideal, the weight of each commodity in real GDP is provided by its “true” or “natural” price. When using a single base year, the implicit assumption is that relative prices in that base year are “true” and therefore constitute the “correct” weights (Equation 2). However, if the “correct” weights change over time, and if these changes are mirrored in the movement of relative market prices, we can do better by changing the base year more often (every year) and chain-weight the results.

This argument is superficially convincing, but it falls apart on further inspection.

Game Theory and Operations Research lacked substantiated applications in social, political and economic fields.

from Richard Vahrenkamp

Since 1945, the United States had experienced a unique innovation push with the computer, the nuclear weapon, new air combat weapons and the transistor within just a few years. These innovations were accompanied by Game Theory and Operations Research in the academic field. Widely–held is the view that computers supplemented the mathematical concepts of Game Theory and Operations Research and gave these fields a fresh impulse. Together, they established the view of the world as a space of numbers and introduced quantitative methods in economics, political science and in sociology. A series of conferences on these subjects settled this new view. They imparted Cold War science and technology policy with a unique flavour of progress, superiority and modernity.

Whereas the history of quantitative methods has been mainly written as a history of digital computers, the history of Game Theory and Operations Research has had only a small number of contributions.

Bringing science into economics must necessarily entail measurements in the scientific units.

from Ikonoclast

The only real science is hard science; namely physics, chemistry and biology. The rest is not science. This is not to insist on mere scientism nor is it to insist that other subjects are worthless. It is simply to insist on the precision of definition for which those (mistakenly) arguing for precise science and mathematics in economics are in effect calling. Those calling for precise science and mathematics in economics become hoist on their own petard if they use, at any point in their calculations, dollars or “utils” or “snalts” (socially necessary abstract labor time).

If you are calling for scientific and mathematical precision in economics then you must stick to the scientific units laid out in International System of Units (SI). These are base units;

There is a sound reason for the growth of statistical theory.

from Gerald Holtham

Econometrics like more casual empiricism can be done well or badly, intelligently or stupidly, dogmatically or with an open mind. But are these gentlemen saying that statistical analysis can never reveal anything in economics that is not obvious to simple observation? Evidently that is untrue. What is revealed is never a “law” and will obviously be contingent in space and time. That follows from the nature of society and economic data. Statistical analysis nevertheless has an indispensable place in social studies whether economics, psychology, medicine or sociology.

Which base year?

from Blair Fix, Jonathan Nitzan and Shimshon Bichler   

But there is a slight conceptual problem. It turns out that the growth of real GDP – ostensibly a single, objective quantity – is highly sensitive to our choice of base year.

To illustrate, consider a hypothetical economy that produces only two commodities: 1,000 lb of tomatoes and two laptops. Next, let’s choose 1990 as our base year and assume that tomatoes in that year cost $2/lb while a laptop costs $2,000. In this case, real GDP, denominated in 1990 dollars, would be $6,000 (=1,000 x $2 + 2 x $2,000). Now, skip to 1991 and imagine that, in that year, the economy grows by producing one additional laptop. This increase means that real GDP in 1991, denominated in 1990 prices, is $8,000 (=1,000 x $2 + 3 x $2,000). Compared to 1990, real GDP grew by 33.3 per cent.

So far so good. Now, instead of using 1990 as our base year, let’s use 1991.

Attempted endless growth

from Ikonoclast

I guess history shows that moral wrongs can continue almost indefinitely. However, being empirically (provably scientifically wrong to a high degree of probability) is another beast altogether. Trends that can’t continue because they approach limits imposed by fundamental laws of nature, won’t continue. It’s as simple as that. We have to change our ways (patterns of production, consumption and attempted endless growth) or civilization will crash and burn, pretty much literally. The opposition of entrenched dominant capital to necessary changes and transitions has seriously delayed necessary change. The situation is now ultra critical. We have ten years, or maybe only five years (as per the old Bowie song).

https://rwer.wordpress.com/2019/07/17/crude-economism-took-over-our-society/#comments

Understanding global inequality in the 21st century

from Jayati Ghosh

Inequality has increased since it caught the attention of the international community. The claims that global inequality has decreased because of the faster rise in per capita incomes in populous countries like China and India must be tempered by several considerations. National policies are crucial in this worsening state of affairs and the international economic architecture and associated patterns of trade and capital flows encourage such policies. More national policy space is required for governments, especially in developing countries, to pursue policies that would move towards more sustainable and equitable development which in turn requires significant changes in the global architecture. None of this can be done without some international coordination, and there is a need to revive a progressive and acceptable form of multilateralism that supports the working people across the world, rather than the interests of large capital.

Problems with the coexistence of digital currency and bankmoney

from Joseph Huber 

Impaired ability of banks to lend and invest? 

One of the concerns that have been expressed about the introduction of digital currency (DC) is that with a growing share of DC “deposit-funded bank credit might be undermined” and that “with too widespread a DC, it might threaten the banks’ lending activity, if banks cannot use deposits for that purpose”. Such statements are totally missing the point. Under fractional reserve banking, deposits are not loanable funds for the banks, and banks are not financial inter­mediaries but creators, de- and re-activators and extinguishers of bankmoney.

The proposals published so far do not intend to strip banks of the privilege to create themselves the money on which they operate in their business with nonbanks. The banks’ ability to create bankmoney at their discretion will fully be maintained rather than impaired – and this is what creates problems in the first place.

A new problem that could arise, however, is a temporary shortage of eligible securities if customers demand too much bankmoney to be converted into DC in too short a time. This is analogous to a bank run, representing a run on DC rather than traditional cash. In either case, the problem continues to be the in-built lack of bank liquidity and easy-to-liquidate assets in any bankmoney regime based on fractional reserves.

The new minds of young people will be open to the new empirical evidence.

from Ikonoclast

The methodological ideology of conventional economics will be destroyed by its failure in the current and ongoing collisions of its recommendations and applications with real systems. This is already happening as Herman Daly illustrates in his paper “Growthism: Its Ecological, Economic and Ethical Limits.”

In turn economics, like science, will progress theoretically and methodologically, or else disappear with humans themselves, “one funeral at a time” as not only current conventional economists die but as millions to hundreds of millions or even billions of other humans die due to ecological and civilizational collapse. The latter catastrophic possibility is what people seldom want to think about. Certainly, we should strive to avoid that outcome if we can. The genuine and imminent fear of ruin and death will certainly motivate people in a new way. Old theories about endless growth economics free from natural limits will be scorned. Those who persist with promulgating such theories will find a metaphorical academic or political “tarring and feathering” could be the mildest of the things that could happen to them.

Mainstream economics, we will defend you to the death.

from deshoebox

But mainstream economics must be defended. It must! Can you even imagine what might happen if it were successfully challenged? If people started to doubt the god-like efficiency of markets, the exquisite perfection of economic equilibria, the flawless functioning of billions of transactions conducted on the basis of full information and rational expectations? If people began to ask, “What is the economy really for? What is it supposed to be doing?” and if the new economists began analyzing it based on its inherent purpose instead of…well, whatever they do now? Why, if more than a handful of people started asking why we continually reproduce a system that leads to greater and greater inequality of wealth and income, facilitates the ruthless exploitation of powerless people everywhere, and that in the long run will undoubtedly be blamed for the near-destruction of civilization through alteration of the planet’s climate system….the mind reels! It could lead to recognition of universal rights to life and dignity, to limitations on profit-seeking and tax avoidance, to (and I shudder at this thought) the possibility that one of the variants of egalitarian socialism might cease to be a bogeyman used to frighten children and become a political possibility. No, this must not be! Mainstream economics, we will defend you to the death, we will worship you, and we will strike down any who dare question your fundamental tenets!

https://rwer.wordpress.com/2019/07/22/economists-like-krugman-wren-lewis-or-stiglitz-are-nothing-but-die-hard-defenders-of-mainstream-economics/#comments

Economists like Krugman, Wren-Lewis or Stiglitz are nothing but die-hard defenders of mainstream economics.

from Lars Syll

When politically “radical” economists like Krugman, Wren-Lewis or Stiglitz confront the critique of mainstream economics from people like me, they usually have the attitude that if the critique isn’t formulated in a well-specified mathematical model it isn’t worth taking seriously. To me that only shows that, despite all their radical rhetoric, these economists – just like Milton Friedman, Robert Lucas Jr or Greg Mankiw – are nothing but die-hard defenders of mainstream economics. The only economic analysis acceptable to these people is the one that takes place within the analytic-formalistic modelling strategy that makes up the core of mainstream economics. Models and theories that do not live up to the precepts of the mainstream methodological canon are considered “cheap talk”. If you do not follow this particular mathematical-deductive analytical formalism you’re not even considered to be doing economics.

So, even though we, as you formulate it, can identify many “diverse parts” of modern mainstream economics, the “degree of commonality identified” comes from the non-negotiable demand that the proliferation of models has to take place as a kind of axiomatic variation within the standard neoclassical model. But to me, and I guess most other heterodox economists, no matter how many thousands of “technical working papers” or models mainstream economists come up with, as long as they are just “wildly inconsistent” axiomatic variations of the same old mathematical-deductive ilk, they will not take us one single inch closer to giving us relevant and usable means to further our understanding and explanation of real economies.

Four structural characteristics of the US economy

from Dimitri Papadimitriou, Michalis Nikiforos, and Gennaro Zezza

In order to understand the US economy – or for that matter any economy – we need to identify its structural characteristics. These characteristics will allow us to link its precrisis trajectory to the present relatively slow recovery and, most importantly, its future prospects. Through this prism, it is also easier to understand major policy debates and concerns regarding foreign competition, such as the recent much-discussed “trade wars”.

In several previous reports we have identified four main structural problems afflicting the US economy: (1) the weak net export demand for US products; (2) the fiscal conservatism that has prevailed for most of the last three decades; (3) the increase in income inequality; and (4) the associated financial fragility.

These issues are not independent of each other. An economy that faces weak net export demand from abroad tends to have high trade deficits. From the financial balances perspective, a trade deficit implies a negative balance (deficit) for the private sector, the public sector, or both. If trade deficits are accompanied by austerity, the burden of the adjustment falls on the private sector. Such an economy faces the choice between growth accompanied by trade and private deficits – essentially growth fueled by private indebtedness – or a recession that will dampen output and reduce imports, thus reducing trade and private deficits. In the former case, private deficits accumulate into higher stocks of debt and make the financial position of the private sector more fragile.

The necessity to change the rules of the current economic system is quite obvious.

from Ikonoclast

Conventional economics is a prescriptive discipline pretending to be a descriptive discipline. I find it useful, at a first principles level of thinking, to distinguish between “rules” and “laws”.

(1) A “rule” is a prescribed guide for conduct or action by any agent (human or machine).

(2) A “law” is a fundamental law of (physical) nature described by the hard sciences after extensive observation, experiment, deduction and mathematical analysis.

A “rule” is made in a given way by culture, custom, convention, regulation or legal prescription and could be made in other ways. A fundamental law of nature is unchangeable by humans.

A “rule” may be possible or impossible to obey or execute depending on its relation to natural laws. Rules may also be executable for a period of time until natural limits are reached. Executable rules tend to work better if they are consistently obeyed by agents, although this tendency can reverse when consistent obedience leads to trends which run up against natural law limits.

Colonialism’s mindset planted the seeds of today’s climate crisis

from Jamie Margolin and The Guardian

Many people trace the origins of today’s climate crisis to the Industrial Revolution, when humans first began to burn large amounts of coal, but the crisis’s true roots extend further back to the onset of colonialism. When European colonizers ventured to Africa, Asia, North and South America, they invariably plundered the local natural resources, damaged habitats, hunted species to extinction and often forced human inhabitants into slavery. Undergirding European colonialism was the assumption that everything on the earth was meant to be extracted, bought and sold – and to make an elite minority very rich. In the eyes of the colonizers, the “new” lands they encountered had no owners – no one had purchased them with a recognizable currency or could prove ownership with property records – so it was free pickings. Along with this attitude came the idea that nothing – not air, not water, not trees, not animals – was sacred or priceless.

Colonialism’s mindset of heedless extraction, greed and human exploitation not only planted the seeds of today’s climate crisis, it remains visible in the crisis’s central injustice: although the poor are responsible for only a tiny share of humanity’s greenhouse gas emissions, they generally suffer first and worst from the heatwaves, droughts, storms, rising seas and other effects of those emissions.   read more

Crude economism took over our society

from Ikonoclast

Democracy is seen mainly as a hindrance to economics. Technology and science are funded (or not funded) mainly at the behest of economics. Production science which assists corporate capitalism gets massive subsidies. Impact science (ecology, climate science etc.) gets pitiful funding by comparison. It is not so much the unintended consequences of technology and science which are causing climate change (for example) but the ignored consequences of technology and science mustered at the behest of and in the manner specified by capital which are causing climate change. This is a crucial distinction.I think people are trying to correct a great distortion which has occurred. Speaking of babies and bathwater, what could we regard as the great advances of the modern era? I mean the era running from 1500 to the present day. I would take them to be the rise of technology, science, democracy and economics. What do we hear about most today? We hear about (conventional) economics ad nauseum. It’s almost as if technology, science and democracy have been treated as bathwater and thrown out.

We could have used technology, science and democracy in much better ways but crude economism took over our society and specified and controlled the ways we could and could not utilize technology, science and democracy. This is our central problem.

https://rwer.wordpress.com/2019/07/14/why-economic-models-do-not-give-us-explanations/#comments

Elinor Ostrom and common pool resources

from John Tomer  

Elinor Ostrom’s (1990; 2009) research focuses on common pool resources (CPR) and the dilemmas they have posed for their users and society. A CPR is a resource such as a fishing ground, an irrigation system, ground water, pasture land for grazing animals, etc. that jointly benefits a group of people (the users) but which provides diminished benefits to the users involved if each individual pursues his or her narrow self-interest without considering other users. The CPR has a definite capacity. The problem is that each individual user has an incentive to overuse the resource. As authors such as Garret Harden (1968) have pointed out, when each user single-mindedly and independently follows the incentives, that will cause depletion of the CPR’s capacity, possibly creating a tragic overuse of the resource.

In the view of conventional economic theory, there are only two ways to deal with this overuse problem.