Saturday, September 28, 2013

Inequality: Bits and Pieces.


Mark Thoma (h/t David Ruccio) and Chris Dillow have had very interesting things to say about what shapes people's views of themselves and their place in our increasingly unequal society.

Dillow doesn't come up with any answers of his own ("Now, I say all this because I'm confused, and I suspect many others are too"), but just to bring the subject to his readers' attention is already a contribution.

Curiously, though, Dillow frames the question around the notion of "preferences", while quoting from Amartya Sen:
"The deprived people tend to come to terms with their deprivation because of the sheer necessity of survival, and they may, as a result, lack the courage to demand any radical change, and may even adjust their desires and expectations to what they unambitiously see as feasible. (Development as Freedom, p63)".
So, my question is: what "preferences" have to do with people accepting a fait accompli, as depicted by Sen in the quote above?

Thoma, on the other hand, does have a more concrete hypothesis (and one that sounds quite plausible):
"This social stratification leads those at the top to begin imposing [and maybe even believing themselves] a virtue and vice story to justify their desire to stop paying the taxes needed to support social insurance programs [which they don't need]. Those at the top did it all by themselves. They 'built that' through their own effort and sacrifice with no help from anyone else."

Still on the subject of inequality.

I've been reading "Battlers and Billionaires", by Andrew Leigh. Leigh, who has researched Australian inequality, holds a PhD in economics from Harvard (Kennedy School of Government), is a former economics professor from the Australian National University and currently is a Labor MP for the seat of Fraser (ACT).

Leigh did his homework compiling statistics for this book; there is no doubt about this. This is the highlight of the book.

Leigh also attempts to provide an explanation:
"One of the issues I'll discuss in this book is how the very rich make their money. Are they benefitting from hard work or a breakthrough innovation? Or are they earning what economists call 'rents'?"
In this he is much less successful. His explanation sounds contradictory.

At times Leigh attributes certain individuals' fortunes to economic rent and sheer luck:
"One way to see it is to compare Gina Rinehart with her father, Lang Hancock. … Is Rinehart really 190 times more ingenious than her father? Not by her own account. … In explaining the vast wealth difference between Hancock and Rinehart, it's hard to ignore the tenfold increase in the world iron ore price since 1992, delivering economic rents to Rinehart that her father could only have dreamed of".
But then, in chapter 4:
"In this chapter, I will discuss the big factors that drive these differences across countries and changes over time. These include technology and globalisation (which have combined to create 'superstar' workers), union membership, taxation and education".
So, what gives?

From the Cloud Atlas soundtrack (with a reference to Bach's Toccata and Fugue in D minor):

Image Credits:
[A] "Pyramid of Capitalist System". Public Domain. Author: Industrial Workers of the World. Wikipedia.

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