Lecture 6: Economic Inequality and Global Insecurity Flashcards
Some argue too much equality is a bad thing
– Inhibits risk-taking
– Reduces funds for private investment
– Tax funds lost in leaky bucket
…Probably still some ‘optimal’ level though
Why care about inequality?
• If we think it is bad: two kinds of reasons
– Intrinsic: equality as a principle
– Instrumental: bad for other reasons
– Bad for growth, health, politics etc?
Who should we compare ourselves to?
- Our neighbors?
- Other people in our city?
- Other people in our country?
- Other people in the world?
- To other countries?
- To the overall global population?
How do we measure inequality?
– Shares of the pie?
– Income ratios?
Two examples that can look the same but feel very different
- Richest decile incomes remain constant; Incomes falling for bottom 90 percent
• Pie shrinks, income-biased against bottom - Incomes for both top decile and bottom 90 are both growing, but incomes in top 10 growing faster than incomes in the bottom 90
• Pie grows, income-biased towards the top
Within-country inequality
Generally focused on understanding distribution of incomes within a country.
Between-country inequality
The world is closely linked through globalization, shaping
– Income levels
– Living costs
– Rules we face (environment, trade etc)
– Migration patterns
Allows us to see how the world is changing
– Are we headed towards a world of greater between-country inequality?
When did international inequality rise dramatically?
In the industrial revolution where the ‘western’ countries take off, leaving the rest mostly where they were
In early 1820 most countries are similarly rich (or poor)
Between 1870 and 1990: rich grow 5x as fast as the poorest
Ie pie gets much bigger, but it is highly unequally distributed across countries
But inter-country inequality seems to have peaked ~around new millennium
• Why?
– Fast growing Asian economies – Parts of Africa growing fast (>4% p.a.) – Latin America (3% p.a.) – Post-communist countries (6% p.a.) – Rich countries stricken with crises • What happens next is an open question
Within- and Between-Country Inequality
• Profound inequality of opportunity – Where you are born matters enormously!
• By being born here in UK (or moving here)
– Major boost to your expected income
– Not about effort – just luck
• Leads to migration
Take each person as a point in a global pool
– Rather than taking each country as a point
– Or even weighting country points by population
• Combines within- and between-country elements
– Global inequality = within-country inequality + between-country inequality
Global Inequality
Why is this useful?
What does it tell us?
– We care about people not places
– Illuminates complex patterns of inequality that spans borders
The ‘Global middle class’
– 1/5 of global pop between 40th-60th percentile
– in absolute terms, these are still poor people living on ~$15 a day
• Relative to their country they are also middle-class – Mostly China & India, also Thailand Vietnam,
Indonesia
– But income increased by 60-80% between 1988 and 2008
Global Inequality: Winners • Global plutocrats
– Global top 1% have seen income growth almost as large (in percentage terms) than global middle class
– Nearly all rich-country residents (half US); others mostly Western European, Japanese, a sprinkling of others (Brazil, Russia etc)
Global Inequality: Losers
• Workers between 80th-90th percentile
– Rich in absolute global terms – Lower middle class in their respective countries
• Bottom 50th percentile of US, UK and Germany, Japan
– Minimal (<4%) or even negative income growth between 1988 and 2008