Reply to Ryan Avent

Ryan Avent recently criticized a brief comment I made in a post on inequality:

Scott Sumner adds:

I also like Goetzmann’s comment about global Gini coefficients. Liberals should care about global welfare. Are they closet nationalists?

These sorts of remarks are common responses to those pointing out that inequality is soaring across the rich world, and they strike me as very problematic.

It is true, of course, that inequality globally has been falling. And it is absolutely right to say that this trend is hugely important and is contributing to a massive rise in global welfare. We should all be ecstatic about it. But in no way does that development excuse us from caring about and worrying about national income inequality, for a few very important reasons.

The first is that it implies, without ever making an actual argument, that efforts to reduce income inequality within rich economies must necessarily slow reductions in global inequality. Why bring up the global statistic unless you are worried that expressions of concern about national inequality are likely to undermine the global trend?

I can see why Ryan thought that this was why I brought up the issue, but it isn’t.  I don’t see much of a tradeoff between national and global inequality, except on the issue of immigration.  The line Ryan quotes was sort of a throwaway line in a post focused on much more technical problems with inequality research.  The rest of the post was what the post was “about.”

So what was my point in that brief remark?  I guess I had several things in the back of my mind. It seems to me that people focus far too much on national inequality and far too little on global inequality.  For instance, when people talk about “inequality” without any qualifier at all, they should mean “global inequality.”  That would be the most logical implication.  But obviously it isn’t, if you googled “inequality” you’d find 90% of the references in recent blog posts refer to national inequality.

I don’t care at all about income inequality because income is a meaningless statistic.  But I do care a lot about economic inequality (which is presumably what Ryan really cares about as well.) Indeed I believe it is by far the biggest problem in the world. Nothing else comes close.  That’s why I push back against economists like Paul Krugman when they advocate getting tough with the Chinese on trade.  If you keep your eye on the ball you are more likely to favor sound economic policies.

In contrast, I see national economic inequality as a problem, but one much further down on the list.  We have lots of other problems such as the war on drugs, unemployment, global warming, education, NSA spying, health care, etc, etc.  Economic inequality in America is greater than we’d like (although far less than you’d expect from the meaningless income data).  But it’s just one problem among many.

At the global level, however, inequality is the elephant in the room.  It’s where almost all our attention should be focused.  Any article on “inequality” (no qualifier) should begin with a description of how much better things are than back in the horrible 1950s and 1960s when inequality caused misery that is simply beyond human comprehension.  But that’s not how most articles on equality begin.  They start by referring to the 1950s and 1960s as a “golden age,” which is an insult to the tens of millions of Chinese who were starving to death while American economists were completely focused on reducing unemployment from 5% to 4%.

Of course I’m guilty here as well, as this blog has an American focus.  I think we all tend to instinctively think in nationalistic terms, and need to push back against that tendency.  If I can end on a positive note it’s that Ryan Avent and the magazine he works for are among the best in the world at not letting nationalism cloud their judgment.

Just as we can walk and chew gum at the same time, we can address both types of inequality at the same time.  So let’s do wage subsidies for low-paid American workers and lets move toward free trade and open immigration to reduce global inequality.  Do both.  If they ever start conflicting then go for policies that reduce global inequality first.

PS.  I have a new post over at Econlog documenting how 2013 was a great year for market monetarism.


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26 Responses to “Reply to Ryan Avent”

  1. Gravatar of Brian Donohue Brian Donohue
    10. January 2014 at 07:38

    Amen. 1% vs. 99% is too narrow a frame. US income inequality bickering is really the 0.1% against the 10%, with 90% outside of the frame.

  2. Gravatar of Brian Donohue Brian Donohue
    10. January 2014 at 07:42

    OT- the immediate impact to the disappointing jobs report. Rates drop a lot (hold that taper!) stocks off fractionally (monetary offset?)

  3. Gravatar of Danny Kahn Danny Kahn
    10. January 2014 at 07:55

    It’s strange of you to phrase it that global inequality caused misery. Did inequality cause the misery or did extreme global poverty cause the misery? I would expect that if the focus turned from national inequality to global inequality then conservatives and libertarians would use the same argumentation that they currently do and say things like we shouldn’t care about (global) inequality, only about (global) poverty. And I would expect that you would agree with that framing.

  4. Gravatar of J Mann J Mann
    10. January 2014 at 08:06

    I’m with Danny. I know Scott and Ryan know the difference, but it’s clearer to separate out poverty from inequality, or to call out the linkage if they’re being discussed as linked.

    – I’m more concerned about poverty than inequality. If I could press a magic button and double the poor’s income, I’d do it, even if if unavoidably tripled the middle class’s income and quadrupled that of the rich.*

    – With that said, all else being equal, I’d like to reduce inequality as well. It’s not particularly fair that someone born in Bangadesh or Alabama has less lifetime consumption and fewer opportunities than someone born in Massachusetts, and the political forces that inequality fosters are IMHO destructive.

    – With that distinction made, I think both Ryan and Scott have a point. If you told me that inequality in the US as a whole was declining, but inequality within counties was increasing, I’d see that as a mixed bag, especially if it was relatively difficult to relocate to a new county. The story would probably be importantly incomplete unless you reported both facts.

    * (Subsitute consumption if you want, and if I got the numbers wrong, assume I thought of some numbers that would increase Gini inequality).

  5. Gravatar of Robert Robert
    10. January 2014 at 08:17

    I also like to remind people that global inequality is falling. Why? Because it is often due to trade openness, embracing capitalism, and eschewing policies that were aimed at creating equality within countries that has lead to a rise in equality globally.

    China is one example.

    There are arguments that say trade with China has caused low-skilled workers in the US to fall behind high-skilled workers in terms of compensation, thus raising inequality. But at the same time, it allowed China’s low skilled workers to escape crushing poverty.
    Overall, because productivity has risen, most are better off. And global inequality has fallen.

    So, the two are linked.

  6. Gravatar of Jon Jon
    10. January 2014 at 08:46

    Scott, not just immigration. Integrating poor nations into global trade is lowering global inequality and dragging on inequality in rich countries.

    One of my favorite points is that if ten percent of a country is exceptionally skilled, china has a billion people. India has a billion people. Yes 200 million adults in the us are going to see their position in the world slip down after we release the shackles of discrimination and isolation from the Indians and Chinese.

  7. Gravatar of ssumner ssumner
    10. January 2014 at 09:05

    Brian, Yes, but I’m a bit surprised that the 6.7% figure didn’t cause “forward guidance” concerns. I seems like the market believes Yellen will just use 6.5% as a threshold, i.e. no rate increases before 6.5%, and perhaps not until many months after.

    But rates fell and stocks fell as well.

    Danny, Completely fair point and to be honest that’s really what I am thinking. When I talk about global inequality I really mean very low living standards in some areas. If it was people making $100,000 in poor countries and $200,000 in rich countries I wouldn’t much care. I should have been more specific.

    Jon, Good point.

  8. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. January 2014 at 09:06

    Scott,
    Off Topic.

    Mike Konczal has a new post called “In 2013, the Fed Showed Why Fiscal Policy is Still Important”:

    http://www.nextnewdeal.net/rortybomb/2013-fed-showed-why-fiscal-policy-still-important

    He discusses two tests that “Market Monetarists” put forward in early 2013:

    1) “Paul Krugman Will Not Like These Figures,” David Beckworth, December 2, 2012, Macro and Other Market Musings

    2) “The Federal Reserve’s New Yield Curve,” Matt Yglesias, January 21, 2013, Slate

    The gist of #1 is that he once again brings up the year on year NGDP graph which mostly displays the slowing down of NGDP in 2012. This has been previously addressed so I don’t think I need to add any more.

    With respect to #2:
    1) Is Matthew Yglesias a Market Monetarist? Yes I know he is sympathetic to MM, but classifying him with other MM bloggers seems an enormous stretch.
    2) Matthew Yglesias’ post is on inflation expectations, which is a useful indicator for monetary policy, but it still reflects one of your dreaded “i” words (e.g. inflation, interest, income, etc.) and which would be vastly inferior to a NGDP futures market should one ever come into existence.
    3) Matthew Yglesias’ post specifically addresses the Cleveland Fed’s January 2013 inflation expectations chart which as Marcus Nunes noted at the time was mislabeled:

    http://thefaintofheart.wordpress.com/2013/01/21/be-careful-when-using-other-peoples-charts/

    “…Unfortunately, the chart is wrong! The curves were mislabeled…”

    So basically Konczal is attacking a test set up by a non-Market Monetarist on a measure that Market Monetarists think would be greatly inferior to a market for NGDP expectations (if it only existed), and the premise of that particular post was itself based on a graph the Cleveland Fed mislabeled.

    Go figure.

  9. Gravatar of Philo Philo
    10. January 2014 at 09:23

    “I do care a lot about economic inequality . . . .” Is this inequality of *(lifetime) happiness*–roughly the same as *(total lifetime) well-being*? Happiness/well-being is what is *really important*, not income and not “economic condition.” And (as Danny Kahn and J. Mann remark) it is absolute levels that are important, not *(in)equality* (in itself).

    By the way, ‘global inequality of X at time t’ probably means inequality of the *momentary* (not *lifetime*) value of X among human beings alive at t, including babies, old people, human beings lying in irreversible comas, etc. (1) Shouldn’t lifetime quantities be used by the devotees of “fairness”? (2) The notion (of global inequality) excludes consideration of non-human creatures. In Peter Singer’s term, it is a *speciesist* notion, which ought to be banished from our (virtuously non-speciesist) thinking.

  10. Gravatar of Doug M Doug M
    10. January 2014 at 09:24

    Thanks for pointing out that there is no golden age.

    I suppose what gets me about inequality arguments, is that they are all based on the relative position of the richest to the poorest, without much thought about what that really means. If a policy makes everyone richer, but benefits the rich more than it does the poor, isn’t it still a good policy?

    I think we should be framing the discussion in terms of what is the minimum standard of living that we should tolerate given our wealth. Everyone should be able to sleep under a roof that doesn’t leak, and everyone should have access to clean water and adequate nutrition. After that we can discuss how much more is required to meet those minimum standards.

    If we define poverty based on levels of income, and income distributions we have defined a war on poverty that is un-winnable.

  11. Gravatar of Philo Philo
    10. January 2014 at 09:25

    (But it would be absurd to worry about the inequality of dogs and cats with human beings. So for the non-speciesist thinker, it is absurd to worry about inequality.)

  12. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    10. January 2014 at 09:42

    ‘So basically Konczal is attacking a test set up by a non-Market Monetarist on a measure that Market Monetarists think would be greatly inferior….’

    As the old saying has it, The easiest person to fool is yourself.

  13. Gravatar of myb6 myb6
    10. January 2014 at 09:51

    Automatically weighing global goals higher than national goals seems to me like undermining a beneficial institution. This is why I’ve never bought your line on this. On top of the institutional concerns, some things are zero-sum, and by raising others relatively we can actually lose.

    I also still don’t buy your line on income. Sure it’s not perfect, but consumption is an even worse proxy for economic benefit, because economic control/ influence/security have utility.

    There are three phenomena tied up in USA-inequality concerns: (1) the objective condition of the lowest rungs, (2) water-treading for the majority, and (3) the concentration of benefit in the top sliver. When people lump it all together, it becomes easy to criticize whichever piece is most convenient for your argument (even with complete integrity and good intentions).

    So I, being mostly concerned with 2 and 3, can’t buy into your policy prescriptions. We’ve done poor-relief and international trade opening, and the results for the condition of the US majority and the concentration of power have not been very promising. As far as the global poor, how much of recent improvment is international trade versus improvement in internal instutions? I’m not sure. I also feel like your two policies have cancelling effects on the US poor.

    So I see your policies, relative to biz-as-usual, as causing likely loss for the US majority, likely increase in elite concentration, and little effect on the US poor in exchange for some potential benefit for the global poor. I’m not willing to weigh US majority interests and institutions low enough to make that deal attractive.

  14. Gravatar of mpowell mpowell
    10. January 2014 at 09:58

    I see that you clarified your position and I think with that clarification I agree with you. From a humanitarian perspective global poverty is a bigger problem than domestic inequality. I think most people would agree with that, though there is a question of how much a national govt can do about a global problem or how much energy it ought to be spending addressing it.

    The nature of national inequality is different in that people theorize that greater inequality can lead to worse quality of life for the poor even if their purchasing power stays the same. And I think also many people concerned about inequality believe that as inequality increases it will be self-reinforcing phenomenon and likely lead to lower purchasing power for the poor.

    As for myself, I am not too concerned about inequality itself, but I do believe that the US federal govt should be looking at ways of improving middle class and lower class living standards and earning power. Better and more aggressive monetary policy would be a great start, though, and possibly sufficient because the picture was a lot better in the 90s with a very similar regulatory environment.

  15. Gravatar of myb6 myb6
    10. January 2014 at 10:08

    Philo,

    Happiness/well-being: let’s say 100 million people would get great enjoyment out of seeing your best friend tortured on TV.

    Let’s stay narrow, cuz sorry we’re never going to all perfectly agree 100% what the philosophical goals of our institutions should be.

    Lifetime analysis requires great knowledge of the future in order to make even basic policy decisions today. That’s not a good recipe.

  16. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    10. January 2014 at 13:16

    Recently, in Portugal, there was a bit of surprise as statistics show that both poverty and inequality were down over the last few years.

    In fact, Portugal has gone from the 2nd most unequal country in the EU to much more middle-of-the-pack as inequality increased in the rest of Europe. And poverty is down too! Not by a lot like inequality, but, a little down.

    Of course, this a leveling down: higher taxes have mostly hit those earning more and many young high-earners moved to friendlier tax regimes. This naturally reduces inequality, but it also reduces relative poverty because the median is down so that the poverty level has gone down in tandem (ie, people who were classified as poor a few year ago were statistically lifted people out of poverty as they now make above 60% of the new median).

    *

    And, yet, I don’t see people celebrating this. Seriously, I did not see a single person who wrote that this was evidence for the positive benefits of higher taxes on inequality.

    Some on the left have even complained about the use of a relative measure of poverty! “A person who earned 430e/mo was at-risk-of-poverty 5 years ago, but now is OK because the median went down?” you hear them say.

  17. Gravatar of benjamin cole benjamin cole
    10. January 2014 at 14:42

    I favor immigration into the USA—but open immigration?
    Side issue: so x million people from country x migrate here, vote as a bloc. Cuba come to mind? Would open immigration mean, like water settling, global quality of life settles?
    So 120 million Indians migrate to USA, and 52 million Africans but then life here is miserable enough that immigration slows down?
    Nationalism may have some merits….

  18. Gravatar of ssumner ssumner
    10. January 2014 at 15:12

    myb6, It’s not that income is not perfect, it’s horrible. Consumption is far better. The fraction of Americans with poverty level consumption has been almost continually declining since the 1970s. That matters much more than “income inequality” data.

    Everyone, I should have talked about global poverty not global income, that’s what I was actually thinking about.

    Luis, Very interesting observations on Portugal.

  19. Gravatar of Saturos Saturos
    10. January 2014 at 21:33

    “So let’s do wage subsidies for low-paid American workers and lets move toward free trade and open immigration to reduce global inequality.”

    Wouldn’t that tend to make it harder to reduce domestic inequality, unless you intend to extend benefits to everyone who moves here? And how do you see that working out?

  20. Gravatar of ssumner ssumner
    11. January 2014 at 08:30

    Saturos, Yes, but global inequality is the right criterion.

    On the other hand I certainly don’t expect open borders, no rich country is willing to go that far. So my answer was predicated on immigration rising to say 2 or 3 million/year, or whatever the maximum politically feasible amount is. With 100% open immigration it would be difficult to afford wage subsidies of any size.

  21. Gravatar of libertaer libertaer
    11. January 2014 at 09:18

    “Economic inequality in America is greater than we’d like…”

    Scott, just asking, if you believe economic inequality in the US or Europe is rising, what do you think are the main causes?

    Causes are important, because only some forms of inequality matter. I don’t see unequal returns on labour or capital as a problem at all, even poverty -if based on different cultural values- is nothing to be concerned about, people who aren’t able to work (children, old, sick or disabled people) excepted. So I don’t get at all why you want wage subsidies for able bodied persons.

    But there is no reason to allow unequal returns on economic rent, i.e. returns on fixed supply, be it naturally or -even worse- artificially fixed. Abolishing artificial rents or taxing away natural rents (land value taxes) has by definition no effect on incentives. So, do you see economic rents as an important cause of inequality in the US or Europe?

    If you look at the most profitable companies a lot of rent seeking seems to go on: natural ressources, technological monopolies, intellectual property…

  22. Gravatar of ssumner ssumner
    12. January 2014 at 09:13

    libertaer, I agree it’s rising a little bit, but mostly between the middle class and rich. The inequality I care about is between the poor and middle class, and I don’t see that rising, indeed it seems to be shrinking.

    I agree that the patent protections are overdone, but also think they do play a useful role in spurring innovation, so I’d be reluctant to eliminate them entirely. I’m fine with land taxes, at the local level.

  23. Gravatar of myb6 myb6
    13. January 2014 at 11:48

    Scott,

    This is exactly why I delineated 3 different inequality phenomena and noted the drawback of lumping them together.

    I agree that consumption is a good proxy for what I labeled “(1) the objective condition of the lowest rungs”, and I also agree that this is not a high-priority problem domestically in the US, particularly if I specify “objective *material* condition” (clearly we have non-material, social problems).

    But consumption is a good proxy precisely because those demographics consume all of their income (or even > income). For other demographics, income is a better proxy because it doesn’t totally ignore the influence/control/security utility. I’m sorry but that matters. A lot.

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