Walker joined Difficult Run as an editor in August 2013.
He graduated from the University of North Texas with an MBA in Strategic Management and a BBA in Organizational Behavior and Human Resource Management. He's currently a grad student in Government at Johns Hopkins University. He has been published in SquareTwo, BYU Studies Quarterly, Dialogue, Graziadio Business Review, and Economic Affairs. He also contributed to Julie Smith's (ed.) 'As Iron Sharpens Iron: Listening to the Various Voices of Scripture'. His other online writing can be found at Worlds Without End and Times & Seasons. He lives in Denton, Texas, with his wife.
The Economist reported on a new project titled “Why We Post” that “refute[s] much received wisdom” regarding the use of social media:
Selfies: Are selfies guilty of “fostering self-regard and an undue focus on attractiveness”? “In Italy girls were indeed seen to take dozens of pictures of themselves before settling on one to post. In Brazil many selfies posted by men were taken at the gym. But at the British site, Dr Miller found, schoolchildren posted five times as many “groupies” (images of the picture-taker with friends) as they did selfies. Britons have also created a category called “uglies”, wherein the purpose is to take as unflattering a self-portrait as possible. And in Chile another unique genre has developed: the “footie”. This is a shot taken of the user’s propped-up feet, a sign of relaxation.”
Memes: Do memes “debase traditional forms of public debate…spreading far and wide with little context”? “In India they tend to focus on serious and religious issues; Trinidadian memes are more often send-ups of politicians. Yet in all cases Dr Miller sees meme-passing not as limiting what social-media users think and say, but as enabling discourse. Many users happily forward memes laced with strong ideological messages about which they would not dare to comment individually.”
Image: Are profiles “false fronts designed for the medium at hand”? Trinidadians “see online profiles as more representative of a person’s true self even than what is seen in real life. And, though the perceived loss through social media of the anonymity that once characterised online life causes much hand-wringing in the West, young boys and girls in Turkey see things differently. Social media permit them to be in constant contact with one another, in full view of their parents, but to keep their conversations and photos to themselves.”
Distraction vs. Education: “In rural China and Turkey social media were viewed as a distraction from education. But in industrial China and Brazil they were seen to be an educational resource. Such a divide was evident in India, too. There, high-income families regarded them with suspicion but low-income families advocated them as a supplementary source of schooling. In Britain, meanwhile, they were valued not directly as a means of education, but as a way for pupils, parents and teachers to communicate.”
The project “refutes the idea that social media are making humans any less human…The sceptics’ reaction to new technology seems equally deep-rooted. New means of communication from railways and the telegraph onwards have always attracted critics. Sooner or later, the doubters either convert, or die.”
Science writer Ronald Bailey has a brief write-up on some of the research regarding nuclear power and health outcomes:
A 2015 recent analysis by Israeli researcher Yehoshua Socol in the journal Dose-Reponsereconsiders the health consequences of the the Chernobyl accident. Socol argues that using even the most conservative linear no-threshold hypothesis to calculate cancer risk cannot distinguish any increase above normal background rates of cancer incidence and mortality. Assume 50,000 cancer deaths would result from Chernobyl’s radiation. Socol notes, assuming current mortality rates, that over the next 50 years some 50 million people (plus or minus 2.5 million) will die of cancer in developed countries. Given the annual uncertainty of 50,000 deaths per year, it would be impossible to detect what number, if any, of those deaths can be attributed to exposures to Chernobyl.
Socol concludes that “unlike the widespread myths and misperceptions, there is little scientific evidence for carcinogenic, mutagenic or other detrimental health effects caused by the radiation in the Chernobyl-affected area, besides the acute effects and small number of thyroid cancers. On the other hand, it should be stressed that the above-mentioned myths and misperceptions about the threat of radiation caused, by themselves, enormous human suffering.”
A fascinating December 2015 study by European researchers in the Journal of Geophysical Research-Atmospheres asked what would the health consequences to Europe if the continent had closed all of its nuclear power plants and switched to coal-fired generation between 2005 and 2009? They calculated that there would have been an increase of around 100,000 premature deaths annually owing to increased air pollution (most of them due to cardiopulmonary illnesses). If these calculations are correct, the number of deaths attributable to coal would have been three times higher than even the worst-case Chernobyl cancer scenario being pushed by activists. If the WHO’s estimates are right, coal kills at more than 1,000 times the rate of Chernobyl radiation.
Chernobyl was bad enough, but exaggerating its effects to further an unscientific campaign against nuclear power is ethically sleazy and may have the unintended consequence of killing more people than the activists claim they want to save.
“The suddenness of the Great Enrichment is nuts,” writes Will Wilkinson at the Niskanen Center. “Graphs like this one actually conceal how nuts it is. Imagine a linear horizontal axis that is nothing but a flat line hovering above zero for, like, a mile. And then, about a second ago in geological time, wham! And here you are, probably wearing pants, reading about it on a glowing screen. Nuts is what it is.”
What caused it?
Joel Mokyr says it was the development of science and technology. Douglass North and his followers, such as Daron Acemoglu and James Robinson, say it was a matter of stumbling into the right political and economic “institutions”—of getting the “rules of the game” right. Acemoglu and Robinson say institutions need to be “inclusive” rather than “extractive.” They become more inclusive when ruling elites take a little pressure off the boot they’ve got on people’s backs (which they do mainly when cornered by effective collective action from below) and allow economic and political rights to expand. Deirdre McCloskey says the Great Enrichment came about from a shift in beliefs and moral norms that finally lent dignity and esteem to the commercial classes, their “bourgeois” virtues, and the tasks of trade and betterment. This revaluation of values was the advent of what has come to be known as “liberalism.”
Each of these views is part of the truth. The debate is mainly a matter of how beliefs and norms, institutions and incentives, scientific knowledge and technical innovation all fit together. Which are the causes and which are the effects? There’s no way to adequately summarize the involuted nuance of the debate. But it’s not wrong to sum it up bluntly like this: humans rather suddenly got immensely better at cooperating and now a lot of us are really rich.
But you know what’s also nutty?
What’s nuts is that nobody kicks off a discussion of justice, distributive or social, with the fact of the Great Enrichment. Because the upshot of our best accounts of the most important thing that has ever happened to the human race seems to be that equalizing the distribution of rights and liberties, powers and prerogatives, respect and esteem led to an increase in the scope and productivity of cooperation, generating hugely enriching surpluses.
And these gains spurred further demands for and advances in inclusion and dignity—that is to say advances in giving people what they’re morally due, in virtue of being people—which led in turn to broader, more intensive, more creative cooperation, producing yet more enrichment, and so on. There appears to be a very happy relationship of mutual reinforcement between what is very naturally called “social justice” and the sort of enrichment that is known to produce longer, healthier, happier, human lives.
How come? Why doesn’t this mass improvement in the lives of millions get mentioned much?
The 20th century socialist-leaning left misdiagnosed the sources of the economic growth. The Great Enrichment was rooted in the exploitation of labor and the depredations of colonialism, while ongoing post-capitalist production was largely a matter of technology and rational state management. Poverty is toxic and the effects of widespread wealth are beneficial. But wealth in excess of potential-realizing sufficiency isn’t improving. Stable equality is improving, and brings out the best in us. Continuously rising market-led prosperity, on the other hand, encourages uncivic avidity and generates inequalities that undermine the amiable stability of egalitarian social justice.
The left-leaning 20th century literature on the distributive aspects of social justice as often as not treated wealth like manna from heaven. It’s as if the astonishing bounty of the Great Enrichment was something we’d just stumbled upon, like a cave full of naturally-occurring, neatly-stacked gold ingots in a newly-discovered cave beneath the village square. How do we divide up the gold among the villagers? Equal shares seems fair!
Or else wealth was something workers produced automatically by working only to have it stolen by the idle rich, who control the state’s goons. Or wealth was something that mechanical and social engineers could get together to produce with the right combination of workers and machines. Since it was no problem whatsoever producing more than enough for everybody (our best men are on top of it!), there was no good reason for anybody to have more than everybody else.
Wilkinson takes a swipe at both Rawlsian leftists and Hayekian libertarians, but especially the latter for their rejection of the concept of social justice. He concludes,
[M]any advocates of economic liberty…reflexively badmouth the welfare state with little regard for the possibility that the welfare state is an efficiency-enhancing institution that helps maintain popular support for relatively free markets by ensuring they more or less benefit everyone. Meanwhile, people who like social insurance, and worry about bad luck and the human costs of capitalist creative destruction—that is to say, mostpeople—turn away in contempt or bemusement from what’s advertised to them as the politics of freedom.
More importantly, and more disastrously, rejecting the very idea of social justice, letting it harden into principle, hobbled classical liberalism’s ability to make the argument it has always been making, in less attractive terms, all along: that social justice is, first and foremost, a supply-side concept; that social justice is about the moral equality, respect, and rights that call forth cooperation and foster the creativity and cultivation of potential that generates ever larger surpluses, which, once they’ve been created, we can worry about divvying up; that social justice is a cause and effect of the Great Enrichment; that increasing social justice will make us greater and more greatly enriched.
It’s a potent and beguiling argument. It is an important argument. I’m convinced that it is, in broad strokes, a sound argument. The failure of our forebears to make it shouldn’t stop us from making it now.
The site for the Greater Good Science Center at the UC Berkeley has an intriguing article examining a study on the motivations behind acts of kindness. Based on a statistical analysis called exploratory factor analysis (EFA), the researchers came up with four categories of human kindness:
Genuine kindness (benevolence)
Strategic kindness (maximizing gain and avoiding cost or loss)
The upshot? We’re all inclined towards genuine kindness to different degrees, partly as a function of how we generally feel—and perhaps surprisingly, how smart we are. Beyond genuine kindness, other kinds of kindness are influenced by age, sex, income—and whether or not we have children. By the way, their analyses do not reveal whether one person is more or less kind than another. Rather, they tell a story about where people’s kindness—however scant or abundant—is coming from.
The research indicates that how we “generally feel—that is, whether we’d characterize ourselves as having more positive or negative feelings in life—influences our tendency towards genuine kindness. For example, having a lower tendency to experience negative emotions is associated with more genuine kindness. In other words, if you’re not often in a bad mood, you’re more likely to behave kindly in an unrequited way.” Furthermore, those “who scored higher on a battery of cognitive, attention, and IQ tests also tended to be more genuinely kind—but no more, or less, likely to exhibit kindness based on strategic or norm-motivated concerns. Nor did they describe themselves as more kind.” Finally, demographics matter. “As people get older, genuine kindness falls. So does norm-motivated kindness. This doesn’t mean that older people are chronically less kind. It just suggests that they may be less concerned with reciprocity, fairness, and reputation—and their kindness hinges more on considering costs and benefits. The researchers observed a similar pattern for monthly income: As income increased, genuine kindness fell, which is consistent with a growing literature on the harmful effects on inequality on the privileged.” Perhaps surprisingly, “people who were parents also scored lower on genuine kindness, while showing no differences on any of the other kindness factors.” And while “women scored higher in self-reported kindness,” this “did not play out for genuinely kind behavior, which was actually more common in men.”
In short, the “study is important because it begins to systematically chart out the mental and behavioral underpinnings and contextual parameters of human kindness, to provide a theoretical blueprint for the growing community of research converging on age-old issues concerning human goodness and survival.”
Is the TSA worth the cost? According to Vox, the answer is likely ‘no’. “The TSA’s inefficiency isn’t just aggravating and unnecessary;” writes Dylan Matthews, “by pushing people to drive instead of fly, it’s actively dangerous and costing lives. Less invasive private scanning would be considerably better. The TSA is hard to evaluate largely because it’s attempting to solve a non-problem. Despite some very notable cases, airplane hijackings and bombings are quite rare. There aren’t that many attempts, and there are even fewer successes. That makes it hard to judge if the TSA is working properly — if no one tries to do a liquid-based attack, then we don’t know if the 3-ounce liquid rule prevents such attacks.”
In order to test the TSA’s effectiveness, Homeland Security officials “pretended to be terrorists, and tried to smuggle guns and bombs onto planes 70 different times. And 67 of those times, the Red Team succeeded. Their weapons and bombs were not confiscated, despite the TSA’s lengthy screening process. That’s a success rate of more than 95 percent.” Granted, the point of the security measures is “to make terrorists change their plans” rather than catch them at the airport. In short, “there’s basically zero evidence the agency has prevented any attacks”:
The TSA claims it won’t provide examples of such cases due to national security, but given its history of bragging about lesser successes, that’s a little tough to believe. For instance, the agency bragged plenty about catching Kevin Brown, an Army vet who tried to check pipe bomb-making materials. Brown wasn’t going to blow up the plane — the unfinished materials were in his checked luggage — but if the TSA publicized that, why wouldn’t it publicize catching someone who was trying to blow up the plane?
The Government Accountability Office is also skeptical that the TSA is stopping terrorists. It concluded in 2013 that there’s no evidence the agency’s SPOT program, which employed 2,800 as of the study and attempts to scan passengers for suspicious behavior, is at all effective. Only 14 percent of passenger flaggings by TSA officers led to a referral to law enforcement. Only 0.6 percent of TSA flaggings led to an arrest. None of those arrests were designated as terrorism-related.
What about the most loathed TSA rules: the shoe removal requirement, and the ban on all but the tiniest containers of liquids? There’s never been any evidence that these are effective. Remember: We caught the people who tried to attack with their shoes and with liquid explosives, without these rules in place. Europe is gradually phasing out the liquid ban.
Beyond the lack of evidence in favor of the TSA, the agency may actually be leading to more deaths:
One paper by economists Garrick Blalock, Vrinda Kadiyali, and Daniel Simon found that, controlling for other factors like weather and traffic, 9/11 provoked such a large decrease in air traffic and increase in driving that 327 more people died every month from road accidents. The effect dissipated over time, but the total death toll (up to 2,300) rivals that of the attacks themselves.
Another paper by the same authors found that one post-9/11 security measure — increased checked baggage screening — reduced passenger volume by about 6 percent. Combine the two papers, and you get a disturbing conclusion: In their words, over the course of three months, “approximately 129 individuals died in automobile accidents which resulted from travelers substituting driving for flying in response to inconvenience associated with baggage screening.”
This isn’t just one set of studies; there’s other evidence that 9/11 led to an increase in driving, which cost at least a thousand lives. The 129 deaths per quarter-year figure is, as Nate Silver notes, “the equivalent of four fully-loaded Boeing 737s crashing each year.”
You can dispute the precise figures here; these are regression analyses, which are hardly perfect. But it stands to reason that having to get to the airport two or three hours before a flight reduces demand for flights relative to a world where you only have to arrive 30 minutes beforehand — particularly for flights on routes where a two- to three-hour wait dramatically increases travel time relative to driving, like New York to Washington, DC, or Boston to New York. That means more driving. That means more death.
That might be worth it for a system that we know for a fact prevents attacks. But there’s no evidence the TSA does…The solution is clear: Airports should kick out the TSA, hire (well-paid and unionized) private screeners, and simply ask people to go through normal metal detectors with their shoes on, their laptops in their bags, and all the liquids they desire. The increased risk would be negligible — and if it gets people to stop driving and start flying, it could save lives.
This is a common rallying cry among Americans (e.g., Bernie Sanders) who are disturbed by income inequality in the U.S. and the supposed excesses of capitalism. So what can the United States learn from Sweden? Swedish author Johan Norberg writes,
As a native of Sweden, I must admit this makes me Feel the Bern a bit. Sanders is right: America would benefit hugely from modeling her economic and social policies after her Scandinavian sisters. But Sanders should be careful what he wishes for. When he asks for “trade policies that work for the working families of our nation and not just the CEOs of large, multi-national corporations,” Social Democrats in Sweden would take this to mean trade liberalization—which would have the benefit of exposing monopolist fat cats to competition—not the protectionism that Sanders favors.
In fact, when President Barack Obama visited Sweden in 2013, the three big Swedish trade unions sent him a letter requesting a meeting. Their agenda: a discussion of “how to promote free trade.” The chairman of the largest Social Democratic trade union scolded the American president for his insufficient commitment to the free flow of goods.
Norberg acknowledges that Sweden is “still-high public spending and high taxes, at least compared to the U.S….The governments provide the citizens with health care, child care, free colleges, and subsidized parental and medical leave. We Scandinavians have our quarrels with these systems and how they function, but at least they have not ruined our societies; indicators of living standards and health are impressive.” So how come this amount of government services doesn’t cripple the economy? Norberg explains,
One reason is that we compensate for them with a more open economy than others. In the summary Fraser Institute rankings, Sweden and Denmark are more economically free than the United States when it comes to legal structure and property rights, sound money, free trade, business regulation, and credit market regulations. We don’t have the multitude of occupational licensing laws that block competition in the United States.
We also pay for the welfare state in a fairly brutal way, but one that doesn’t hurt production as much: by squeezing the poor and the middle class. Unlike the rich, poor and middle-class people don’t flee or dodge when they’re taxed aggressively.
The Social Democrats knew all along that they couldn’t fund such a generous government by taking from the rich and the businesses—there are too few of them, and the economy depends on them too much. So Sweden and Denmark take in lots of revenue via highly regressive value-added taxes at a normal rate of 25 percent of sales—the only tax where the rich and poor pay exactly the same amount in kronor. On the other hand, the corporate tax is just 22 and 23.5 percent respectively, compared to the U.S. rate of 35 percent.[ref]Check out this analysis of the Scandinavian tax systems at the Tax Foundation.[/ref]
In fact, rich people in Sweden enjoy several economic advantages not offered to their lower-class counterparts. Sweden always admitted very generous tax deductions for capital costs. Labor regulations are tailored to benefit big companies. To attract highly educated specialists from abroad, Sweden now has a beneficial “expert tax” for them, which shields 25 percent of their wages from taxation for a three-year period. “Sure, it is unfair, but we have no better solution,” the Social Democratic minister of finance said in 2000, when he implemented special tax exemptions for individuals and families who owned a large share of a listed company.
Unlike Sanders, Scandinavian socialists have concluded that you can have a big government or you can make the rich pay for it all, but you can’t do both.
The shape of welfare state also has roots in Swedish culture:
Two Scandinavian economists, Andreas Bergh and Christian Bjørnskov, have documented that a high degree of trust is an old legacy, and that descendants of those who emigrated from Scandinavia 100 years before the welfare state are also more trusting. Their conclusion is that trust in others and social cohesion creates the welfare state rather than the other way around, since it is more tempting to give power to politicians and money to strangers if you believe that they are decent people who would never cheat the system.
Scandinavians have always frowned on those who take money they are not entitled to. Sweden is, after all, the country where the leading candidate for prime minister in 1995 had to resign because it was revealed that she had used her official credit card to pay for some small private expenses, even though she always, every month, paid the credit card debt herself.
When asked, “Under what circumstances is one justified in accepting government benefits to which one is not entitled?” in 1991 and 1998, the Nordics led the world in saying “never.” (Only Malta says it is more upstanding, and a brief canvass of Maltese of my acquaintance suggests that they are rather likely to have lied on the survey.) Oh, and the United States is 16th, lower on the list than even the Italians.
Unfortunately, Sweden has recently seen “increased unemployment among immigrants. Now the employment gap between natives and foreign-born in Sweden is twice the European Union average, even though we express less racist and discriminatory attitudes than others. In response, Swedish politicians have recently decided to abandon liberal immigration policies and do whatever they can to scare people away. It was easier to have a one-size-fits-all approach when we were all alike, from the same background, with the same faith and attitude and a similar education. We need a more flexible model now that we are becoming a little bit more like…well, the United States.”
What explains Sweden’s high level of income equality?
What were the causes of Sweden’s problems from 1970 to 1995?
How is it possible that Sweden, since the crisis of the early 1990s, is growing faster than most EU countries despite its high taxes and generous welfare state?
His conclusions?
In many aspects, Sweden is not very different from other countries. The accelerating economic growth in Sweden around 1870 was most likely largely a result of liberalizations and well-functioning capitalist institutions. In this respect, there is no Swedish exceptionalism.
When it comes to equality, the most important conclusion is that most of the decrease in income inequality in Sweden occurred before the expansion of the welfare state. A number of seemingly unrelated reforms, such as land reforms, school reforms and the occurrence of unions and centralized wage bargaining, are likely explanations. Interestingly, at least parts of gender equality in Sweden seem to be an unintended consequence of the need to increase labor supply by using women in the workforce.
Thus, when it comes to the roots of prosperity and equality, the lessons from Sweden are not very different compared to the lessons from mainstream institutional economics: Well-functioning capitalist institutions, especially property rights and a non-corrupt state sector, promotes prosperity. Primary schooling, risk sharing social insurance schemes and labor unions contribute to a more equal distribution of income (pg. 21).
He notes that Sweden’s lagging economy between 1970 and 1995 was due to a
combination of unsuccessful macro-economic policies and a very generous welfare state…During the period of lagging behind, excessive state interventionism hampered structural adjustment and economic development in general. The economy was much less capitalist, rules were unstable, policy unpredictable, and work incentives were weakened by the design of taxes and benefits. This leads to the conclusion that to successfully combine a large welfare state with economic growth, macroeconomic factors are crucial and a high degree of economic openness may actually foster policies that promote competitiveness. Analyzing the fact that Sweden was ranked the second most competitive country in the world according to the Global Competitiveness Index 2010–2011 (just slightly behind Switzerland). Eklund et al. (2011) emphasize the role of market deregulations, inflation control and stricter budget rules – but also some lowering of taxes and benefit levels. The upshot is that the policy implications from the case of Sweden are hard to classify along a simple right-left scale: the welfare state seems to survive because it coexists with high levels of economic freedom and well-functioning capitalist institutions (pg. 22).[ref]You can read about the Swedish reforms since the 1990s here.[/ref]
So, be like Sweden. But be like it in the right ways.
It depends on how you measure it. According to a recent NBER paper by Dartmouth economist Bruce Sacerdote, most estimates use the CPI-U as a price deflator. Sacerdote instead
calculate[s] real wages using either the Fed’s preferred inflation measure of PCE (Personal Consumption Expenditures) or using simple adjustments to CPI using magnitudes suggested by the Boskin commission (Boskin et al 1996) and Costa (2001). This adjustment reverses the finding of wage stagnation. Using the PCE to deflate nominal wages suggests real wage growth of 24 percent from 1975-2015 or about .54% growth in real wages per year. Importantly that growth is significantly less than the 1.18% annual growth in real wages (using PCE inflation) seen in the earlier decade 1964-1975 and is significantly less than GDP per capita growth of 1.8 percent over the 1975-2015 period. But 24 percent growth over the 1975-2015 is substantially better than zero growth and the PCE inflation could itself still contain upward bias. Adjusting for the Hamilton (1998) and Costa (2001) estimates of CPI bias implies real wage growth of 1 percent per year during 1975-2015 and GDP per capita growth of 2.7 percent per year.
In short, “PCE adjusted wages appear to have grown at .5% per year during 1975-2015 while the de-biased CPI adjusted wages grew at 1% per year over the same time period.”
So why do so many Americans feel worse off? Sacerdote hypothesizes,
First, I am only examining consumption within very large sections of the income distribution and there may be specific groups (for example less than high school educated men) for whom consumption is actually falling. Second, it’s possible that the quality of some services such as public education or health care could be falling for some groups. Third, the rise in income inequality coupled with increased information flow about other people’s consumption may be making Americans feel worse off in a relative sense even if their material goods consumption is rising. Fourth, changes in family structure (e.g. the rise of single parent households) , increases in the prison population, or increases in substance addiction could make people worse off even in the face of rising material wealth. A deep future research agenda would be to understand how America has lost its sense of optimism about living standards and whether the problem is one of consumption, relative consumption (relative to other people) or something entirely different.
On top of this, Harvard’s Martin Feldstein points out that innovation and new products are often ignored when measuring economic growth and the state of living standards:
Ignoring the introduction of new products is therefore a serious further source of understating the real growth of output, incomes, and productivity. New products and services are potentially valuable in themselves and are also valued by consumers because they add to the variety of available options. In an economy in which new goods and services are continually created, their omission in the current method of valuing aggregate real output makes the existing measure of real output even more deficient and more of a continually increasing underestimate of true output. Hulten (2015) summarizes decades of research on dealing with new products done by the Conference on Research in Income and Wealth with the conclusion that “the current practice for incorporating new goods are complicated but may miss much of the value of these innovations.” …[T]he official statistics ignore the very substantial direct benefit to consumers when new products and services become available, causing an underestimate of the rate of increase in real output and an overestimate of the corresponding price index…The failure to take new products into account in a way that reflects their value to consumers may be an even greater distortion in the estimate of real growth than the failure to reflect changes in the quality of goods and services. There is no way to know (pgs. 11-12, 14).
Feldstein has made this argument before in more popular writing. A good number of economists agree. While growth in real wages could be better, it seems to be inaccurate to say that they have stagnated.
I’ve written about global income inequality inseveralpastposts. As Nathaniel and I wrote in SquareTwo a few years ago,
[W]ith the continual rise of the poor out of destitute poverty, it seems logical that global inequality would also be declining. Happily, recent evidence seems to supports the logic. As former World Bank economist Branko Milanovic put it, “[P]erhaps for the first time since the Industrial Revolution, there may be a decline in global inequality…For the first time in almost two hundred years—after a long period during which global inequality rose and then reached a very high plateau—it may be setting on a downward path.” Though cautious in his conclusions, Milanovic nevertheless finds that when population is factored into the data, the evidence demonstrates that the world became a “much better (“more convergent” or more equal) place” between 1980 and 2011. When country price levels (used to determine purchasing power) are factored in, a decline in global inequality can be seen over the past decade.
Several studies over the past few years have found that as the world poverty rates plummeted, so did global inequality. As one pair of researchers explains,
We can compute not only the world poverty rates and the poverty rates of any country or region, but also other statistics related to the distribution of income. For instance, we can compute the world gini coefficient, a measure of world inequality, for every year between 1970 and 2006. We show that world inequality measured by the gini fell from 67.6 to 61.2 (Figure 3), and similar declines in inequality can be shown for other inequality statistics, such as the mean logarithmic deviation, the Theil Index, and the Atkinson family of inequality indices.
While inequality is still high and increasing within countries, global inequality (between countries) has seen an unprecedented decline. “Even though the bulk of this decline is due to the performance of China and other Asian countries,” evidence shows “that a (weaker) declining trend survives even when these countries are excluded from the analysis.” Economist and Nobel laureate Friedrich Hayek noted that “after rapid progress has continued for some time, the cumulative advantage for those who follow is great enough to enable them to move faster than those who lead and that, in consequence, the long-drawn-out column of human progress tends to close up…[O]nce the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed toward the needs of the masses. Those forces which at first make inequality self-accentuating thus later tend to diminish it.”
The above describes relative inequality. However, a more recent study shows that absolute inequality has increased.
As one of the researchers explains,
[T]ake the case of two people in Vietnam in 1986. One person had an income of US$1 a day and the other person had an income of $10 a day. With the kind of economic growth that Vietnam has seen over the past 30 years, the first person would now in 2016 have $8 a day, while the second person would have $80 a day. So if we focus on ‘absolute’ differences, inequality has gone up, while a focus on ‘relative’ differences suggests that inequality between these two people has remained the same.
Relative inequality indicators have been by far the most widely used in empirical economic analysis, but, based on economic theory and empirical evidence, it is far from clear that we should favour relative over absolute notions of inequality. The evidence suggests that many people do perceive absolute differences in incomes as being an important aspect of inequality (Amiel and Cowell 1992, 1999).
However, the authors concede,
Over the past 40 years, over one billion people around the world have been lifted out of poverty, driven largely by substantial growth in income in developing countries. While this growth has been accompanied by a striking rise in absolute inequality, it has also improved the lives of hundreds of millions of people. It is difficult to imagine how in practice such growth, and the associated poverty reduction, could have occurred without an increase in absolute inequality. There would be huge implications for the fight against global poverty if attempts were made to halt economic growth in order to appease absolute inequality. Instead, the policy emphasis should be on creating more inclusive growth with falling ‘relative’ inequality – these two goals are complementary.
Is it true, though, that it’s “far from clear that we should favour relative over absolute notions of inequality”? For example, most studies favor absolute poverty over relative poverty. Could the same case be made for absolute inequality? I’m not so sure. Branko Milanovic, one of the leading scholars on income inequality, provides the following reasons for preferring relative measurements in regards to inequality:
Conservatism: “[R]elative income measures are conservative because they show no change in in equality in cases where absolute measures would show an increase (when all incomes go up by the same percentage) or a decrease (when they all go down by the same percentage). On in equality, which is a topic of considerable moral and political importance, and at times a very inflammatory topic indeed, we do not want to err in the direction of inflaming it further. Conservatism (in terms of measurement, not necessarily in terms of policy) is to be preferred.”[ref]Milanovic, Global Inequality: A New Approach for the Age of Globalization (Cambridge, MA: The Belknap Press of Harvard University Press, 2016), 27.[/ref]
Precision: “Think of the distribution as a balloon. As the balloon expands, the absolute distance between the points on the balloon increases. Focus on absolute distances presents the disadvantage that practically every increase in the mean (blowing up the balloon) could be judged to be pro-inequality. We would lose the sharpness with which we can currently distinguish between pro-poor and pro-rich growth episodes.”[ref]Ibid.[/ref]
Relative Growth: “Growth is simply the relative increase in the first moment, and in equality is the relative increase in the second moment. The measures that we use to assess success or failure in economic development (relative change in GDP per capita) should be related to the measures we use to assess success or failure in distribution of resources (relative change in a measure of inequality). Focus on the absolutes in growth, as in inequality, would lead us to nearly always find that growth in rich countries, however small in percentage terms, would be greater than growth in poor countries, however huge. If the United States grew by 0.1 percent per capita annually, that growth would increase the absolute GDP per capita of each American by about $500, which is more than the GDP per capita of many African nations. Should we then deem Congo, in any given year, to have been as successful as the United States only if it doubles its per capita income— a feat that no human community has ever achieved in recorded history? So the logic of relativity that applies to growth should also apply to inequality.”[ref]Ibid., 28.[/ref]
Personal Utility: “[F]or a person whose income is $10,000 to experience the same increase in welfare as a person whose income is $1,000, the absolute income gain ought to be ten times greater. In other words, one additional dollar will yield less utility, or seem less important, to a rich person than to a poor person. If we think that this is a reasonable assumption, we can then also interpret the data given in the growth incidence curve as changes in utility: an 80 percent income increase around the global median adds to the utility of people there more than a 5 to 10 percent increase in real income adds to the utility of the lower middle classes in rich countries (even if the absolute dollar gains of the latter may be larger). By this route too, we come to the conclusion that relative income changes are a more reasonable metric than absolute income changes.”[ref]Ibid., 29.[/ref]
While absolute measures in inequality may have their use, relative measures do a better job of complementing analyses of growth and poverty. In short, relative inequality provides a better framework by which to gauge standards of living.
Nearly a third (32%) of employers are bumping up education requirements for new hires. According to a new survey from CareerBuilder, 27% are recruiting those who hold master’s degrees for positions that used to only require four-year degrees, and 37% are hiring college grads for positions that had been primarily held by those with high school diplomas.
CareerBuilder conducted a nationwide online survey that culled responses from over 2,300 hiring and human resource managers across different industries in the private sector.
Their responses revealed that employers pushing their education requirements toward higher degrees are doing so across all levels of their companies. The majority of employers (61%) say they are looking for more educated candidates at the mid-level skill level, but 46% are looking to hire better educated candidates at entry level and 43% think the same for higher levels.
This comes at a time when the cost of a four-year college degree is out of reach for the average American family. But employers argue that a tight job market and evolving need for different skills are making it necessary. For example, 60% of employers who were satisfied with hiring high school graduates in the past claimed their work requires the skills held by those who have completed higher education.
But why?
Employers told CareerBuilder that higher education not only increases an applicant’s chance of getting hired, but it helps boost the chance they’ll be promoted down the road. Thirty-six percent of employers reported that they would be unlikely to promote someone who doesn’t have a college degree.
That’s because employers have seen education make a positive impact across the board, from employees’ ability to produce better quality work, to productivity and the ability to boost customer loyalty.
This is likely why a “recent Pew Research study found that high school graduates earn about 62% of what those with four-year degrees earn. That’s evolved since 1979, when people with only high school educations earned 77% of what college graduates made.” But not all is lost:
The good news for current and future workers is that some companies are taking responsibility to bridge the skills gap and overcome the talent shortage. Over a third of employers (35%) said they trained low-skill workers and hired them for high-skill jobs in 2015, and 33% said they’ll do the same this year. A full 64% of employers said they plan to hire people who have the majority of skills they require and provide training for the rest. They’ll do this by paying for training and certifications offered outside the company or sending them back to school. Twenty-three percent said they would fund an advanced degree partially, and 12% would foot the entire bill.
Fast Companyrecently reported that a small, but growing number of companies are offering employees assistance to pay back their student loans.
This could be an example of business leaders compensating for what they see as a lack of preparation among new college graduates. Furthermore, it may be an argument in favor of greater collaboration between higher education institutions and businesses.
Jason Furman, the chair of the Council of Economic Advisors under President Obama and now a senior fellow at the Peterson Institute for International Economics, argues that “both microeconomic and macroeconomic evidence” point to declining competition:
On the micro level, most industries today have fewer players than before. Just think about hospitals or cellphone service providers or beer companies. Throughout our economy you see larger companies, older companies, and, in any given industry, fewer companies. Growth in international trade has been a counterweight — but only within the tradable sector. Most of our economy is not tradable, and so for most of our economy, international trade isn’t a factor.
On the macro level, companies’ rate of return on capital has stayed the same or risen, while the safe rate of return on bonds has fallen precipitously. If there were really vigorous competition, you wouldn’t see increases in return on invested capital. In addition, we see an increase in the share of national income going to capital — that is, to investors — rather than to wages. That income shift has been larger in industries that have seen bigger reductions in competition.
He believes that this lack of competition plays a role in the increasing income inequality within the United States:
Wages aren’t determined strictly by supply and demand; they also depend on institutional arrangements and bargaining power. And with greater industry concentration, the bargaining power of employers rises. If there are four hospitals in your town and you’re a nurse at one of them, you can threaten to leave and go work at another one as a way to get a raise. If there’s only one hospital, it’s a lot harder to advocate for a raise.
[O]ne problem with American capitalism has been overlooked: a corrosive lack of competition. The naughty secret of American firms is that life at home is much easier: their returns on equity are 40% higher in the United States than they are abroad. Aggregate domestic profits are at near-record levels relative to GDP. America is meant to be a temple of free enterprise. It isn’t.
…You might think that voters would be happy that their employers are thriving. But if they are not reinvested, or spent by shareholders, high profits can dampen demand. The excess cash generated domestically by American firms beyond their investment budgets is running at $800 billion a year, or 4% of GDP. The tax system encourages them to park foreign profits abroad. Abnormally high profits can worsen inequality if they are the result of persistently high prices or depressed wages. Were America’s firms to cut prices so that their profits were at historically normal levels, consumers’ bills might be 2% lower. If steep earnings are not luring in new entrants, that may mean that firms are abusing monopoly positions, or using lobbying to stifle competition. The game may indeed be rigged.
…Unfortunately the signs are that incumbent firms are becoming more entrenched, not less…A $10 trillion wave of mergers since 2008 has raised levels of concentration further…Having limited working capital and fewer resources, small companies struggle with all the forms, lobbying and red tape. This is one reason why the rate of small-company creation in America has been running at its lowest levels since the 1970s. The ability of large firms to enter new markets and take on lazy incumbents has been muted by an orthodoxy among institutional investors that companies should focus on one activity and keep margins high. Warren Buffett, an investor, says he likes companies with “moats” that protect them from competition. America Inc has dug a giant defensive ditch around itself.
What can be done?:
The first step is to take aim at cosseted incumbents. Modernising the antitrust apparatus would help. Mergers that lead to high market share and too much pricing power still need to be policed. But firms can extract rents in many ways. Copyright and patent laws should be loosened to prevent incumbents milking old discoveries. Big tech platforms such as Google and Facebook need to be watched closely: they might not be rent-extracting monopolies yet, but investors value them as if they will be one day. The role of giant fund managers with crossholdings in rival firms needs careful examination, too.
The second step is to make life easier for startups and small firms. Concerns about the expansion of red tape and of the regulatory state must be recognised as a problem, not dismissed as the mad rambling of anti-government Tea Partiers. The burden placed on small firms by laws like Obamacare has been material. The rules shackling banks have led them to cut back on serving less profitable smaller customers. The pernicious spread of occupational licensing has stifled startups. Some 29% of professions, including hairstylists and most medical workers, require permits, up from 5% in the 1950s.
A blast of competition would mean more disruption for some: firms in the S&P 500 employ about one in ten Americans. But it would create new jobs, encourage more investment and help lower prices. Above all, it would bring about a fairer kind of capitalism. That would lift Americans’ spirits as well as their economy.
