Seminar notes: Poverty and inequality
Some stats
Gini coefficient
The Gini coefficient measures the inequality among the values of a frequency distribution, such as levels of income. A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same, while a Gini coefficient of 1 (or 100%) reflects maximal inequality among values, a situation where a single individual has all the income while all others have none.
Realtime Inequality
International comparisons
Global Wealth Distribution:
- the richest 10% of the global population currently owns about 76% of all wealth
- the bottom 50% holds just about 2% of global wealth
Billionaires’ Wealth:
- the world’s ten richest men saw their combined wealth increase by half a trillion dollars since the pandemic began
World Inequality Database
Economic mobility
In recent years several large studies have found that vertical inter-generational mobility is lower in the United States than in most developed countries. A person’s parents is a great deal more predictive of their own income in the United States than other countries. The United States had about 1/3 the ratio of mobility of Denmark and less than half that of Canada, Finland and Norway. France, Germany, Sweden, also had higher mobility, with only the United Kingdom being less mobile.
Thomas Piketty
Capital in the 21st century
The book’s central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority
Based on much better data:
- tax returns for hundreds of years
- GDP data from the 1930s, but really only from after WW2
Inequality is not about income
- but instead about differences in wealth
The returns on wealth has vastly out paced economic growth
Forces reducing inequality
- rising countries are doing very well
Forces increasing inequality
- the returns on wealth is much faster
- you make more money than by working hard
Better to start with much than to start with nothing
Wealth is accumulated income
- but also inherited wealth
In times of economic growth
- old money means less
In times of decreasing growth
- old money means more
Again we are having high concentration of wealth
- about 50 percent of the population has no wealth
Recommendations for leveling the playing field
- facilitating wealth accumulation
- not just giving people better opportunities —
- not necessarily increase capital tax
- but make it more progressive
“It is through capital that the past devours the future”
Liliane Bettencourt
Inherited the L’Oréal fortune
- richest woman in France, and the 14th richest person in the world, with a net worth of US$44.3 billion
Her wealth grew just as fast as that of Bill Gates
- and she has never worked a day in her life
And Bill Gates too mainly grew rich from monopoly advantages
Why do people succeed or fail in life?
Piff’s monopoly study
To what do we attribute our success?
Dispositional factors
- pertaining to our individual characteristics and achievements
Contextual factors
- social factors
- all boats rising at time
- everything that went before us
- technology
The circumstances into which we are born vary enormously
- we have very different life chances
Do we deserve our personal endowments?
- do we deserve our parents?
- do we deserve our genetic makeup?
- is our DNA ours to benefit from?
Inheritance tax
- the capitalist case for re-equilibrating in each generation
- inheritance and genes are a very anti-market way of distributing resources
Cf. Nepo babies
Children of the rich and famous getting an unfair start in life
The Guardian, “Nepo disasters”
Free will
- vs determinism
If everything has a cause there can be no “free will”
- there is something that causes our will
- we are not responsible
Far-reaching legal consequences
- we cannot be held legally accountable
Strong arguments from neuroscience
- there are not only legal, but also distributive consequences here
Moving Up Media Lab
- Your American Dream Score
- SPENT — managing your money to survive
Carl Sagan: “If you wish to make an apple pie from scratch, you must first invent the universe”
Musicians and technology
How artists are complaining that they are being paid for their work
- too much free music
- complaints about Spotify etc?
Deirdre McCloskey
We used to be very poor, and now we are very rich
- 200 years ago people survived on 3 dollars a day
- now we are making 130 dollars a day
“The great enrichment”
- jump in income of 1,500 percent — at least
- perhaps up to 9,900 percent
What we discussed last week
- not a matter of input
It was not “capitalism” that got us here
- capital and savings is not what got us here
- too much emphasis on this
Exploitation?
- this doesn’t create value
- not a matter of some people taking from others
McCloskey: new ideas
- economic liberty
- social honor
Think of Bill Gates or Steve Jobs
- their innovations had nothing to do with savings
Evan Davies
Are riches created from riches or from rags?
- we shouldn’t worry about inequality
- a one time windfall might lift people a bit, but it is nothing compared to the lift they get from innovation
How much of the great wealth represents entrepreneurial activity?
- can we tax the Bettencourts without killing off entrepreneurial spirits