FiveBooks Interviews > Daron Acemoglu on Inequality

Published on February 6, 2012 in News. 0 Comments
Interview by Sophie Roel, The Browser.com
The US, the UK and many other countries have become far less equal over the past 30 years. The MIT economics professor says it’s important we understand how and why this happened, and what it means for our societies

Inequality is in the news a lot right now. How should we be thinking about it and trying to get our heads around it?

Inequality is one of the things that has changed quite a lot in the United States and other economies over the last three decades or so. A lot of things don’t change radically, but inequality has. Understanding why that has happened and what it implies for our society is important. So it’s a good thing that it’s in the news, it’s an important topic and there is no reason for it to be taboo. Having said that, there is no broad consensus among social scientists about how to talk about inequality, and the average economist probably thinks about it very differently than the average layman. I’m not saying one is right and one is wrong, but the conversation needs to be expanded to bring these different viewpoints to the table.

What’s the economist’s view?

The default position of economists is that inequality reflects the unequal human capital or productive capabilities of different workers. If you start with that premise – that what people earn is commensurate with their contribution to their employer, and also perhaps to society – then greater inequality tells you something about how people’s productivities have evolved over time. This is by no means what every economist believes, but it’s a common view. Economists have cut their teeth on inequality by looking at things like the increase in the college premium over the last 30 years in the US and other economies, as well as the increase in the gap between relatively high earners – the 90th percentile of income distribution – versus the bottom 10th percentile. We’ve seen a big increase in inequality, measured in various ways, and this reflects the fact that the top people, the more educated, high earners have become more skilled. Technology has favoured them, globalisation has favoured them, and inequality has increased for that reason. More… 

Image by Shreyans Bhansali on Flickr via TheBrowser.com

The Myth of Japan’s Failure

Published on February 1, 2012 in News and Newsletter. 0 Comments

Eamonn Fingleton, The New York Times

The fashionable Shibuya neighborhood in Tokyo.

DESPITE some small signs of optimism about the United States economy, unemployment is still high, and the country seems stalled.

Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”

But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.

Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.  More…

Image: Kosuke Okahara for The New York Times

Rethinking the Growth Imperative

Published on January 28, 2012 in News and Newsletter. 0 Comments

Kenneth Rogoff, Project Syndicate

CAMBRIDGE – Modern macroeconomics often seems to treat rapid and stable economic growth as the be-all and end-all of policy. That message is echoed in political debates, central-bank boardrooms, and front-page headlines. But does it really make sense to take growth as the main social objective in perpetuity, as economics textbooks implicitly assume?

Certainly, many critiques of standard economic statistics have argued for broader measures of national welfare, such as life expectancy at birth, literacy, etc. Such appraisals include the United Nations Human Development Report, and, more recently, the French-sponsored Commission on the Measurement of Economic Performance and Social Progress, led by the economists Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi.

But there might be a problem even deeper than statistical narrowness: the failure of modern growth theory to emphasize adequately that people are fundamentally social creatures. They evaluate their welfare based on what they see around them, not just on some absolute standard. More…

Image via Project-Syndicate.org

The Most Important Graphs of 2011

Published on January 24, 2012 in News. 0 Comments

Derek Thompson, The Atlantic

What is it about graphs and economics? In a discipline where facts are murky and certainty is elusive, graphs offer a bright light of information and a small confidence that the world can be summed up between two axes. So when the BBC asked a group of economists to name their graph of the year, we decided to do the same (so did Wonkblog!). Here, from economists on left and right, and from economic journalists from around the beat, are the graphs of the year. Click through the gallery or scroll down to find the graphs organized under categories including Europe, spending & taxing, and energy.

To Read More…

 

 

Europe’s self-destructive article of faith

Published on January 20, 2012 in News and Newsletter. 0 Comments

Stefan Auer, Eurozine

European leaders’ unwavering commitment to ever closer union is causing more harm than good, argues Stefan Auer. Europe doesn’t need more integration; it needs more democracy to enable its nations to regain control over their destiny. Partial and well-managed disintegration may be preferable to a chaotic implosion.

Europe’s better times were meant to be ahead of it. Not so long ago, “the European dream” was believed to have provided the best “vision of the future”;[1] Europe was going to “run the twenty-first century”,[2] having created “an entirely new species of human organization, the likes of which the world has never seen”.[3] If the West – and most of the world – was American in the twentieth century, the twenty-first was going to be European. But not in any crude, old-fashioned, imperial, my-values-are-better-than-yours kind of way; rather in an open and open-ended reflexive, self-critical, you-are-as-good-as-or-better-than-me way. Europe was going to lead the world by example; do it gently. “Soft power Europe” would rule without anyone noticing but everyone benefiting. All these assumptions proved hubristic: Europe’s turn of fortune is humbling, humiliating and, perhaps, irreversible.

To Read More…

The Globalization of Protest

Published on January 14, 2012 in News and Newsletter. 0 Comments

Joseph E. Stiglitz, Project Syndicate

NEW YORK – The protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global, with the protests engulfing Wall Street and cities across America. Globalization and modern technology now enables social movements to transcend borders as rapidly as ideas can. And social protest has found fertile ground everywhere: a sense that the “system” has failed, and the conviction that even in a democracy, the electoral process will not set things right – at least not without strong pressure from the street.

In May, I went to the site of the Tunisian protests; in July, I talked to Spain’s indignados; from there, I went to meet the young Egyptian revolutionaries in Cairo’s Tahrir Square; and, a few weeks ago, I talked with Occupy Wall Street protesters in New York. There is a common theme, expressed by the OWS movement in a simple phrase: “We are the 99%.”

That slogan echoes the title of an article that I recently published, entitled “Of the 1%, for the 1%, and by the 1%,” describing the enormous increase in inequality in the United States: 1% of the population controls more than 40% of the wealth and receives more than 20% of the income. And those in this rarefied stratum often are rewarded so richly not because they have contributed more to society – bonuses and bailouts neatly gutted that justification for inequality – but because they are, to put it bluntly, successful (and sometimes corrupt) rent-seekers.

To Read More…

Image via Project-syndicate.org

The Reckoning Begins

Published on January 7, 2012 in News. 0 Comments

Michael Moran, Slate.com

America’s insularity knows no bounds. This is a paradoxical statement, of course, but it’s an apt way to describe America’s current debate about “our future,” and not a bad way to view Washington’s strained efforts to grapple with an economy wounded by two decades of economic Puritanism. As grand as the rhetoric may be, politicians in the United States remain incapable of looking beyond the next election—this goes for the haughty Democrat in the White House and goes double for the Republican opposition. The fact is, airy-fairy optimism still sells on the campaign trail, particularly when the day-to-day reality of the average American is so difficult. Christian, agnostic, Jew, Muslim, or otherwise, we’re a country of people constantly seeking redemption, and we’re suckers for a smooth-talking messiah.

Not this time. At the risk of breaking the hearts that throb for Rick Perry, Mitt Romney or Barack Obama, they cannot deliver us from the future. Thanks to a catastrophic series of decisions by presidents of both parties that radically deregulated our financial system and arrogantly dismissed the “lessons of Vietnam” as dusty, irrelevant history, the United States has shortened the period during which it will remain the dominant power in the 21st century. I know, I know, all the presidential candidates say we’re still the best! And so we are, in almost every economic and military measure. But measurements of power are like the altimeter of an aircraft: It’s not the altitude that matters, it’s the trajectory, and by now most Americans finally understand that Captain America is trending downward.

Destiny is a big, pretentious concept. Yet today, most Americans understand what their politicians refuse to concede—at least publicly: We’ve lost control of our destiny. Globalization, the fairy dust proffered by everyone from Ronald Reagan to Bill Clinton to Thomas Friedman, turns out to have some significant downside risks. Many Americans have heard of globalization at this point, and many have very particular opinions of it—normally associated with negatives like offshoring, immigration or, perhaps, the complex risks of modern markets. But few really understand its implications. Thus the continued use by vacuous news networks of the term “nationally televised address,” or the absurd assumption that our economic fate rests in our own hands. The world today—a world largely forged by American economic and foreign policy prejudices during the 20th century—now has profound influence on our future. Every word a president says in those Oval Office broadcasts these days resonates not just in the cozy “focus groups” in Iowa but also in the offices of the China Investment Corporation and sovereign wealth funds from Qatar to Japan to Russia who hold giant slices of our national debt. Like it or not, they have real leverage now, and evidence and history suggests they will eventually use it.

To Read More…

Image via Slate.com

Twilight of the Fossils

Published on January 3, 2012 in News. 0 Comments

Benjamin Kunkel, N+1 Magazine

This piece first appeared in Occupy!, an OWS-Inspired Gazette, now available for free in print and online.

Unable to imagine the past except in the form of costume dramas or to think of the future except in terms of far-off collapse, our era has suffered from a blocked political imagination. For twenty years we flattered or rued our condition as the end of history. But present-day civilization reflects arrangements exceptional in human history—and perhaps equally fragile. It is characterized in particular by an unprecedented dominance of fossilized labor (or capital) over living labor, and of fossil energy—oil, coal, and natural gas—over living energy. This reign of the fossils must and will end. Two special conditions that we’ve taken for granted are not long for this world: an ever-growing supply of fossil fuel and other non-renewable resources, and endless economic growth.

The words ecology and economy share a root in oikos, Greek for household. This suggests the concerns they name must ultimately coincide: the establishment and maintenance of the human residence on earth. Yet economics and ecology are rarely taken seriously at the same time, and official opinion usually denies that a crisis exists in either sphere. Few professional economists and no prominent politicians will concede what was obvious to the classical economists: namely, that economic growth would eventually terminate in what John Stuart Mill called a “stationary state.” Mill and Adam Smith focused on limits to the division of labor: subdividing economic activity could only bring about productivity gains up to a point. More recent analysts have worried about the exhaustion of natural resources (as in the Club of Rome’s famous 1972 report, The Limits to Growth and much literature since), or about the preponderance of services, such as health and education, over industry and agriculture in contemporary capitalism. As an IMF working paper from 1997 argued, industry and agriculture are, for technical reasons, susceptible to productivity improvements that the service sector can never enjoy to the same extent: manufacturing or farming can become more efficient in a way that nursing or teaching, for example, cannot.

To Read More…

Image: www.thesolarvillage.com via N+1 Magazine

Seeking to avoid a mid-life crisis

Published on December 28, 2011 in News. 0 Comments

From The Economist

INDIA’S technology firms are no longer spring chickens. Infosys had its 30th birthday this year and its lead founder retired, hailed as a visionary by his colleagues and celebrated as the man who kick-started the country’s first world-class industry. Yet judged by their share prices of late, the three big firms, TCS, Infosys and Wipro, are still giddy, uncertain things. Last month TCS’s shares, which had swaggered earlier in the year, slumped as it posted disappointing quarterly figures. Wipro’s shares are well down on the year and this week’s news of quarterly profits little changed from a year ago sent them a bit lower still.

The volatility partly reflects investors’ fears of a depression in the rich world, where the three make the bulk of their money. But it is also a symptom of mild paranoia about whether these firms can in their dotage still deliver perky growth. The worry is that they might go the way of Nokia: for years the Finnish handset firm maintained high margins, in defiance of its many doubters. Then, suddenly, the naysayers were proved right.

Regarding the slump in rich economies, the recent past does offer a chilly precedent. During the Wall Street crisis in mid-2009 the IT firms’ revenue growth slowed almost to zero as customers, especially financial ones, slashed spending. But activity bounced back smartly (see chart) as clients recovered their nerve and redoubled efforts to cut costs through outsourcing and reorganising their back offices.

To Read More..

Photo via The Economist

2021: The New Europe

Published on December 24, 2011 in News and Newsletter. 0 Comments

Niall Ferguson, The Wall Street Journal

Welcome to Europe, 2021. Ten years have elapsed since the great crisis of 2010-11, which claimed the scalps of no fewer than 10 governments, including Spain and France. Some things have stayed the same, but a lot has changed.

The euro is still circulating, though banknotes are now seldom seen. (Indeed, the ease of electronic payments now makes some people wonder why creating a single European currency ever seemed worth the effort.) But Brussels has been abandoned as Europe’s political headquarters. Vienna has been a great success.

“There is something about the Habsburg legacy,” explains the dynamic new Austrian Chancellor Marsha Radetzky. “It just seems to make multinational politics so much more fun.”

The Germans also like the new arrangements. “For some reason, we never felt very welcome in Belgium,” recalls German Chancellor Reinhold Siegfried von Gotha-Dämmerung.

To Read More…

Map Illustration by Peter Arkle, via The Wall Street Journal