Tag Archives: Inequality

Updates from Chicago Booth

What has happened over the past 40 years in the United States, particularly in cities?
By Veronica Guerrieri – It is well known that the US has experienced a large increase in income inequality, which, in my view, is one of the biggest problems of the US economy. At the same time, there has been an increase in neighborhood segregation, especially in larger cities: the rich are more and more concentrated in rich neighborhoods and the poor in poor neighborhoods. Alessandra Fogli of the Federal Reserve Bank of Minneapolis and I document a strong correlation between inequality and residential segregation.

The data show that cities with more segregation have a bigger education gap between the children of rich and poor families—and have less intergenerational mobility, which measures how hard it is to become rich if your parents are poor. In rich neighborhoods, it’s easier for kids to get a good education, and the return on education is higher. There are better schools, parents invest more in after-school activities, and there are stronger peers. This means that segregation amplifies inequality. At the same time, inequality increases segregation because richer people are happy to pay more to live in better neighborhoods. more> https://goo.gl/Qxi1wD

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Are You Ready To Consider That Capitalism Is The Real Problem?

BOOK REVIEW

The Divide: A Brief History of Global Inequality and Its Solutions, Author: Jason Hickel.

By Jason Hickel and Martin Kirk – A full three-quarters of people in major capitalist economies believe that big businesses are basically corrupt.

Why do people feel this way?

It’s because they realize—either consciously or at some gut level—that there’s something fundamentally flawed about a system that has a prime directive to churn nature and humans into capital, and do it more and more each year, regardless of the costs to human well-being and to the environment we depend on.

That’s what capitalism is, at its root.

What might a better world look like? There are a million ideas out there. We can start by changing how we understand and measure progress.

We can change that.

People want health care and education to be social goods, not market commodities, so we can choose to put public goods back in public hands. People want the fruits of production and the yields of our generous planet to benefit everyone, rather than being siphoned up by the super-rich, so we can change tax laws and introduce potentially transformative measures like a universal basic income. more> https://goo.gl/ntiMQr

The economy is more a messy, fractal living thing than a machine

BOOK REVIEW

In Our Own Image: Savior or Destroyer? The History and Future of Artificial Intelligence, Author: George Zarkadakis.

By George Zarkadakis – Mainstream economics is built on the premise that the economy is a machine-like system operating at equilibrium. According to this idea, individual actors – such as companies, government departments and consumers – behave in a rational way.

Ever since the invention of the assembly line, corporations have been like medieval cities: building walls around themselves and then trading with other ‘cities’ and consumers.

The so-called ‘gig economy’ is only the beginning of a profound economic, social and political transformation. For the moment, these new ways of working are still controlled by old-style businesses models – platforms that essentially sell ‘trust’ via reviews and verification, or by plugging into existing financial and legal systems.

Blockchain technologies promise to replace these trusted third parties with a huge digital record book, spreading out organically across a network of computers that grows and changes but can’t be meddled with.

By getting rid of middlemen, they’re likely to radically reduce transaction costs, and accelerate the mixing of many different actors in the new economy who have been freed from the grip of leaders or institutions. more> https://goo.gl/Gs6f4B

Updates from Chicago Booth

How to split equity without drawing blood
By Mike Moyer – We live in a world where entrepreneurs and early-stage company participants get taken advantage of so frequently that we hardly notice. Bad equity deals are the rule, not the exception. Fairness is rare.

The intent for fairness is there in the way equity is split among business partners, but the practice of fairness is not. This is a correctable problem.

When a person contributes to a start-up company and does not get paid for her contribution, she is putting her contribution at risk with the hopes of getting a future reward. And, while the timing and the amount of the future reward is unknowable, the amount of the contributions at risk is knowable. It is equal to the fair market value of the contributions.

Because it’s impossible to know when or even if the rewards will ever come, we can never know how much people must put at risk to get the rewards. Every contribution, therefore, is essentially a bet on the future of the company, and nobody knows when the betting will end. more> https://goo.gl/F3ELyY

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What Economics Models Really Say

BOOK REVIEW

Economics Rules: The Rights and Wrongs of the Dismal Science, Author: Dani Rodrik.

Why is there such an enormous gulf between what economists know and what they say in public?
By Peter Turchin – Rodrik notes early in the book, “economics is by and large the only social science that remains almost entirely impenetrable to those who have not undertaken the requisite apprenticeship in graduate school.”

And economics is “impenetrable” not because of mathematical models, at least not to someone trained in mathematical natural sciences (the math is universal), but because economists have developed an entirely distinct jargon that sets them apart from other disciplines and creates artificial barriers to understanding the many truly worthwhile insights from economics models.

In popular press, comparative advantage is always used as a justification for advocating free trade. Rodrik does an admirable job explaining why, under many conditions, free trade can lead to really negative consequences for economies and populations of countries that open themselves to international competition.

For example, there is strategic behavior. A country may choose to protect its domestic industry with high tariffs and subsidize its exports in order to gain market share.

Perhaps its leaders don’t understand the Principle of Comparative Advantage, not having the benefit of apprenticeship in economics. Or perhaps they care more about their country’s long-term survival in an anarchic international environment than about making immediate profit.

As Rodrik correctly stresses, these cases do not prove that standard economics is wrong. In short, “someone who advocates free trade because it will benefit everyone probably does not understand how comparative advantage really works.” more> https://goo.gl/mQr9tV

New tech only benefits the elite until the people demand more

BOOK REVIEW

Routes of Power: Energy and Modern America, Author: Christopher Jones.

By Christopher Jones – The United States faces an infrastructure crisis.

Report after report warns that the nation’s networks are old, brittle and vulnerable. Systems that were once the envy of the world now suffer from chronic underfunding and neglect.

If you’ve traveled in western Europe or parts of China recently, you probably noticed the unfavorable comparison between roads and subways in the US and those abroad. A culture enthralled with disruptive innovation has ignored the fundamental importance of maintaining its technological backbones.

Can we make US infrastructure great again? Yes, and clearly financial investment is essential. But that is not all.

Infrastructure is not, and never has been, simply a collection of material objects. The secret of the country’s infrastructure success lies in a forgotten political history: the demands by millions of Americans over time for fairer and more equitable access to rails, pipes, wires, roads and more.

The wondrous US infrastructure achievements happened when citizens participated in infrastructure decisions. One can even propose a rule: the better the democracy, the better the infrastructure.

Citizen engagement, not technical ingenuity, deserves credit for the widespread historical benefits of US infrastructure.

When new systems first appeared, they were frequently celebrated as technical marvels accompanied by parades, ribbon-cuttings and grand speeches. But they never appeared equitably. Indoor plumbing, gas and electricity made the lives of the elite more comfortable, while leaving the vast majority of Americans behind. Whether it was railroads in the 19th century, transmission wires at the turn of the 20th century, or roads in the 20th century, the pattern was the same.

All initially served the already powerful, and often allowed them to increase their control over markets and labor. The first deployments of infrastructure have therefore usually benefited small groups and exacerbated social inequality.

Crucially, people did not simply accept the iniquity. more> https://goo.gl/2cAxL7

Connecting People to Prosperity in the Exponential Age

By Vanessa Bates Ramirez – “Our assumptions about how economies function no longer seem to hold true entirely because of exponential technology.”

This claim came from entrepreneur and Singularity University faculty member, Amin Toufani.

In what he calls exponential economics or “exonomics,” Toufani breaks the tech-driven changes happening in the modern economy into seven pillars: people, property, production, price, power, policy, and prosperity.

Toufani pointed out that exonomics’ ultimate goal is to connect people and prosperity.

“Technology is empowering all of us, and people seem to be doing what companies used to do and companies seem to be doing what governments used to do,” Toufani said.

The democratizing effect of information technology is enabling small teams to have an outsized impact. He showed a graph of collaboration app Slack’s user growth, and it’s practically a vertical line. A few years old, Slack reaches millions of users, many of whom pay for the service, and was recently valued upwards of $9 billion.

The kicker? Slack was created by a team of 12 software developers. And it’s far from the only such example. more> https://goo.gl/wpBRPz

The Left And Science In LaLaLand?

By Wolfgang Kowalsky – How did we get into that situation?

First, a fading consensus, not only on Europe but also on the liberal form of representative democracy, is not a totally new trend. It is an incremental, not an underground movement with some disruptive events above the surface.

It started half a century ago when some so-called New Philosophers – and in parallel a so-called New Right – saw the light of day and developed a hegemonic strategy based on the ideas of Italian Marxist philosopher Antonio Gramsci. Together, the New Philosophers and the New Right had much more impact than expected.

The struggle between different political concepts which is the foundation of liberal democracies is superposed by the trend to use the political battle to push for limiting democracy, which is presented as too bureaucratic, too dominated by compromises and endless discussions. The justification behind this trend is to simplify complex issues, to avoid long discussions and to facilitate recourse to immediate action along the line of ‘Promises made, promises kept’ – tactic to cement hegemony over one’s own clientèle.

The question is why the oversimplification and the denial of complex correlations gets more and more support. more> https://goo.gl/nFQFZw

The Only Thing, Historically, That’s Curbed Inequality: Catastrophe

By Walter Scheidel – The pressures of total war became a uniquely powerful catalyst of equalizing reform, spurring unionization, extensions of voting rights, and the creation of the welfare state. During and after wartime, aggressive government intervention in the private sector and disruptions to capital holdings wiped out upper-class wealth and funneled resources to workers; even in countries that escaped physical devastation and crippling inflation, marginal tax rates surged upward.

Concentrated for the most part between 1914 and 1945, this “Great Compression” (as economists call it) of inequality took several more decades to fully run its course across the developed world until the 1970s and 1980s, when it stalled and began to go into reverse.

This equalizing was a rare outcome in modern times but by no means unique over the long run of history. Inequality has been written into the DNA of civilization ever since humans first settled down to farm the land.

Throughout history, only massive, violent shocks that upended the established order proved powerful enough to flatten disparities in income and wealth. They appeared in four different guises:

  1. mass-mobilization warfare,
  2. violent and transformative revolutions,
  3. state collapse, and
  4. catastrophic epidemics.

Hundreds of millions perished in their wake, and by the time these crises had passed, the gap between rich and poor had shrunk. more> https://goo.gl/b2D6Dj

Inequality: What Can Be Done About It?

By Tony Atkinson – There are two main sets of reasons why one is concerned about inequality, one is intrinsic that the kind of society in which we would like to live is one in which at least the gaps are not too big between the top and the bottom and that’s my regard as a very intrinsic reason why we feel that issues of social justice should be addressed.

And then the second set of reasons are the consequences of inequality, which had quite a lot of attention recently in terms of their impact on all kinds of social and economic problems. But I think the consequences for me probably are the most serious when it comes to the relationship between two kinds of inequality; one is inequality of opportunity and the other is inequality of outcome.

We’re living in very interesting times because we are living through what might be seen as a backlash against globalization in general. Do you think that the development of inequality in recent decades has contributed to this backlash?

I think particularly through the lack of social mobility it certainly, I think, has done that. I think also of course one must recognize that inequality particularly of wealth conveys with it economic and political power, and that of course is another feature which is not just the elites. I think it’s the very influence of media and other parts of society which are controlled by a rather small number of people. more> https://goo.gl/GYVKxo