Thursday, May 17, 2012

Economic inequality and development, or "This is where Occupy should have started"

I have spent a lot of time graphing Lorenz curves. It's a requirement of getting my degree. I hated drawing distributions of income/land/wealth and working out the calculations and derivatives by hand, but in retrospect this practice seriously matured my academic understanding of the effects of economic inequality (especially radical inequality) on the overall well-being and economic efficiency of a society. Greater inequality reduces domestic consumption, decreases political participation and representation, increases statutory penalties and abuses of police power, inhibits the accumulation of human capital necessary for advanced production and services, etc etc. All of these things are clearly established correlations, and many of them have substantial data to support causal relationships.

You can maybe imagine then, how strange it is to turn this critical perspective back onto the United States. Instead of starting with "greater inequality reduces well-being and economic performance" and "what can we do about it", domestic political conversations have to begin with a tedious explanation of why treating "economic inequality" is not the same thing as "envy of the rich", "commi-socialism" and "class warfare".

Frankly, it's bizarre. Our country is not so 'exceptional' that basic, consistent principles of economics do not apply here. Several EU countries have tried to believe in similar ideas really hard for several years, disregarding many notable economists in a desperate Western crusade against public deficit spending. But harsh austerity measures targetting middle- and lower-income groups are not long term solutions, and many beyond the radical left are beginning to wake up to that fact.

Richard Wilkinson is a renowned public health researcher and professor emeritus of social epidemiology with the University of Nottingham. His recent book on the long-term impacts of economic inequality, The Spirit Level, won support from both left- and right-wings in the UK and Europe. Of course they're all socialists, but it also drew significant attention among American economists interested in not ruining the competitiveness or well-being of this country. He presents highlights from this work in a recent TED Talk. It's worth watching even if especially if you don't lean towards the same policy solutions that I might.

This is where the Occupy movement should have started with messaging. That, and not smashing in store windows of mom-and-pop shops. But alas... oops.

For a more academic discussion of causal links, I'd suggest Prof Galor @ Brown University, Qi Su of Humboldt-University Berlin, or just start with a wikipedia search for "inequality" and go from there.

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