In 1975, the Brookings Institution — perhaps Washington’s best known think tank — published an elegant essay by Arthur Okun, who had been one of the leading economists of the Johnson administration. The essay was called “Equality and Efficiency: The Big Tradeoff.” Its premise, as the title suggests, was that government faced a choice in fashioning its economic and social policies. A bias toward more equality might weaken economic growth by dulling the incentives to work, save and invest; on the other hand, leaving matters to the market could worsen inequality by widening income and wealth gaps. We could balance equality and efficiency. Once stated, the logic seems impeccable.Inequality is now worse than it was forty years ago!
How did this happen? How did we end up with degraded efficiency and equality? Why did Okun’s sensible-sounding scheme not survive contact with the real world?But, that is within the US. If we, however, looked at the entire seven-billion-plus that we are on this planet, global inequality has reduced. So much so that the managing editor of the Journal of Economic Perspectives concludes his blog-post with:
the 21st century would be a time of rising equality across the global income distribution.Data do show that globally inequality is decreasing even as within-country inequality is rising in many countries. And that is Kenneth Rogoff's point of departure:
Wouldn’t a true progressive support equal opportunity for all people on the planet, rather than just for those of us lucky enough to have been born and raised in rich countries?
If current concerns about inequality were cast entirely in political terms, this inward-looking focus would be understandable; after all, citizens of poor countries cannot vote in rich ones. But the rhetoric of the inequality debate in rich countries betrays a moral certitude that conveniently ignores the billions of people elsewhere who are far worse off.Whenever I ask students in my classes whether we should worry about the increasing inequality in the US, or about the welfare of the economically disadvantaged billions outside the US, after they look at the data, not a student whimpers about the grossness of the inequality in America. Rogoff reminds us about some of that data:
the middle class in rich countries remains an upper class from a global perspective. Only about 15% of the world’s population lives in developed economies. Yet advanced countries still account for more than 40% of global consumption and resource depletion.People in America complain because the "ovarian lottery" seems to have lost its value:
global inequality has been reduced significantly over the past three decades, implying that capitalism has succeeded spectacularly. Capitalism has perhaps eroded rents that workers in advanced countries enjoy by virtue of where they were born. But it has done even more to help the world’s true middle-income workers in Asia and emerging markets.
Keep in mind that despite all that economic progress (I won't worry about the non-economic issues for now, because I do that in many other posts) in China and India and Vietnam and wherever, the average American is immensely richer than the average person in many countries around the world.
There is one more way in which all those people in other countries can be given a fair shot at improving their economic conditions:
Allowing freer flows of people across borders would equalize opportunities even faster than trade, but resistance is fierce.
When I bring up this point in my classes, students suddenly become a tad defensive. I ease them by noting that it is a hot political issue, yes, and even progressives line up against immigration.
Rogoff doesn't mince words:
Unfortunately, most of the debate in rich countries today, on both the left and the right, centers on how to keep other people out. That may be practical, but it certainly is not morally defensible.And for a good measure, he reminds us about this too:
Europe’s long history of exploitative colonialism makes it hard to guess how Asian and African institutions would have evolved in a parallel universe where Europeans came only to trade, not to conquer.
Add to that America's slave trade. And there are more to the list.
We lack definitive answers only when we frame the inequality problem a certain way. It is just that we don't want to work towards those answers. We choose to avoid them. We are being cunningly political.