Transcript Inequality in the World Economy

Inequality in the World
Economy
JAMES K. GALBRAITH
THE UNIVERSITY OF TEXAS AT AUSTIN &
LEVY ECONOMICS INSTITUTE
FOR THE
INSTITUTE FOR NEW ECONOMIC THINKING
INAUGURAL CONFERENCE
APRIL 10, 2010
A few words from the Master
“For my own part, I believe that there is social and
psychological justification for significant inequalities
of incomes and wealth, but not for such large
disparities as exist today. Moreover, dangerous human
proclivities can be canalised into comparatively
harmless channels by the existence of opportunities
for money-making…. It is better that a man should
tyrannize over his bank balance than over his fellowcitizens…. But it is not necessary… that the game
should be played for such high stakes as at present.
(1936, 374)
Inequality as Global Macroeconomics
 At the national level, inequality is a curvilinear




function of income level – a matter of
macroeconomics, not microeconomics.
Changes in inequality are driven in part by changing
inter-sectoral terms of trade.
The dominant movements in global pay inequality
reflect changing financial regimes
Global factors dominate the picture.
In the US, the stock market has driven income
inequality.
A Stylized “Augmented Kuznets Curve”
Inequality
Kuwait
Brazil
China
Korea
USA
Denmark
Income
Brazil on the Kuznets Curve
Rate of Economic Growth`
12
10
8
80
85
79
94
6
84
95
4
86
89
78
77
93
87
2
91
0
88
92
-2
83
90
Sources of Global Data
 Rich geographic and sectoral data sources in the US,




including Local Area Personal Income, SIC, NAICS
Goskomstat, China State Statistical Yearbook, and
other national data sources
Eurostat for regional data in Europe
UNIDO Industrial Statistics (source of maps
following) and other global data sources: ~3200
country-year observations
Common method: Between-groups component of
Theil’s T Statistic
Global Movement of Inequality
 Brown: Very large decreases in inequality; more than 8 percent
per year.
 Red Moderate decreases in inequality.
 Pink: Slight Decreases.
 Light Blue: No Change or Slight increases
 Medium Blue: Large Increases -- Greater than 3 percent per year.
 Dark Blue: Very Large Increases -- Greater than 20 percent per
year.
1963 to 1969
1970 to 1976
The oil boom: inequality declines in the producing states, but rises in the
industrial oil-consuming countries, led by the United States.
1977 to 1983
1981 to 1987
Start of the “Super-Bubble”
… the Age of Debt
Note the exceptions to rising inequality are mainly India and China,
neither affected by the debt crisis…
1984 to 1990
1988 to 1994
The age of globalization…
Now the largest increases in inequality in are the post-communist states;
an exception is in booming Southeast Asia, before 1997…
“Concept 4” Inequality: The Common Movement of
Inequality Measured within Countries, Across Time
0.5
The Super Bubble
Milanovic Concept 1
9/11
0.4
0.3
0.2
0.1
End of Bretton
Woods
0
Profit Share in OECD
-0.1
-0.2
Debt Crisis
-0.3
Note: The vertical axis represents the time element in a two-way fixed effects panel regression, across
the panel of country-year observations. Vertical scale is log(T) units. Source: Kum 2008.
What would have happened without the
Global Element?
Non-OECD
OECD
Non-OECD
-2.5
UTIP-UNIDO Log(T)
UTIP-UNIDO Log(T)
-2.5
OECD
-3
-3.5
-4
-3
-3.5
-4
-4.5
-4.5
1963 1968 1973 1978 1983 1988 19931998
Non-OECD vs. OECD
(Actual Values)
1963 1968 1973 1978 1983 1988 19931998
Non-OECD vs. OECD
(After Global Effect Removed)
Note: Bands indicate two standard deviations of country observations within each
year shown. OECD and non-OECD countries shown separately. Vertical scale is
log(T) units. Source: Galbraith and Kum, 2003.
Did Loose Monetary Policy Cause the SuperBubble?
“… even if we were to suppose that contemporary
booms are apt to be associated with a momentary
condition of full investment or over-investment in the
strict sense, it would still be absurd to regard a higher
rate of interest as the appropriate remedy. For in this
event the case of those who attribute the disease to
under-consumption would be wholly established. The
remedy would lie in various measures designed to
increase the propensity to consume by the
redistribution of incomes or otherwise…” (1936, 324)
The US: Income Inequality and the NASDAQ, 1969-2006
0.045
9
Internet
Bubble
8.5
0.04
8
7.5
0.035
Tax Reform Act
7
Th eil'sTSt a tis t ic ( 1
y rla g)
-
0.03
6.5
Inequality
6
Log of NASDAQ
0.025
5.5
Na t u
r alLog ofNas daq
Mo
n th
ly Clo s e
Co un
t yI nc o
m eI n equalit y
5
-
0.02
4.5
Be t wen
0.015
4
Income inequality measured between counties, from tax data
1969
19 70
1971
19 72
1973
197 4
1975
197 6
1 977
197 8
1 979
1980
1 981
1982
19 83
1984
19 85
1986
19 87
1988
198 9
1990
199 1
1 992
199 3
1 994
199 5
1 996
1997
19 98
1999
20 00
2001
20 02
2003
200 4
2005
This broad picture of the world economy from the
standpoint of inequality measure suggests that the
“super-bubble” was also, for most of the world’s
population, a “super-crisis.”
The super-bubble came to a peak in 2000-20001.
The period since then was marked in the United States
by efforts to keep the bubble going, in part through
aggressive efforts to relax standards, which may be
described as the growth of a “predator state.”
This led to the corruption of the financial markets whose
collapse produced the great crisis.
A final word from the Master
“In so far as millionaires find their satisfaction in
building mighty mansions to contain their bodies when
alive and pyramids to shelter them after death, or,
repenting of their sins, erect cathedrals and endow
monasteries or foreign missions, the day when the
abundance of capital will interfere with abundance of
output may be postponed… It is not reasonable, however,
that a sensible community should be content to remain
dependent on such fortuitous and often wasteful
mitigations when once we understand the influences
upon which effective demand depends.” (1936, 220)
For more information:
The University of Texas Inequality Project
http://utip.gov.utexas.edu
Type “Inequality” into Google; you’ll get ~17,900,000 hits:
we’re #11 as of last week in the US; ahead of Harvard,
Stanford and Cornell. New peer review for new thinking…