A word on income inequality

Definitions first,
as the issue requires.

There are several definitions of income inequality. Income inequality refers both to disparities of income amongst people in the same geography and to disparities in average income amongst countries or continents.
Estimates vary, and I haven't as of yet seen comprehensive stats, but it is often reported that 20% of people receive 80% on incomes, both within and amongst countries.

Why is inequality bad?
Inequality is bad for a number of reasons you can look up on wikipedia, I will assume the reader is fairly familiar with most. I will only mention three:

1. Ethics. Today's material and financial resources would suffice, if more equally distributed, to provide water, food, education, health to the whole of the global population, saving MILLIONS of lives every year. Most of them are in Africa, some are in New York City, Los Angeles, etc.
2. Efficiency. Undernourished, impoverished people, with impoverished lands and impoverished minds are a wasted resource (called labour). These people, if empowered with a certain amount of physical and human capital (fertilizers, water infrastructure, learning structures, food processing) could jump on the wheel of progress and meet those basic needs that keep them in that state. Africa is the biggest wasted resource of the world. Educated and democratic societies in Africa could put solar stations in the Sahara and plug Europe off the nuclear and oil hooks and into a sustainable energy policy (but this is a topic for another post).
3. Our own safety. Impoverished people which for some reasons are marginalised in our cities are responsible for many crimes. I'm just guessing here, but I think the 80/20 rules may apply again. Should check but I will pay a beer to whoever sends me a better stat. I say 80% of violent crimes in cities are done by the lowest 20% income group. More equal societies produce less social attrition. In an era of abundance, it would be possible to drastically reduce crime levels simply by reducing inequality in our cities.

Wealth and income inequality
Wealth inequality measures the distribution of wealth in a population and is also in the 80/20 ballpark.

First of all, let's note that on a purely theoretical level, the two inequalities are strictly related. indeed, wealth produces income in the form of dividends or interest payments, or other forms of remuneration of capital.
Therefore, when we speak about income inequality, we also speak of wealth inequality and more in general of the process of capital accumulation. Therefore, it is important to acknowledge that the process of capital accumulation, which is so engrained in our society, tends to increase inequality and reduce social mobility.
We therefore live in a world where a privileged elite consumes on average 100 times more than his counterpart in the lowest quintile.


Who is the elite?
If you are reading this blog, you are probably part of this elite. If you live in Europe, Japan, States, you are probably part of this elite. If you live in China, Brazil, Mexico, Argentina, India, Australia, and work for a big international company, law firm or bank, you are probably part of that 20% too. I'm in too, no doubt about it.
On the other hand, if you are readying this blog from rural China or India, or from anywhere in Africa, sorry but you are probably not part of the elite, you've been unlucky. If you believe in resurrection, good luck for next time.

Personally, I'm in favour of drastic actions to reduce income and wealth inequality both amongst citizens of the same country and on a global scale. However, I can see how the political process may need to be fed little steps at a time, and have therefore written down a couple of ideas, hoping my dear reader will provide with more.

Proposals for action to tackle internal income inequality 

1. What I would like to see is the improvement of mid frequency measurements (month or quarter) of income inequality at least at national level, with full statistical mapping of incomes and wealths, which should ANONYMOUSLY be collected from a national statistical office.

2. Politicians that give during the campaign explicit targets in terms of income distribution or social mobility. "Hello, I am Candidate Smith, and hope that in my 5 years in office I will reduce the kurtosis of the income distribution by this much, while increasing social mobility by this much. Vote for me". 

Proposals to tackle global income inequality

This is a bit more complicated, but there are a few things to start with:

1. Donate, volunteer, stay informed, read.

Do you think you could live with 1 dollar a day? Do you know there is 1.1 billion people leaving with less than 1 dollar a day?

I am reading from Jeffrey Sachs the number of people living in extreme poverty (less than 1 dollar a day in purchasing power parity) is 1.1bln (World Bank, 2001).

If we were to efficiently transfer 1.1 bln peole 1 dollar a day of purchasing power we would more than double their life standards (we would significantly reduce the number of kids dying of malaria, AIDS, etc). 

How much would it cost? 1.1bln*1USDperday*365=c USD400 bln a year. This is a tiny percentage of our developed western economies (3% of US GDP, much less if one includes other countries who can help out...). Could we consume 3% less, tax ourselves 3% and solve the problem once and for all? True, there will be problems of infrastructure and access, but once the big problem is solved for most of them, these people will be able to fend for themselves.

It's late and the topic is daunting, I hope to come back to it in due course. Meanwhile, I WANT YOUR THOUGHTS!!!

GDP, Growth, or not?

So, as it happens, we live in a world which is rather funny in its way of accounting for growth.
The main policy target these days is probably GDP growth.
GDP, as you probably know measures the flow of things we consume, the investments we make, as well as the impact of government spending, net of the taxes (plus the net exportations of the country).
However, it presents many well known defects.

So for example, if you have 2 young mothers taking care of their children they do not contribute to GDP.
If each woman goes to work 10 hours a day as a nanny for the other woman their salaries will contribute to GDP growth.
Another often cited example is war (and how it can boost economies). But that's a long topic for another day.
There are many aspects which produce negative collective effects but positive GDP impact.
Quite clearly GDP is not a decent target variable for growth, for let's look at what a decent target variable should look like if the "powers that be" should one day feel enlightened.

Targeting the right kind of growth. 
Economic growth should be about improving access to needed goods and services, while minimising costs (broadly defined to include social and environmental costs). Growth should also be about growth in jobs, and in job productivity, to allow the gradual reduction in worked hours, without the need to reduce real wages. In fact, the real hourly wages growth could be a good variable to target.
The Industrial and IT revolutions have hugely increased labour productivity and made it possible to the west to never have to worry anymore about food or basic needs. We've moved to a service based economy.  Mechanised Agriculture and Robotics, can and do produce, with very limited human labour, most of the physical goods we today consume, and computers and the internet are profoundly changing the logistics and services sectors.
The question is: can we stop growing our desires? Can we just maintain things as they are but employ the benefits of technology to work less? The other questions is, of course, do we want to?

The goals of economic policy

First real entry on my blog. I am going to share thoughts that have been flying in my head in the last few weeks.
What are the goals of economic management (aka economic policy)?

Growth is one. But growth of what? in theory, growth in the well being of citizens. GDP measures only part of it, the economic part, and often in inaccurate and distorted ways. If you are unfamiliar with the issue, you can read more here.

Let's consider Equality. Is equality good? It would sound so... less social tensions, less poverty, as far as you don't remove incentives...
What equality though? In this post I discuss income and wealth inequality in modern societies

Efficiency is a rather complex issue when talking about economies. It's still a matter of revenues and costs, and especially of optimal or optimised allocation of resources. It is because of its vastly corrupt and inefficient system of allocation of resources that the Soviet Union finally collapsed. Now let's look at the efficiency in the allocation of resources in western democracies. So what are the resources? You can count in minerals, fossil fuels, skilled and unskilled labour, works of art, natural beauties, all kinds of stuff. Think of anything that has value if properly employed.

A typical European Country will have these days double digit unemployment, which is, people willing and able to work. You will also have thousands of top talents from best universities working in financial services, law, consulting, politics, lobbying etc. You will have millions of migrants ready to take up jobs. Men, the most underutilised resource of the planet...
Our typical European country probably also does poorly in terms of efficient use of Water, Air, and energy and on the waste management part of the cycle. That is mostly because the Public sector still nowadays fails to make the private sector liable for social costs incurred in the course of business. But again, topic for another time.
What can we do to move people from unemployment to useful jobs?

Time to go to sleep.

I'' leave you with a video which depicts, in 10 minutes, a summary of the ideas of David Harvey, which I find well done and inspiring. I hope you enjoy it. Let me know your ideas.