Saturday, March 9, 2013

Global Trends Are Not Caused by Local Factors

. Saturday, March 9, 2013

In the above video from last Fall, Brad DeLong describes three types of inequality:

1. Global inequality, which was expanding from 1800-1975, and receding since (due primarily to China and India).

2. US inequality, which was declining from 1925-1980, but increasing since, in two ways:

2.a. The separation of the top 20% from the bottom 80%, partially as a function of college wage premium.

2.b. The separation of the top 0.1% from the rest of the top 20%, for reasons unexplained.

3. The rise of the top 1% globally -- the development of a new international plutocracy -- since... 1980 or so?

For reasons that escape me he does not link the three together. It seems an obvious thing to do. It's what Oscar Landerretche (the other participant in the discussion) does, in the context of explaining outcomes in Chile. But he doesn't do it.

This is something that has disappointed me about the conversation regarding American inequality over the past few years more generally. (I've written about it before.) Folks like DeLong, Krugman, Cowen, and others think in global terms quite frequently. But when they seek to explain the Great Stagnation and the rise of inequality they concern themselves almost entirely with local explanations. I think such analyses are very likely to suffer from omitted variable bias.

Around the 43rd minute, DeLong takes a direct question about this from the audience. He answers it fairly well, but still downplays the role of the global economy in influencing outcomes in the US, favoring cultural explanations (e.g. explosion of CEO pay) and changes to marginal tax rates. He does not consider that these might be related to global dynamics either. If global forces eroded the bargaining power of American Labor, then maybe that's why society has tolerated the enormous increase in executive pay. If global forces are pressuring American corporations through new competition, then maybe we've cut top-end taxation in an attempt to gain back some competitiveness.


LFC said...

Surely any systematic discussion of economic inequality has to start w the distinction btw international inequality (i.e. betw per capita income [or wealth] among countries) and intranational inequality (i.e. inequality within countries, within *all* countries, nit just the U.S.).

As Pogge has shown, w/r/t China, if China had grown more slowly but more equitably in recent yrs, there wd be less poverty and less inequality in China than there is today. So international inequality wd not have ben reduced quite as much but intranational inequality -- at least in China -- wd have come down more.

This does not challenge the pt you make in the post about global explanations for US inequality, but it does raise the question of why a very prominent (and v smart) economist gives a lecture about inequality w/o explicitly discussing one of the fundamental conceptual distinctions one has to make (ie betw international and intranational).

Source for the China claim: Thomas Pogge, "Growth and Inequality: Understanding Recent Trends and Political Choices," in Politics as Usual: What Lies Behind the Pro-Poor Rhetoric (Polity Press, 2010).

LFC said...

typo correction: "nit" shd be "not"

Kindred Winecoff said...

I'm not sure I really get your point, in context. DeLong did make a point similar to the one you raise. My suggestion is that the simultaneous drop is US-China/India inequality and increase intra-US inequality are probably related. Profoundly related. I understand that the precise amount this dynamic has occurred is tough to tease out econometrically, but the fact that similar trends are visible in almost all advanced industrialized societies seems, to me, to suggest that the vagaries of US tax policy (or any other local factors) are not primarily to blame.

One knock-on effect of this is that taking significant actions to lessen domestic inequality (eg by restricting capital movements, or pulling out of trade deals) may in the end exacerbate global inequality.

A lot of liberals and progressives think that the 1950s-60s was a golden era to which we can return. I don't think so. I think that period was the product of historical conditions which no longer exist.

LFC said...

Sorry if I wasn't clear.

My comment was not directed at your substantive point against DeLong (which I did not address one way or the other) but rather was a comment on DeLong's speech itself, based on yr summary of that speech.

According to yr summary, he distinguished (1) "global" inequality, (2) intra-US inequality, and (3) the separation of the top 1% of the world pop. from everyone else.

Here is my pt (w caveat that maybe if I watched the video rather than relying on yr summary the objection wd lessen).

The pt: if one is laying out a general framework for discussing economic inequality, why simply mention ONLY international (or intercountry) inequality and domestic inequality in the US -- without ALSO explicitly discussing or mentioning domestic inequality in all other countries or at least the major ones? This gives the impression that one basically cares only about 2 things: (1)intercountry comparisons and (2)domestic inequality in the US. Whereas if the concern is gauging the welfare of all 7 billion (or whatever the right figure is) humans, one must focus on, among other things, domestic inequality in *all* countries, esp the major ones, NOT just domestic inequality in the US. To say that China/India gained on the US -- that there has been a drop in China-India vs US inequality -- does not tell one anything about how China's growth has been distributed in China or about how India's growth has been distributed in India.

DeLong's taxonomy makes some sense, I suppose, if it was a speech mainly about the US, but much less sense, ISTM, if presented as a general framework for discussing inequality as a worldwide phenomenon. By focusing on just three trends -- China and India gaining in the aggregate on the US; intra-US inequality; and top 1% separating from everyone else -- he leaves out quite a lot of important stuff, such as e.g. the situation distributionally inside China and India. The latter is significant for a variety of reasons, normative and empirical, one of which being that, e.g., if China had grown more *slowly* but more *equitably* arguably the Chinese wd be better off -- certainly the poor in China wd be -- even tho the total China GDP wd not be quite as big.

When you say at the end of the post "exacerbate global inequality" what you mean is: exacerbate inter-country inequality, based on comparing countries' GDPs. But from a normative or moral standpoint, I don't really care all that much about China's or India's (or any country's) total GDP. I care, rather, about the amt of poverty in country X and about the distribution of income and wealth in country X (two separate things admittedly, yes, but often related). And while, ceteris paribus, China or India is better off w a higher than w a lower GDP, all things are not constant and what really matters, at least to me, is how the GDP growth gets distributed *within* China or India. (An issue that use of a phrase like "global" inequality, when what you mean is inter-country inequality, just tends to obscure, IMO.)

Kindred Winecoff said...

Ah, ok, I see.

I think part of it is the nature of the conversation. DeLong was there to speak, mostly, about the US experience. A Chilean economist was there to speak about Chile's experience. Nobody was there to speak about China and India's experience, although it came up a little. I think DeLong would probably be happy to have a discussion about the comparative experiences of China/India, but it wasn't really the topic.

But yes, he did begin his discussion with the things I mentioned as some sort of way to think about global inequality trends, and did not speak much (maybe not at all, but I don't want to be too sure) about intra-China. So your point is a good one.

And yes, I mean that protection would possibly exacerbate intercountry inequality, but in this case I think the brunt of it would fall on labor in the developing world. That is, it likely would if it would benefit labor in the developed world. I do understand that there are comparative political economy issues that may or may not mitigate in whatever particular country.

Anyway, I don't think the lot of labor in China would be improved by lessening their ability to sell into the US market. It may not change, much, if ALL of the surplus value of their labor is being expropriate by the Chinese elite, which I don't think it is (even if quite a lot of it is); but even in that case ending the Chinese elite's ability to capture the surplus by *eliminating the surplus* wouldn't improve the return to Chinese labor.

LFC said...

Ok, I take the point re the nature of the conversation on the video.

"...the brunt of it would fall on labor in the developing world."

Fair enough; that may well be right. I'm not a huge fan of trade barriers -- there are prob. better ways to help U.S. workers, or at least ways that would be less harmful to labor (and others) in the developing countries.
And guess I shd mention that I've long been interested in issues of 'global' distribution/distributive justice, hence my sensitivity to the inter-country vs intra-country distinction. (Though I haven't kept up w most of the literature, political-economic or normative, on the subject for the past, oh, three decades.)

JR said...

The objection to this I usually hear (almost always from sociology majors interestingly enough) is that the system which allowed "global forces" to erode the bargaining power of American labor was intentionally created/lobbied for by the usual suspects (corporations, 1%ers, big finance, "capital" as a class): The end of ISI, the lowering of trade/capital barriers, and the creation of the "Washington consensus" generally, was a project undertaken by aforementioned suspects out of a desire to increase profits. They would (and did) make a claim that autoworkers in Mexico only began to erode UAW workers' bargaining leverage/incomes when "corporations" "lobbied" for NAFTA; substitute Mexico for another emerging market and cars with relevant industry and you get the general point. It's a slightly more fleshed-out way of venerating the 50s-60s as an era we can return to: Since the current era is a product of policy changes wrought by neoliberal conspirators, we can just undo these changes and return. End free capital flows, allow ISI in the developing world, and we're back on track (in their view).

There are obviously a lot of faults in this argument (if anything "undercut" UAW workers' bargaining power, it was the shitty cars they made from the 70s to the mid 90s)*, but as you indicate a lot of progress could be made in clearing up the causal chain - or at least in admitting to how muddy the distinction between independent and dependent variable is. Which I think is the point Oatley is trying to make in the reductionist gamble.

*Competition from Japan and the EEC played a role, but those being countries being rather well-off, don't really fit into the narrative of 1st world plunderers.

Anonymous said...

But did domestic inequality increase in other countries affected by globalisation post 70s(afaik not so much in northern europe? so that would tend to imply the importance of domestic factors, aswell)

JR said...

Finland, Sweden, and Germany had some of the largest increases in inequality: - page 4.

Anonymous said...

Interesting JR, thanks..I'll have a look

LFC said...

the system which allowed "global forces" to erode the bargaining power of American labor was intentionally created/lobbied for by the usual suspects (corporations, 1%ers, big finance, "capital" as a class): The end of ISI, the lowering of trade/capital barriers, and the creation of the "Washington consensus" generally, was a project undertaken by aforementioned suspects out of a desire to increase profits.

Well, though doubtless too simple I don't think this is *completely* wrong. However, I wd put it a bit differently and say that corporations etc took advantage of the ec crises of the 70s and the subsequent ideological ascendancy of Reaganism/Thatcherism/neoliberalism to push through an agenda some of them had been advocating w/o as much success for a long time before.

Thus not so much a conscious well-laid 'conspiracy' as a seizing of an opportune moment presented by the near-simultaneous (ie over a decade-and-a-half or so) conjunction of the breakdown of 'the Keynesian accommodation', end of fixed exchange rates, 3rd world debt crisis, etc.

LFC said...

p.s. I understand of course JR that quoted part was not yr view but yr summary of "sociology majors" views.

(Thank heavens some people are still majoring in sociology. Or some mixture of sociology and other things.)

Kindred Winecoff said...

Sorry for being a bit absent; I'm traveling at the moment and with limited time.

Anon, there were several global trends around this time which affected advanced industrialized economies similarly (tho not exactly the same). Increasing wage inequality, across the OECD is one. Not just Finland, Sweden, and Germany (as JR mentioned), but more generally.

Hence the title of my post. We tend to think of things that happen in the US as being unique to the US and/or a result of local factors like such-and-such tax cut or such-and-such regulatory reform. In many cases they are not, as evidenced by the fact that the same things happened elsewhere, but without the same policy change. This is where a comparative/international perspective is most useful.

LFC, "took advantage of the ec crises" is one way of putting it. I'd say that the 1970s crises revealed major contradictions in system: open trade without open capital is unsustainable. If you want an open system, it needs to be pretty well open. (And you *do* want an open system, at least more or less.) Industrialization financed by foreign borrowing (i.e. ISI) is risky business; you're essentially levering up your whole economy, and an eventual crash is likely.

So, yes. Maybe the neoliberals "took advantage" of the crash. But it's possible, just possible, that they were right about some things. The US/UK weren't the only countries to deregulate during this period. The incorporate of non-North Atlantic (plus Japan) economies into the industrialized system of production and exchange was always going to require some adjustment. And, it appears to me, that for all the "neoliberal" whatever, if you take a step back and look at it the progressive agenda has moved forwards since 1970 or so, not back: universal health care, guaranteed funding for higher education (subsidized on the basis of need), anti-discrimination law on a number of criteria, advancement of minority and gender equality, etc. This, too, is not just true of the US.

The major exception is the rise in income inequality and the increasing irrelevance of unions. I think the two are related, but not in some nefarious partisan sense. In the sense that the world changed, and proto-industrial social arrangements have become increasingly anachronistic in an economy whose labor force is less (directly) engaged in industrial production. This, too, has been seen elsewhere in the industrialized world.

To the extent that progressives are still dedicated to the cause of unions, they are doomed. Which is why Third Way happened in the first place.

LFC said...

In the interest of time I'll restrict myself to your last point:
At least in theory, unions should be able to adapt to a largely post-industrial economy, though they may never regain quite the strength they once had.

JR said...

I didn't/don't mean to impugn the credibility of sociology; I just thought it was an interesting disciplinary divide I observed in many of my classes. Probably should have made that clearer (or just not bought it up at all).

Global Trends Are Not Caused by Local Factors
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