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Recently, John Cassidy posted six charts presented by various researchers from the launch of the Washington Center for Equitable Growth, a new think tank that will fund research into inequality. “Taken together, the pictures convey a good deal of what we know about inequality”, he writes. However, he also says that there’s plenty we still don’t know, particularly about the relationship is between inequality and growth.
The Economist says the most revealing of these charts is the one from political scientist Janet Gornick, which shows that the US about on par with other OECD countries in pre-tax income, but is the most unequal after taxes. In an interview last year, Gornick argued that it’s not just about how much the US spends on social programs, but how that money gets spent. “I don’t think that Bill Gates needs a Social Security check, but we need him to be a Social Security recipient”, she says.
In launching the WCEG, former Bill Clinton chief of staff John Podesta wrote, “evidence remains thin on how worsening inequality affects these economic components: how it may alter demand for goods and services, or hinder entrepreneurialism, or undermine our political or economic systems.” The center’s purpose, Podesta says, is to study how growth and inequality are linked.
There’s also been some recent discussion on how inequality impacts economic choices. Cardiff Garcia has an excellent post on the effect that poverty has on decision-making. He points out a tidbit from Sendhil Mullainathon and Eldar Shafir’s book Scarcity: “being poor, for example, reduces a person’s cognitive capacity by more than going one full night without sleep”. Going through a number of studies, books, and first-hand accounts, Garcia concludes that “any traditional notion of ‘tough love’ or ‘getting tough’ on lazy poor people that blames them for their lots in life while downplaying their socioeconomic context is, to a first and second and third approximation, bullshit”. Garcia wonders whether this is a lens through which macroeconomists should look more often.
Chris Dillow writes, “I suspect that pretty much all the differences between our incomes are due to luck; a capacity for hard work is also a matter for luck. We do not ‘deserve’ our economic fate, and only the most witlessly narcissistic libertoon could claim otherwise”. The Epicurean Dealmaker, in response, says,
When discussing such matters, I think it is important not to conflate the concept of luck—which is normally defined as the confluence of happy (or bad) chance with the opportunity to exploit (or inability to avoid) it—with simple chance. I do not think most people would consider an illiterate hot dog vendor overhearing the conversation which led Markowitz to portfolio theory an instance of luck.
– Shane Ferro
On to today’s links: