Questions about inequality

In the last several decades, inequalities of wealth and income within many countries (especially, though not only, 'developed' countries) have been increasing, even as aggregate income and wealth gaps between countries have been tending to decrease somewhat (though still leaving wide disparities).  Within-country inequality has reached a point where it has now become an issue in, to take one of many possible examples, the 2016 U.S. presidential campaign.

Is inequality of income and wealth objectionable because it produces other harms, or at a certain level is there something intrinsically objectionable about extreme inequality, irrespective of any possible consequences?  Why should people care, say, that, given current trends, the top 1 percent of Americans will soon hold more wealth than the bottom 99 percent (as I have seen asserted): is it because the very wealthy exercise disproportionate political power, thus distorting or nullifying democracy, or is there something inherently offensive and objectionable about the disparities?  Similarly, should the extreme disparity between CEO pay and the pay of a median worker be of intrinsic concern?  Or, to cite an example from the previous post on Lagos, is the existence of slums in close physical proximity to wealth objectionable in itself, or is it objectionable only or mainly because the basic material needs of those living in the slums are not being met in an economy that is operating well for the upper layer(s) of the population?

Many are probably familiar, either from first-hand experience or from photos, with the phenomenon of upscale houses or apartment buildings built right up against slums in cities in 'developing' countries; by contrast, in cities in 'developed' countries there tends to be more physical distance between poor neighborhoods and affluent ones.  (ETA: Of course, one can also find that distance in certain cases in the developing world as well.)  Is inequality more morally objectionable when wealth and poverty exist in close physical proximity, or is that simply an aesthetic, for lack of a better word, consideration?  Are poor people injured in some additional way by being physically confronted, as it were, on a daily basis by the existence of people who are enormously better off than they are?

More questions.  Is it "better" to live in an urban slum than in rural poverty, or does it depend on individual preferences?  Is that sort of like asking whether someone would prefer to be executed by injection or by firing squad?  Or does it depend on the particular circumstances of each case?  (I think probably it does.)  The continuing movement of people especially in the developing world from rural to urban areas is well known, but how many move back in the other direction?  (I assume rough figures are available for particular countries, but I'm not going to look for them right now.) 
 
In sum, I'm not altogether sure of the answers to many of these questions, but they strike me as worth asking, perhaps especially by those who think of themselves as egalitarians. 

ETA/update: See the comment thread for, among other things, a helpful comment by js. on what it means to say that something is "intrinsically" objectionable.

Deaton interview

This year's economics Nobelist, Angus Deaton, was interviewed a couple of days ago on the NewsHour. I was a bit bothered by his statement toward the end that "there’s been very little serious discussion [of inequality] until recently," which I think was, well, unhappily or unfortunately worded (trying to give him every benefit of the doubt here -- he probably meant a particular kind of serious discussion, but it came out as just a bald statement).  I also thought one of Judy Woodruff's questions was rather silly (n.b. I think she's generally a competent, hard-working journalist), but I won't waste time pointing out the question. (Or more precisely, I won't take the time to point it out.)

A call to end 'extreme wealth' by 2025

This is offered without comment, as I don't have much time right now, except to say that it might have been framed in terms of ending extreme inequality. But the point of the 'extreme wealth' phrase is the symmetry with 'extreme poverty.'

The mantra of growth; or, Bhagwati vs. Pogge

Given the nature of the news cycle, the debate sparked by Pres. Obama's (successful) nomination of Jim Yong Kim to head the World Bank has long since been eclipsed by a spate of fresher stories. But I wanted to write this post before the Kim story faded into complete oblivion, because the debate over Kim raised again some fundamental questions about economic growth, inequality, and poverty.

In a column published last month criticizing the choice of Kim, Jagdish Bhagwati asserted that the Obama administration has the wrong view of development. He wrote:

...perhaps the most compelling factor in Obama’s choice [of Kim] seems to have been a fundamental misunderstanding of what "development" requires. Micro-level policies such as health care, which the Obama administration seems to believe is what "development" policy ought to be, can only go so far. But macro-level policies, such as liberalization of trade and investment, privatization, and so forth, are powerful engines of poverty reduction; indeed, they are among the key components of the reforms that countries like India and China embraced in the mid-1980’s and early 1990’s....

[I]t is the rapid acceleration of economic growth in the major emerging countries that has reduced poverty, not only directly, through jobs and higher incomes, but also by generating the revenues governments need to undertake the public-health, education, and other programs that sustain poverty reduction – and growth – in the long term.

Now, there's no question that economic growth in India and especially in China has enabled millions of people to improve their living standards and leave the ranks of the extremely poor. And it's also true that economic growth generates revenues that governments, if they have wise priorities and some administrative resources, can use for public-health, education, and similar purposes. But Bhagwati failed to ask an important question: Could 'emerging countries' have reduced poverty even more by following a different, more equitable growth path?

A 2008 article by Thomas Pogge suggests that the answer is yes.* Pogge used China to illustrate his case. He argued that although poverty in China has gone down substantially, "it is likely that more equitable growth," i.e., growth accompanied by less income inequality, "would have been much better for the Chinese poor." Pogge pointed out that although China's gross national income (GNI) increased dramatically from 1990 to 2004, the relative income share of the bottom ten percent (decile) of China's population decreased from 30.8% in 1990 to 16.0% in 2004. This decrease in its relative share meant that the absolute income of the poorest decile increased "by only 75 percent" at a time when China's GNI was going up by a whopping 236 percent (see section 5.3 of the article as reprinted in Pogge's Politics as Usual, pp.100ff.).

What if China had preserved the income distribution as it existed in 1990, even if that meant sacrificing some growth? Pogge assumed, for the sake of argument, that preserving the existing income shares would have cost China 2.3 percentage points in per capita GNI growth from 1990 to 2004. Under this assumption, the poorest decile "would have done much better..., ending the period [in 2004] at an average income of $715, rather than $500, thus with a gain of 150 rather than 75 percent." (p.101) Slower, more equitable growth also would have caused less environmental degradation, a consideration that, coupled with equity, suggests that "all countries should conceive growth much more from the standpoint of their poorer population segments" (p.102, italics in original). He also pointed out that economic inequality is much easier to create (or generate) than to reverse, because the better-off are able to change the relevant rules in their favor (ibid.). There are, in other words, lock-in effects (though Pogge does not use that phrase).

Pogge also highlighted the growth in global income inequality from 1988 to 2002, with the relative share of "the poorest 30 percent of humanity" down by about 20 percent during that period, "from 1.52 to 1.22 percent of global household income" (p.106). Again, inequality translates into differential influence over the rules that shape the distribution of global income and wealth (p.107).

These are the sorts of considerations one should keep in mind when reading the celebratory assertions of Bhagwati and others about rapid economic growth in 'the emerging countries' and its effect on poverty. Of course such growth has reduced poverty, in some cases substantially, but poverty would have been reduced even more if that growth had been more equitable, even if less rapid. Neoliberal globalization, heralded by its supporters for reducing poverty, has likely not reduced poverty as much as a more equitable form of globalization would have, and it has perpetuated the unequal structure of influence in global institutions. The appointment of Kim to the Bank will obviously not drastically change this, since no single appointment could have such an effect and the institution will no doubt exert its organizational pull over any leader. But Kim's critical stance toward neoliberal globalization -- or what was his critical stance some years ago, at any rate -- perhaps offers a bit of hope. In any event, Bhagwati's critique was completely off the mark.

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*T. Pogge, "Growth and Inequality: Understanding Recent Trends and Political Choices," Dissent (Winter 2008), reprinted (in slightly different form) in his Politics as Usual: What Lies Behind the Pro-Poor Rhetoric (Polity Press, 2010), pp.93-109.

Worth interrupting the break for...

...this piece on U.S. income inequality in WaPo today.

A brief excerpt:

In 1975, ...the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.

The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million [per family per year, presumably].

An original prescription

Lead-in to Wash.Post story:

"In what advisers billed as a major address, [Pawlenty] calls for tax cuts and smaller government."

Oh yeah.

Especially more tax cuts for the very highest brackets. Definitely. Why should we settle in the U.S. for having the most unequal distribution of income and wealth since the late 1920s? Why shouldn't we aim to have the most unequal distribution in U.S. history? Why shouldn't we try to duplicate the distribution of, say, Honduras in the 1950s? After all, there's no point in doing something unless you do it well.

Brazil's progress on poverty

One reason Brazil's president Lula left office recently with such high approval ratings is the reduction in both poverty and income inequality that occurred during his time in office. An NYT article, discussed in this blog post, looks at the source of the success in the Bolsa Familia program.

Has Obama "spread the wealth"?

Looking back at this old post and the comments attached to it, I was reminded of the ruckus that Republicans made during the 2008 presidential campaign about Obama's alleged redistributionist beliefs. The then-candidate's remark to 'Joe the plumber' about "spreading the wealth" became a club that Republicans wielded mercilessly until election day.

Well, the Obama administration has been in office now for 15 months. Has it embarked on a concerted effort to redistribute wealth and income? Hardly. Rather, the administration's efforts on domestic policy have focused in large part on measures either to restore the status quo ante or to shore up safety nets in the face of the ongoing effects of the recession and the financial crisis. Health care reform as passed will, at some future point, raise tax rates a bit on upper-income taxpayers, and Congress I believe let the '01 Bush tax cuts, which primarily benefited the wealthy, expire. [Correction, 7/27/10: I was premature on this. They haven't expired yet.] But those are the only measures I can think of offhand which might be claimed to have some kind of redistributive effect. (Giving millions of more people access to health insurance, which the health care reform bill has as one of its main aims, is laudable but will not directly change the distribution of wealth or income much, if at all.)

In fact, it's the administration's relative lack of concern with redistribution, and its failure to move more aggressively to reduce unemployment and invest more heavily in public works, that has disturbed (to use a mild word) elements of the Left (or the progressive movement, if you prefer that terminology). For example, writing in the current issue of Democratic Left, Joseph M. Schwartz says:

"...the claim that the president's stimulus plan saved more than 2 million jobs...provides little solace to the some 25 million Americans either unemployed, underemployed, no longer searching for work or working far fewer hours than they need. Yet the administration is celebrating the creation of 140,000 (mostly temporary) jobs in March, when it would take job growth of 350,000 per month over the next 4 years (!) to replace the seven million jobs lost in the Great Recession (plus employ the 120,000 young persons who join the labor force each month)....

"President Obama fears that embracing the revenue-raising powers of progressive taxation opens him to charges of being a tax-and-spend, weak-on-defense and craven-on-terrorism Democrat.... Yet what good does the president's buffing his neoliberal credentials do when such policies won't lower unemployment rates? These rates virtually guarantee electoral defeat for his party in 2010 and for himself in 2012! Why not tell the truth: that amid a collapse in private investment and consumption, only massive counter-cyclical public investment in alternative energy, mass transit, and infrastructure can put Americans back to work and restore the consumer demand needed to spur private capital investment?"

So there you have it: far from Obama's having fulfilled right-wing fears that his "socialist" administration would embark on a massive redistribution of wealth, 15 months after Obama took office the leading theoretician of Democratic Socialists of America is complaining about insufficient "counter-cyclical public investment" in terms that he probably could have applied in the same way to every other president since FDR! Chances are that no president will ever favor measures that will satisfy Joe Schwartz and those (like me) who share his domestic-policy views, because structural forces constantly push presidents to the perceived middle of the political spectrum. In any case it was always clear that Obama, despite his remarks to Joe the Plumber, was not a committed redistributionist. The whole idea was preposterous, a right-wing fantasy cooked up in a desperate, futile effort to salvage McCain's presidential campaign.

Polonius vs. Goldman Sachs, with a note on oligarchy

"Neither a borrower nor a lender be."
Polonius, in Hamlet I.iii

That old blowhard Polonius -- does anyone pay much attention to him? Certainly Hamlet didn't, if memory serves. And Goldman Sachs, among others, isn't. One way Goldman has managed to post record profits recently is by borrowing and lending the federal government's money, as Paul Solman's reporting on the NewsHour this evening made crystal clear. As a bank holding company, Goldman borrows from the Fed at extremely low interest rates (a fraction of one percent), then loans the money back to the government by buying Treasury bills, which pay, say, 3 1/2 percent. Result? Big profits, big bonuses...and a sense among those hearing this that, hey, wait a minute, this just doesn't seem right. One hedge fund manager, not connected to Goldman Sachs, told Solman that the solution was either to raise interest rates or pass a lot of new laws and regulations "as thick as a phone book." Given what seems to be occurring, I think the right phone book might not be unwelcome just about now. But don't hold your breath.

Not long ago, one of the political science journals carried a piece called "Oligarchy in the United States?"* I haven't read it, but here's a sentence from the abstract: "Data on the US distributions of income and wealth are used to construct several Material Power Indices, which suggest that the wealthiest Americans may exert vastly greater political influence than average citizens and that a very small group of the wealthiest (perhaps the top tenth of 1 percent) may have sufficient power to dominate policy in certain key areas."

To paraphrase Claude Rains in Casablanca: I'm shocked, shocked to find oligarchy going on here.
Or Rains as an appropriately cautious academic: I'm shocked to find that oligarchy may be going on here.
-------------------
*Jeffrey A. Winters and Benjamin I. Page, "Oligarchy in the United States?," Perspectives on Politics (December 2009), pp.731-751.

Horatio Alger re-exploded

How much socioeconomic mobility is there in the U.S.? Not as much as many Americans believe. From a piece in Wash Post today by Isabell Sawhill and Ron Haskins:

"...recent research shows that in the Nordic countries and in the United Kingdom, children born into a lower-income family have a greater chance than those in the United States of forming a substantially higher-income family by the time they're adults.

If you are born into a middle-class family in the United States, you have a roughly even chance of moving up or down the ladder by the time you are an adult. But the story for low-income Americans is quite different; going from rags to riches in a generation is rare. Instead, if you are born poor, you are likely to stay that way. Only 35 percent of children in a family in the bottom fifth of the income scale will achieve middle-class status or better by the time they are adults [middle class being defined here as an income of $50,000 a year for a family of three]; in contrast, 76 percent of children from the top fifth will be middle-class or higher as adults."

Sawhill and Haskins go on to qualify this picture by noting that the U.S. "is exceptional" in the opportunities it offers to immigrants, relative to other 'developed' countries. But the basic data on mobility should not come as a big surprise. It is, of course, possible, as the 35 percent figure given in the quotation suggests, to rise from a poor or working-class family into the ranks of the middle-class or the affluent, but it's not likely. It probably requires a combination of individual talent, work, and luck (with "luck" construed to include the traits that one is born with and the quality of parenting one receives, among other things).

Anyone who doubts that the reproduction of social class takes place in the U.S., and who wants to consult something livelier and more anecdotal than the abundant academic literature on the topic, can browse through, say, a 30th anniversary Class Report from an elite college or university and note where the alumni's children are going to college. Anecdotal? Sure. Probative of anything in a strict social-scientific sense? No. But nonetheless quite revealing.

P.s. Last year I noted a piece by William Deresiewicz which bears on this last point.

Riding to the rescue of the L-word

A review of:
Alan Wolfe, The Future of Liberalism (Knopf, 2009)

Apart from having the same first name, what do William Kristol and William Wordsworth have in common? If this riddle appeals to you, you may like Alan Wolfe’s The Future of Liberalism. An effort to restate liberalism’s tenets for a non-specialist audience and to show that liberalism remains superior to competing “isms” in its ability to cope with modernity, the book is best approached as a series of connected essays in persuasion, to borrow a phrase from John Maynard Keynes. However, even readers who are not fully persuaded will likely pick up some bits of new knowledge along the way.

So what about the two Williams, the poet and the neocon? According to Wolfe, Kristol and his fellow neoconservatives have a romantic sensibility that denigrates caution, realism, and common sense in favor of grandiose dreams of democratic triumphalism. Like Wordsworth -- who heaped scorn on “mere safety” in his pamphlet attacking the 1807 Convention of Cintra (which allowed Napoleon’s defeated army to withdraw from the Iberian peninsula) -- Kristol et al. have a dangerously “heroic” view of the world which substitutes wishful thinking for an analysis of inconvenient realities. The flaws in this worldview became all too evident in the immediate aftermath of the invasion of Iraq. In drawing a connection between nineteenth-century romanticism and present-day neoconservatism, Wolfe may be on to something. It’s true that Wordsworth celebrated the French Revolution (“bliss was it then to be alive, but to be young was very heaven”), and it’s hard to imagine Bill Kristol, had he been around in 1789, saying that -- but no parallel is going to be a perfect fit. As the book proceeds, Wolfe detects the malign hand of romanticism in other places, from the writings of the liberal Paul Berman to Michael Hardt and Antonio Negri’s Empire.

The Future of Liberalism revolves around several reiterated contrasts. Liberalism à la Wolfe sides with “interests” not “passions”; culture not nature; empiricism not “ideology” (a bad word in Wolfe’s lexicon). Wolfe’s liberalism is hopeful but cool, generous but ironic, committed unapologetically to its values but not in an overexcited, “ideological” way. This message is illustrated by various excursions into the history of ideas, featuring heroes (e.g., T.H. Green, Benjamin Constant, Lionel Trilling, John Dewey, Kant) and non-heroes (e.g., Carl Schmitt, Johann Gottfried von Herder, Marx, Rousseau, and, yes, Wordsworth). These excursions are generally well executed but they necessarily involve compression, and compression has its pitfalls. For example, anyone who wants to understand Max Weber’s famous distinction between an ethic of responsibility and an ethic of ultimate ends would be well advised not to rely too heavily on Wolfe’s brief summary of Weber’s “Politics as a Vocation.”

Wolfe’s liberalism has something in common with the tradition of political realism and its emphasis on the responsible exercise of power. “It takes ideological politicians to bring out the true virtues of realistic ones,” he writes (p.125), and he characterizes “a liberal global order” as one “in which as many governments as possible avoid romantic dreams, shun unrealistic expectations, and dampen religious and ideological enthusiasms.” (p.106) He says kind things about realists like Reinhold Niebuhr although the appropriation is partial: Niebuhr’s stress on responsibility is highlighted but not his view of the fallen nature of humanity. Wolfe’s preferred ground is Arthur Schlesinger’s vital center, “a place obviously distinct from the totalitarian right, but at the same time marked off from what Schlesinger [in 1948] called ‘doughfaced progressivism,’ which believes in ‘the more subtle sensations of the perfect syllogism, the lost cause, the permanent minority, where life can be safe from the exacting job of trying to work out wise policies in an imperfect world.’ ” (p.118)

This “exacting job,” however, is not one that Wolfe seems especially eager to take on. Admittedly his book is not intended to be a programmatic manifesto; he believes that liberalism’s philosophical basis is more in need of reviving than its programmatic ideas. But sometimes philosophical and programmatic considerations intertwine, and in these cases the book is less than satisfying.

The clearest example is Wolfe’s approach to the issue of equality. At the outset he writes: “How much actual equality there is in a society will vary from one to another, and one can imagine different kinds of liberal societies with different degrees of it. But any society that closes off opportunities for people to achieve their full human capacities, or that allows persistent inequalities to stifle the desire on the part of its least fortunate members to develop them, would not be a liberal one.” (p.12) This simultaneously suggests and evades a significant question: When do “persistent inequalities” become so persistent and deep-rooted that they stop being merely blemishes on a liberal society and start undermining its foundations? Consider the contemporary United States with its large underclass, astoundingly high incarceration rates, high levels of income and wealth inequality, and an educational system that relegates many children, especially poorer ones, to inferior schools from which only the unusually determined and lucky emerge with a decent education – at some point it becomes difficult to claim that such a society is giving a majority of its citizens opportunities “to achieve their full human capacities.” Wolfe endorses Michael Walzer’s view that there should be “a series of dams that prevent inequalities in some spheres of life from spilling over into others where they do not belong.” (p.82) Walzer’s Spheres of Justice divides the world into various domains – work, wealth, office, love, divine grace, and so on – and argues that different principles of just distribution apply in each. That’s fine in some ways, but it’s not much help in determining how much inequality in life chances is too much.

Wolfe says repeatedly that liberals want to maximize individuals’ ability to control their destinies, but the devil is in the details of how this principle is put into practice. Take welfare reform. Wolfe praises Bill Clinton’s abolition of Aid to Families with Dependent Children (AFDC) inasmuch as it represented a blow against dependency and the perpetuation of a “permanent welfare class” (p.248). On the other hand, “whether or not forcing mothers of young children into the workforce was the appropriate way to do this can and should be questioned, but the notion of overcoming dependency should not be.” (p.248) You can’t have it both ways: either ending AFDC was justifiable or it wasn’t. Wolfe’s discussion of equality and inequality would have benefited from a more thorough engagement with the tradition of democratic socialism, for which his occasional references to R.H. Tawney are not an adequate substitute. And when it comes to the transnational or global dimensions of inequality, Wolfe does not have much to say, apart from some fairly brief remarks on immigration and globalization toward the end of the book.

The Future of Liberalism has a thoughtful chapter on religion, which argues that liberalism properly understood is not hostile to religion and that freedom of religion is a meaningful principle worth defending. Here Wolfe’s hero is John Leland, a nineteenth-century “itinerant Baptist preacher from Massachusetts” and "the most important American never to have been the subject of a full-length biography" (p.165) who strongly supported separation of church and state and favored keeping organized religion out of politics, a position that Leland’s contemporary heirs in the Southern Baptist Convention have abandoned. In this chapter and elsewhere, Wolfe criticizes certain contemporary foes of liberalism, such as Stanley Fish, who, under the influence of postmodernism-poststructuralism, charge liberalism’s Enlightenment values with incoherence. He scores points against the postmodernists, which is useful if not especially novel. As already mentioned, however, socialist critiques of liberalism are either neglected in this book or treated summarily.

The book ends with a ringing plea for liberals to have the courage of their convictions and to recapture the spirit that animated the liberal accomplishments of the past. Wolfe’s decision to conclude in this way highlights what is perhaps the book’s most striking omission: its failure to acknowledge fully that liberalism’s problems of the last forty years have not been simply the result of liberals’ cowardice and complacency. The massive alterations in the operations of capitalism on both domestic and global levels, the weakening of organized labor in the advanced industrial countries (notably but not exclusively the U.S.), and reaction to the impact (real and perceived) of the movements of the '60s all had as much if not more to do with the electoral victories of Reagan, Thatcher, and some of their successors as did the timidity and miscalculation of their liberal opponents. Ideas don’t float freely, as Wolfe is well aware, and the best ideas don’t always win in the ideological marketplace; ideas exist in a context shaped by underlying economic and social forces, and a rigorous analysis of those forces is largely missing here.

Nonetheless and to end on a positive note, The Future of Liberalism makes me want to re-acquaint myself with the classics of the liberal tradition, and for that I thank the author.

The 'cultural' roots of attitudes toward redistribution

The June 6th Economist carried a summary of a study exploring whether "cultural" factors influence opinions about redistribution. The authors of the paper, Erzo Luttmer and Monica Singhal, looked at data from the European Social Survey "on the attitudes of over 6,000 immigrants who have moved from one of 32 countries in the survey to another." Their bottom-line finding, in the Economist's words, is that "views about redistribution in an immigrant's home country are a strong predictor of his own opinions," even if he (or she) left the home country twenty years before. So, for example, a Pole or Romanian living in Britain probably would be more likely to favor more redistributive policies than a native Briton of roughly the same educational and income level. The effect also holds for children of immigrants, though not as strongly. This is interesting, although judging from the summary the paper does not address what precisely it is about one national "culture" that makes it more (or less) pro-redistribution than another.

Megacities

Last fall, UN-Habitat released its annual State of the World's Cities report. As summarized in The Guardian of Oct. 23, '08, the report highlights two trends in particular: (1) growing economic inequality within cities, in both developing and 'developed' countries; and (2) continuing rapid urbanization (and concomitant deruralization) in the global South.

On the first point, according to The Guardian, the report finds New York "to be the ninth most unequal [city] in the world," while inequality levels in Atlanta, New Orleans, Washington, D.C., and Miami match those of Nairobi and Abidjan. The most unequal cities are in South Africa, Namibia, and Latin America.

On the second point, the report predicts that 70 percent of the world's population will live in urban areas by 2050, and of that population, well over half will live in Asian cities. Forty-nine new cities have been built in the past 18 years in China alone. "Urban growth rates are highest in the developing world, which absorbs an average [of] 5 million new urban residents a month and is responsible for 95 percent of world urban growth" [my italics]. At the same time, some older cities in the 'developed' world have been losing population as a result of deindustrialization and other factors.

In 2007, the four most populous cities were Tokyo (35.7 million), Mexico City (19 m.), New York-Newark (19 m.), and Sao Paulo (19 m.). In 2025, the report projects that Tokyo will still be number one (with 36.4 million), but numbers 2, 3, and 4 will be two Indian cities -- Mumbai and Delhi -- and Dhaka (capital of Bangladesh), with 26.4, 22.5, and 22 million, respectively. Dhaka, which had 13.5 million in 2007, will nearly double in population by 2025, according to this projection.

[Hat tip: A post of 10/23/08 at Blue Republic of America.]

Globalization's impact on (domestic) redistribution

"Globalisation seemingly erodes governments' ability to redistribute wealth." A column at VoxEU.org. H/t: Dani Rodrik.

History and "history"

"We [Americans] don't hide from history. We make history."
-- John McCain

"A man has nothing to fear, he thought to himself, who understands history."
-- last line of Robert Stone's A Flag for Sunrise (1981)

In these two quotations, "history" is, respectively, a prize and a consolation. In McCain's congratulatory usage, the power to make "history" is what Americans award themselves for being Americans. In Robert Stone's novel, the anthropologist Holliwell, having blundered around in an imaginary Latin American country and helped wreck more than several lives, consoles himself by taking the long view. You can't make an omelet without breaking eggs, or something like that.

When Francis Fukuyama wrote his famous article "The End of History," later expanded into the book The End of History and the Last Man, he was careful to point out that he was not talking about history but about History in the Hegelian sense, the ostensibly progressive development or unfolding of collective human consciousness, or spirit (Geist). Did McCain's speech writer have Fukuyama somewhere at the back of his mind? Maybe. Or maybe not.

Hegelians and Marxists, among others, believe that History has a veiled or hidden logic, one that their theories grasp. History unlocks its secrets to those in possession of the key: Spirit rising to consciousness of itself, or the inevitability of socialist revolution. Marxism is not about "spreading the wealth," contrary to what certain denizens of the right-wing blogosphere said or implied during the just-concluded U.S. election campaign. Marx himself had nothing but contempt for anyone who concentrated on distribution as opposed to the forces and relations of production. He asserted that redistribution was not possible without a change in the mode of production:

"Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves [Marx wrote in Critique of the Gotha Program].... Vulgar socialism...has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation [between distribution and the mode of production] has long been made clear, why retrogress again?"

When certain conservatives charged that Obama was a Marxist, they proved only that they had not read Marx.

This post seems to have wandered away from the rhetorical uses of "history." Perhaps that's just as well. When we get too serious about these things, we can count on Shaw to puncture the balloon. In Shaw's play The Devil's Disciple, set during the American war of independence, the British general Burgoyne, facing defeat at Saratoga, is asked by a horrified subordinate: "What will history say?" Burgoyne's answer: "History, sir, will tell lies, as usual."

P.S. A link to Critique of the Gotha Program.

Wealth and inequality: what McCain doesn't understand

McCain argues that Obama wants to "spread the wealth," not create more of it. What McCain doesn't understand is that in the current context high levels of inequality are an obstacle to wealth creation. A society/economy that wastes human capital on a profligate scale, by depriving people of decent education for instance, cannot be competitive in a world increasingly driven by technology and returns to human capital.

So, practically, McCain doesn't grasp that inequality is detrimental to wealth creation; and, morally, he doesn't understand that stratospheric levels of inequality are offensive to basic notions of human dignity. As Jonathan Cohn at TNR's blog reminds us, Adam Smith did understand that. (For more on Adam Smith's views about inequality and poverty, see Samuel Fleischacker's excellent A Short History of Distributive Justice.)

End of an era

From today's NYT:

"The transformation of Wall Street picked up pace on Monday as Goldman Sachs and Morgan Stanley, the last big independent investment banks, moved to restructure into larger, less risk-taking organizations that will be subject to far greater regulation by the Federal Reserve.

The changes came after Goldman and Morgan Stanley on Sunday night received permission from the Federal Reserve to become bank holding companies. The change means they will be able to finance their activities with insured deposits but in return must reduce the amount they can borrow to make the kind of big trading bets that drove huge profits, and massive bonuses for executives, over the last several years of Wall Street’s latest Gilded Age.

Morgan Stanley moved quickly into the new era on Monday, announcing that it planned to sell up to a 20 percent stake in itself to Mitsubishi UFJ Financial Group, Japan’s largest commercial bank, for about $8 billion. Mitsubishi has $1.1 trillion in bank deposits, which will help bolster Morgan’s stability of financing. Goldman Sachs is also expected to move to increase its deposit base and add more capital to its balance sheet.

The changes by Morgan Stanley and Goldman essentially bring to an end the era of the big, independent Wall Street investment bank and a return to the model that dominated before the Glass-Steagall Act of 1933 forbade commercial banks from also owning securities firms.

Both banks said they requested the change in their status. But the changes also closely follow comments from executives at both investment houses saying their business model was not broken and that transforming into deposit-funded commercial banks would not necessarily help them perform better. This raised the question of whether the change was really voluntary, which both banks insist it was, or was mandated by a Federal Reserve eager not to have to come to the rescue of another failing financial institution."

Who cares whether or not it was voluntary? It don't see how it can possibly be a bad thing that execs will no longer be able to make tens of millions of dollars every hour by betting that the price of derivative X or swap Z will rise (or fall, as the case may be). I heard someone on the radio implying that this will reduce incentives to innovate. Rubbish. "Innovation" usually means, or should mean, useful innovation.

P.s. According to the UN Human Development Report (2007-08), the Gini coefficient for income inequality in the U.S. is .408 (where zero is complete equality and one is the most possible inequality). Mexico is at .461, Mali at .401. The degree of U.S. income inequality is now more typical of what used to be called Third World countries than of other rich countries.