Reviving social-democracy

As usual Branco Milanovic has a useful blog, this time reviewing a book about the state of the left.  Here the blog entry and here a link to the book.

A two by two table may be useful to summarize some of the arguments being debates and two central debates today:

	Pro-Cosmpolitan	Anti-Cosmopolitan
Pro state-led significant (re)distribution	Traditional social-democracy	Some of the European far-right????
Anti-state-led significant (re)distribution	Progressive neoliberals (‘Third Way a la Clinton, Blair)	Trump

The common argument today is that the coalition between the financial elite and social progressives resulted in policies that promoted cultural equality (recognizing the importance of gender equality, the problem of race, sexual freedoms, etc) while protecting the economic interests of the (financial) elite.  This coalition created a clear group of losers (both culturally but also economically): white men with manufacturing and semi-skilled jobs.    These voters "responded" by starting a cultural counter-revolution that is best represented by Trump.

Several questions emerge here:

a. Does Obama truly fit this description?  What about the Nordic social-democracy (which is losing votes nearly as fast as the left in other countries)?

b. Why did social-democratic parties adopt this kind of agenda?  Was it a result of political calculations?  Selfishness?  Ideology?

c. Most importantly, can't we really not move to the pro-Cosmopolitan, pro-redistribution cell?  Why not?  It is true that there are significant economic constraints towards a model with better employment, particularly in Europe.  Yet improving and even expanding welfare provision is by no means impossible and would benefit more than 50% of the population.  So I still wonder if a narrative around the importance of a sharing economy with redistribution and more state-led innovation is not possible.  It probably just needs better political entrepreneurs, no?

My main concern (which Milanovic has expressed very well in other blogs) is what should be social-democracy's position regarding migration?  An anti-migration position is incoherent and, in my view, unethical.  Yet an open borders position that fails to recognize clear social and economic tensions is also naive... maybe if resolving this problem and improving the broader narrative about a protected future that celebrates all human rights is possible and the key challenge.

Bolsonaro da miedo

Realmente uno se da cuenta de qué distinto piensa la gente a ti cuando alguien como Bolsonaro obtiene un 46% del voto. ¡Qué tristeza y qué miedo!  Mi análisis sobre ello en Agenda Pública: http://agendapublica.elperiodico.com/bolsonaro-nuevo-traspie-para-la-democracia-en-america/

Three quick readings on inequality

1. A 2011 on Slim and the creation of his museum.  He owns 380 Rodin's sculptures and wears 5,000 dollar suits but the journalist still makes an effort to present him as a regular man. Really?

"The 71-year-old lives in a modest six-bedroom house a mile from his office, and has no interest in flashy super-yachts or palatial houses around the world. His grey pinstripe suit may be made by Brioni, the fine Italian tailors, but his watch is a very ordinary-looking plain dial with a leather strap. His black leather loafers are shiny, but no more brilliant than any other self-respecting Mexican businessman’s."

2. A bottle of whisky was just sold for US$1.1m... yes, that is right, more than a million dollars!!!!!! (and, incredibly, it is not the first time)

3. On a more optimistic note, Oxfam in general and Oxfam-Mexico have done really interesting work on inequality.  They have now teamed up with the e-paper Chilango to produce a series of really interesting articles on how people from different classes live.   This special issue is really worth reading. 

Inequality should be explored from the social and not individual perspective

I just re-read, Gregory Mankiw's (in)famous defense of the top 1%, where he implicitly or explicitly argues that: (a) inequality results from payments for significant contributions to society; and (b) inequality does not lead to inefficient economic outcomes or harms equality of opportunities.   The paper also criticizes Raw's defense of income redistribution. 

This paper (as many other discussions of inequality) tend to adopt an individual-based approach (not surprisingly coming from neoclassical economics).  The questions are about individual incentives, individual just or unjust payments, comparative levels of utility, Pareto efficiency (that is, can we make somebody better without making anyone worse), etc.  But is this the best perspective?  What about if we adopt a social perspective?  What is we assume that our responsibility is to use resources in a way that everyone can live better while minimizing the costs on the environment?

If we adopt that and only that approach, three questions become central:

a. Won't a more equal distribution of income improve societies' ability to provide  enough income and rights to live a good life to everyone?

b. Is there any evidence to assume that a jump from high inequality to low inequality (not to perfect equality which is an unrealistic goal) will lead to significant costs in terms of economic growth?

c. Is there any evidence that the creators of Apple, Harry Potter or ET (to name the people that Mankiw uses in his defense of the rich) would not have made exactly the same contributions with less income rewards?  Why is it that Steve Jobs in the discussion of his life and success at Stanford does not mention money but dreams and passion?

I think there is increasing evidence that the answer to each of these yes, no and no: there is just no doubt that societies will be better off and we will meet our obligations to each other in low inequality environments than high ones. 

Combining data with political analysis

I just came across Duncan Green´s entry on inequality from a couple of years ago.  I like his argument that we need more on the politics of inequality reduction and his research project proposal (has he or his group advanced on it?  Does anybody knows?)  Yet one thing he does not acknowledge is the need to have more interaction between data and politics to make sure we are discussing real life.  His example of Brazil is paradigmatic in this case: Brazil in the 2000s would probably be a cae study in his inequality project (it has been a case study of inequality reduction in many other studies and books, including Why Nations Fail)... but maybe this would be a mistake.  I am afraid that unless we know more about the rich, we will know relatively little about inequality... but it is just too hard to get this information. What is the best way forward?

Is Costa Rica more unequal than El Salvador?

I am currently in the midst of a research project evaluating the long term determinants of inequality in the eighteen Latin American countries.  Because I am interested in COMPARATIVE historical processes and there are only eighteen countries, econometrics analysis is not particularly useful.  Instead, I will probably use qualitative comparative analysis (CQA) as an organizing devise.  This requires creating sets of countries closer to the very unequal and not very unequal categories (since we are studying Latin America all countries are very unequal).

Here it is where the problems begin.  The data is not totally consistent with what I think we know about income distribution in Latin America.  Following Gabriel Palma's work, I organize countries in two criteria: the level of the Palma ratio (relation between the top 10% and the bottom 40%) and the middle groups (deciles five to nine).  I establish cut-off points that are related to global patterns of distribution.

There are two main problems with this data: one about cut-off points that we can ignore for the moment and a more relevant one (where any feedback is most welcomed) having to do with the various of specific countries.  The place of El Salvador and Peru (and to some extend the Dominican Republic) is particularly surprising. 

In particular, compare Costa Rica with El Salvador: despite recent changes in both countries, can we really assume that Costa Rica is more unequal than El Salvador?  Where are El Salvador's fourteen families?

Of course, this is not a problem of my research alone--which is the most worrying bit.  How much should we value quantitative research on inequality that is based on such questionable data?  Are we really measuring INEQUALITY when considering income distribution based on household surveys? 

Inequality can only be reduced through violence... and implications for Latin America

Walter Scheidel wrote last year a really interesting book, The Great Leveler, which I am in the process of reading.  He argues that revolutions, wars and other forms of violence have historically been the way to significantly reduced inequality.  The argument has been used by the right to argue that there is not much we can do to reduce inequality.  In this interview, The Economist tries very hard to make Scheidel recognize exactly that.   Yet this is a silly argument for several reasons: (a) there are some exceptions to Scheidel´s rule; in particular, the Social-democratic social experiment in the Scandinavian countries begun before the Second World War and was only partly facilitated by it; (b) the fact that conflict helps inequality reduction does not mean that we cannot find more creative policy tools in the future; in fact (3) this is an alternative interpretation of the book: unless we don´t find ways to stop the current concentration of income at the top in the global economy, we may have to deal with significant conflict.

The book may also be quite significant for Latin Americanists and partly explain why inequality never went down as much in this region than others.  Latin America has historically been a relatively peaceful continent, particularly in the 20th century.  The World War and the Communist challenge affected it but less than to Europe.  And yet, it is also interesting than, as far as we know, the process of Independence replaced one elite by another without significantly reducing inequality.  Do we have good studies of why that was the case?