GV4D4 - week 1

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These are my notes from September 26 for GV4D4 at the London School of Economics for the 2017-2018 school year. I took this module as part of the one-year Inequalities and Social Science MSc program.

The usual disclaimer: all notes are my personal impressions and do not necessarily reflect the view of the lecturer.

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Introduction

Readings

(I didn’t do the readings in advance because, well, I didn’t know there were any—I hadn’t yet been offered a place in the course and so couldn’t access it through Moodle. But apparently you can view the reading list for any course at LSE through lse.rl.talis.com. Seems like there’s a lot of overlap with SO478, which is convenient for me.)

Inequality by Anthony B. Atkinson (introduction and chapter 1)

_(Writing up these notes on May 21, 2018, the day before the exam)

The thrust of this chapter is Atkinson trying to convince the average reader that equality of outcome is important (and that we shouldn’t focus solely on equality of opportunity). His reasons are as follows:

He also criticises the economics profession for failing to adequately address the topic of inequality thus far. His main concern with inequality is that it destroys social cohesion (“A society in which no one could afford to travel privately into space, and in which everyone could afford to buy their food from ordinary shops, would be more cohesive and have a greater sense of shared interests.”, p16) which is a little disappointing given that he mentions the social constructiveness of the prize structure early on.

On inequality being magnified within the upper echelons of the economy:

The upper tail of the distribution has some resemblance to a Russian matryoshka nested doll: wherever we slice the distribution we find the same inequality being reproduced within the remaining top part. (p20)

Highlights the increase in inequality in both the US and the UK since the 70s/80s, after dropping quite dramatically during WWII (and potentially for some period before and after, depending on which metrics you consider).

Mentions New Labour’s approach to inequality/poverty: “In 1999 under Tony Blair the UK government adopted an official target for the abolition of child poverty, with the aim of eradicating child poverty by 2020” (p24). Also:

The decline in poverty in the UK was accompanied by a marked rise in top income shares. The New Labour government was “intensely relaxed” (a contradiction in terms?) about people getting rich. However, the fall achieved in the past twenty years—for which credit must be given—still leaves the current UK poverty rate above the level of the 1960s and 1970s, a level that was regarded at the time as profoundly shocking. The Child Poverty Action Group was founded in 1965 when the poverty rate was 3 per cent lower than it is today. (p24)

(Incidentally, this has nothing to do with the chapter itself, but this New Socialist piece on New Labour’s social exclusion policy is quite good.)

This, on the link between poverty and high top income shares, is good (although Atkinson only illustrates this with quantitative data, rather than going deeper into the wage-labour-related reasons, at least for now):

There is still a long way to go. In my judgement, the eradication of poverty in rich countries requires us to think more ambitiously, beyond the strategies employed to date. We have to view our societies as a whole and to recognise that there are important interconnections: economics tends to assume away or downplay any interdependency between the economic fortunes of individuals (or households), but John Donne was right when he wrote that “no man is an Iland, intire of it selfe.” What happens at the top of the distribution affects those at the bottom. (p25)

Some important points on two different measures of inequality: income, and consumption. Both are complex and multifaceted, and neither is “demonstrably superior” to the other (p37). Also mentions that spending is about more than merely consumption, at least for the wealthy (it’s about power).

Capital in the Twenty-First Century by Thomas Piketty (introduction and chapters 1-2)

Challenging the idea that the capital-labour income ratio has been solid throughout history, at 2/3 to 1/3

[…] the shocks that buffeted the economy in the period 1914–1945—World War I, the Bolshevik Revolution of 1917, the Great Depression, World War II, and the consequent advent of new regulatory and tax policies along with controls on capital—reduced capital’s share of income to historically low levels in the 1950s. Very soon, however, capital began to reconstitute itself. The growth of capital’s share accelerated with the victories of Margaret Thatcher in England in 1979 and Ronald Reagan in the United States in 1980, marking the beginning of a conservative revolution. Then came the collapse of the Soviet bloc in 1989, followed by financial globalization and deregulation in the 1990s. All of these events marked a political turn in the opposite direction from that observed in the first half of the twentieth century. By 2010, and despite the crisis that began in 2007–2008, capital was prospering as it had not done since 1913. (p41-42)

Defines “national income” as “domestic output + net income from abroad”, which can also be decomposed as “capital income + labor income” (p45); pretty straightforward. Defines capital as nonhuman capital, either private/public, and synonymous with wealth.

[…] I define “national wealth” or “national capital” as the total market value of everything owned by the residents and government of a given country at a given point in time, provided that it can be traded on some market. (p48)

Public wealth in most developed countries is currently insignificant (or even negative, where the public debt exceeds public assets). As I will show, private wealth accounts for nearly all of national wealth almost everywhere. (p48)

Introduces the (tautological) formula α = r × β, or, share of income going to capital = average rate of return to capital x overall capital-income ratio.

Most of this chapter is concerned with the details of how things are measured/calculated, so eminently skippable tbh.

Some interesting thoughts on the political instability faced in countries whose assets are primarily owned by other countries through corporations, or governments, or individuals (I suspect there’s a lot of nuance he’s missing here, since Piketty isn’t exactly a specialist on postcolonial theory, but at least it’s something):

When a country is largely owned by foreigners, there is a recurrent and almost irrepressible social demand for expropriation. Other political actors respond that investment and development are possible only if existing property rights are unconditionally protected. The country is thus caught in an endless alternation between revolutionary governments (whose success in improving actual living conditions for their citizens is often limited) and governments dedicated to the protection of existing property owners, thereby laying the groundwork for the next revolution or coup. Inequality of capital ownership is already difficult to accept and peacefully maintain within a single national community. Internationally, it is almost impossible to sustain without a colonial type of political domination. (p70-71)

On a different note, he has some interesting things to say about autarky, knowledge transfer, and capital flows:

To sum up, historical experience suggests that the principal mechanism for convergence at the international as well as the domestic level is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill, and education, not by becoming the property of the wealthy. The diffusion of knowledge is not like manna from heaven: it is often hastened by international openness and trade (autarky does not encourage technological transfer). Above all, knowledge diffusion depends on a country’s ability to mobilize financing as well as institutions that encourage large-scale investment in education and training of the population while guaranteeing a stable legal framework that various economic actors can reliably count on. It is therefore closely associated with the achievement of legitimate and efficient government. (p71)

Chapter 2

On demographic change, and its effects on inequality (through the vehicle of inheritance). A situation of low growth and high returns on capital leads to greater concentration of capital.

A good quote on the idea of “merit” being used to justify inequality:

For Dunoyer, natural inequalities included diff erences in physical, intellectual, and moral capabilities, differences that were crucial to the new economy of growth and innovation that he saw wherever he looked. Th is was his reason for rejecting state intervention of any kind: “superior abilities … are the source of everything that is great and useful…. Reduce everything to equality and you will bring everything to a standstill.” One sometimes hears the same thought expressed today in the idea that the new information economy will allow the most talented individuals to increase their productivity many times over. The plain fact is that this argument is often used to justify extreme inequalities and to defend the privileges of the winners without much consideration for the losers, much less for the facts, and without any real effort to verify whether this very convenient principle can actually explain the changes we observe. (p85)

Lecture

Seminar

No seminar this week (probably since no one had been offered a place yet).

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