Thursday, December 16, 2010

interfluidity » Links on inequality and the macroeconomy

interfluidity » Links on inequality and the macroeconomy:

"Charles Butler writes:

Steve [Randy Waldman],

With respect, I don’t think you’re framing this properly. The issue is not relative wealth but the surplus accruing to the lower end of the scale. There are absolute values that affect your calculation.

Then Charles Butler writes:

Oh boy! This gets complicated really quickly. That’s why I restricted myself to three sentences.

I’m mostly saying that if you want the growth model to keep functioning that you’re going to get more bang for your buck from increasing median incomes in Nigeria than from diminishing differentials in the U.S. – this completely irrespective of what the rich-poor gap is in the latter country. Conversely, it is possible to imagine a place in which everybody is wealthy beyond their ability to spend and the gap remains unchanged. Absolute levels do matter.

You are quite correct about the transfer of buying power via loans. In the U.S. it was done as such. In Europe it was via the guarantees of the welfare state and the curious practice of sprouting, and rearing, kids at less than the replacement rate. Both cases are debts to be repaid.

That the continued functioning of the growth model in the industrialized countries seems to have depended on this debt to the future makes me think that there is something more fundamentally awry than income distribution.

Don’t be so self-effacing. Almost everybody else who blogged with your rigour has thrown the toys out of the pram and gone home.

January 13th, 2010 at 9:08 am


Is it?

Are places where everyone is wealthy beyond their ability to spend, and yet the gap [in wealth? income? both?] between the bottom and top remains [relatively? absolutely? by formula?] unchanged?

Are there any modern examples? Hmmm... maybe Luxembourg? Nope, I don't think even there everybody is wealthy beyond their ability to spend on consumption; at a $90,000 (US) median annual income, I'd say more than half the population falls below the lack of spending need threshold.

Why are there no current exemplars?

If not now, are there any historical examples? I certainly cannot think of any off the top of my head. But, then I make no claim to be an economic historian. [I am willing to learn.]


And, if we must resort to imagination - which Austrian economists would surely dismiss as invalid, since imagination is not human action (which is the essence of their praexological methodology) - then, under what circumstances & conditions could such places exist? Here, I guess I agree with the Austians [which I don't often do]: merely being able to imagine such a place does not mean it is possible... or even marginally more probable than as to be insignificant. If the necessary conditions turn out to be so rare and/or unlikely as to be virtually inapplicable to the real world, then what's the point?

Finally, do they pass Waldman's sustainability requirement? If these places cannot persist over time, then they have failed on a critical axis.


BTW, I don't disagree: Absolute levels DO matter. Or, perhaps better said: Absolute levels MIGHT matter... if the conditions are right.

However, I am not quite so ready to concede that it doesn't matter how the increase in median Nigerian incomes is distributed. If, say, a 5% rise in Nigerian median income is engineered such that all of it accrued to the pre-rise top 1% households, then how much relative 'bang for the buck' is being generated in the global macroeconomy? What would it imply for the sustainability of Nigeria, economically, politically? Do the top 1% of Nigerian households leave their money in country? How will the countryside react? I'd expect more disruptions to Chevron & Royal Dutch Shell's operations in the Niger Delta.

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