Tag Archives: economics

Inequality…and ISIS?

Wonkblog reports on what it concedes may be “the most controversial theory” about the rise of ISIS: inequality.

A year after his 700-page opus “Capital in the Twenty-First Century” stormed to the top of America’s best-seller lists, Thomas Piketty is out with a new argument about income inequality. It may prove more controversial than his book, which continues to generate debate in political and economic circles.

The new argument, which Piketty spelled out recently in the French newspaper Le Monde, is this: Inequality is a major driver of Middle Eastern terrorism, including the Islamic State attacks on Paris earlier this month — and Western nations have themselves largely to blame for that inequality.

The theory is relatively straightforward: wealth in the Middle East is concentrated in countries having a relatively small a share of the population, making the region the most unequal on the planet.

Within the fabulously rich monarchies, a very few people control most of the wealth. Others, especially women and refugees, are kept in what he describes as “a state of semi-slavery.” Picketty says that it is those economic conditions that have provided justification for the region’s  jihadists–although he concedes that the casualties inflicted by the West’s wars have been a contributing factor.

The clear implication is that economic deprivation and the horrors of wars that benefited only a select few of the region’s residents have, mixed together, become what he calls a “powder keg” for terrorism across the region.

Piketty is particularly scathing when he blames the inequality of the region, and the persistence of oil monarchies that perpetuate it, on the West: “These are the regimes that are militarily and politically supported by Western powers, all too happy to get some crumbs to fund their [soccer] clubs or sell some weapons. No wonder our lessons in social justice and democracy find little welcome among Middle Eastern youth.”

If we take Piketty’s argument seriously, we can add terrorism to the list of deleterious consequences generated by inequality. If the West did accept the analysis, it would also suggest that economic measures, not tanks, are the armaments most likely to be effective in the fight against ISIS.  (Considering everything from entrenched worldviews, the political clout and interests of arms dealers, and–in the U.S.– a political system that routinely categorizes countries unwilling to dance to our tune as “evil-doers,” I don’t see America accepting Piketty’s premise any time soon. If ever.)

Even if we were able to forge a consensus on the need to ameliorate economic inequality–not just in the Middle East, but here at home–we would still have to confront thorny issues. It’s one thing to identify inequality as a central problem of our age; it is another to determine the precise point at which unequal distribution of life’s goods becomes inequitable and counterproductive. It is one thing to say “We need to fix this,” and quite another to figure out how.  (If communism taught us anything, it was how not to redistribute wealth.)

The challenge for our age is to figure out how to be fair without being stupid.

I think I’m going to reread John Rawls’ A Theory of Justice….

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The Economics of “Social Policy”

There are economic consequences to most policy choices. That’s just as true of so-called “social” policies as it is of decisions to build roads or wage wars.

When religion is driving policy, economic repercussions tend to get ignored. So it was interesting to read Two Sides, Same Coin–a report by the University of California at San Francisco on the economics of abortion policy. Researchers followed women who were turned away–who wanted to terminate a pregnancy but were unable to do so. As the report noted,

Access to comprehensive reproductive health care, including abortion, is essential to women’s economic security. Yet many progressive politicians and advocates often ignore this important connection. This report delineates the many links between these topics—including that family planning increases women’s economic opportunity, lack of supports for pregnant and parenting women interferes with their economic stability, and there is an unfulfilled potential for reproductive health care to help create economic security—and the need to integrate both issues into any proactive policy agenda to achieve equality for women.

The Guardian recently noted the “costly choice” faced by pregnant American women:

For a country where politicians are rather eager to promote family values, America has few policies that make it easy to have children. On top of high health-care costs and limited employer benefits, the country has little in the way of affordable child-care. It is unsurprising, then, that three-quarters of women who choose to have an abortion say it is because they cannot afford to have a child. Some will argue that they can always put their child up for adoption. Others will add that marriage can be a fine antidote to poverty (45% of all women who seek abortion are unmarried). These are fair points. But perhaps instead of closing down abortion clinics, lawmakers might consider more ways to give these women better choices.

Perhaps the most widely-read economic analysis of abortion policy was the argument by the authors of Freakonomics,  

who concluded that legalization of abortion in the 1970s explained a substantial part of the crime decline in the 1990s. (Evidently, children born into households where they are wanted, and where the adults are financially and emotionally capable of raising them, commit fewer crimes.)

None of this is an argument for making moral choices on the basis of economic consequences. But opinions on the morality of abortion are hotly contested.

It’s interesting to note that people who believe that the moral position requires respect for personal autonomy and reproductive choice tend to give generously to organizations like Planned Parenthood. On the other hand, the lawmakers most willing to use government’s power to impose their personal moral/religious beliefs on women who may not share them have shown little interest in ensuring the well-being of children once they are born.

The economic consequences of that disinterest fall on the rest of us.

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Rational Self-Interest

Sunday “sermon” time…..

Adam Smith argued that a market economy serves the common good by allowing individuals to operate on the basis of self-interest. I agree. The problem is, too many of our contemporary “Captains of Industry” don’t understand where their own self-interest ultimately lies.

The worst thing about avarice is how shortsighted and ultimately unproductive it is, even for those whose pursuit of ever-fatter bottom lines is all-consuming.

That’s because a more equal society is in the long-term best interests of even those people who don’t feel any obligation to feed hungry children or find jobs for ex-offenders or make health care accessible to poor people. First, there’s the fact that– in order to remain competitive in a constantly changing global economy– America needs to use everyone’s talents. Social injustices that prevent people from reaching their potential are a drag on that competitiveness.

Second, it is cheaper to deal with problems at the front end than at the back. When we cut programs that help poor folks, we may save a few dollars in taxes, but (as substantial research confirms) we end up paying far more, in costs ranging from lost productivity to prisons.

But it’s the third argument that ought to make us stop and think. As I have argued before,democracies require stability in order to survive.

In countries where there are great gaps between the rich and poor, in countries where some groups of people go through their lives being marginalized or despised while others enjoy privileges and respect, in countries where some people are exploited in order that others might benefit—that stability is hard to come by. A wealthy friend of mine once put it this way: “I’d rather pay more in taxes than spend my days worrying about angry mobs rioting in the streets or desperate people kidnapping my children.”

Most of us understand that—as Elizabeth Warren has pointed out–no one succeeds solely by his own efforts. There is a social and physical infrastructure required to support and enable entrepreneurship and wealth creation, and we taxpayers have built and maintained that infrastructure. And that’s fine. Adam Smith was correct that we all benefit when someone builds a better mousetrap, or improves on another guy’s widget. But when someone profits from his better mousetrap, the people who paid for and maintained that infrastructure–the people who invested in his business via the support systems that enabled him– have a right to a return on that investment in the form of taxes.

A genuine devotion to one’s own self-interest requires us to recognize the degree to which we depend on social stability and an adequate infrastructure–both social and physical.

The contemporary Oligarchs–with their greed and contempt for the common good–are  undermining the very system that has allowed them to succeed. What they fail to recognize is that when the system fails, they will fail with it.

 

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Choosing our Authorities

I was going to blog about the Reinhart-Rogoff thesis this morning, but Paul Krugman not only beat me to it, he (unsurprisingly) said it better.

What–you aren’t familiar with Reinhart-Rogoff? The term is shorthand for a paper circulated by two Harvard economists, Reinhart and Rogoff, in 2010. (It evidently wasn’t even a peer reviewed article–just a working paper.) The paper purported “to identify a critical “threshold,” a tipping point, for government indebtedness. Once debt exceeds 90 percent of gross domestic product, they claimed, economic growth drops off sharply.”

The paper was immediately seized on by proponents of austerity, despite the fact that other economists criticized the methodology, and still others tried but couldn’t replicate the findings. It became the basis of policy decisions throughout Europe. It was a justification for Paul Ryan’s budget. And then, when the authors finally shared their calculations, it turned out that a coding error–in lay language, a mistake in their use of the Excel computer program–invalidated their results.

There is a moral to this story, and it has nothing to do with economics, or the importance of peer review, or the tendency of a Harvard pedigree to lend unearned credibility to a scholarly product. This fiasco is another example of a growing phenomenon: ideologically-driven choices of reality. In today’s America, too many of us read everything selectively; we comb the news for evidence that supports our pre-existing beliefs. We read the bible and the Constitution selectively, conveniently ignoring the parts that conflict with our worldviews. We dismiss evidence that confuses us. Ambiguity and complexity become enemies.

The problem is, the clarity we achieve with our chosen authorities often conflicts with messy, ambiguous reality. And that makes matters worse.

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A Broken City

I am in Detroit. I came with a colleague to present a paper at an academic conference at Wayne State.

The last time I was in Detroit was at least 50 years ago, and even then I didn’t go downtown–I was visiting friends in a suburb. So I really had no idea what to expect as I drove to the Motor City Hotel and Casino, the venue designated as the conference attendee’s accomodations. The hotel/casino is a huge fortress-like structure, surrounded mostly by empty parcels. After circling it twice, we found the valet parking entrance.

Since we were too late to catch the shuttle to the University, we took a cab. The mile or so drive went through a landscape that reminded me of a third-world country; boarded structures, lots where nothing remained of a structure but rubble and trash. Here and there, we passed a new development–forlorn evidence of periodic efforts to resuscitate a dying city.

It had been easy enough to get a cab at the hotel, but when I decided not to wait for the return shuttle at 5:30, and tried to return from campus mid-afternoon, I struck out. I called every taxi company on the list. No luck. Most didn’t even answer the telephone; the two that did explained that today was a “very busy” day, and they’d get a cab to me as soon as possible. After an hour and a half with no taxi in sight, I went back to the conference and waited for the shuttle. (Ordinarily, I’d have walked, since the distance was only a couple of miles, but the weather was gusty, cold and snowy, and the conference staff made it very clear that walking was not considered safe.)

The hotel I’m in isn’t the sort of place I’d choose–I’m not much on gambling and glitz–but the rooms are really luxurious and the service has been exceptional. Anywhere else, a room of this sort would run 250+ per night. (More in New York or Chicago.) Here, it’s 129/night. Granted, that’s a conference rate–but I think what the price (and the presence of the Casino) really reflect is the fact that not many people want to come to Detroit just to visit Detroit.

When a city is broken, it depresses the economy of the whole state. Michigan’s travails have been widely reported, and it’s no surprise.

As yesterday’s post pointed out, keeping a city healthy requires constant attention and talented leadership. It requires attention to infrastructure and economic development, and the “care and feeding” of the service industry folks who are the first ambassadors seen by visitors. When I was serving in the Hudnut Administration, I remember special outreach programs to the cabdrivers and other service personnel who represented Indianapolis to visitors from elsewhere. Those efforts, among others, translated into a reputation that eventually brought us events like the SuperBowl, and the dollars those events pumped into the local economy.

When a city looks like Detroit looks now, it’s hard to believe anything will fix it. It should serve as a cautionary tale to those who take a vibrant city for granted. With enough disinvestment, enough abandonment and neglect, it can happen anywhere.

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