The best of your work is these interviews. Thank you for continuing to introduce us to fascinating thinkers and authors. Echoing others comments, more like this please...
Wow,great interview with a fascinating guy with a range of information I know nothing about! Now I have to go get his new book and Rawls's book, and that other person... geez, it's like just signed up to audit a class! Thank you for the truly enlightening info!
This was absolutely terrific. I love these interviews. But I am curious about how you measure and compare poverty/wealth in different regions. In a poor country or region, if peoples’ needs are met, even though their incomes are low on a global scale, their lifestyles are comfortable and relatively secure. But in a rich area, 10x that income, might not lift you out of poverty. So how do you square the cost of living with real life experience, with such extreme differences in currency values and social support? Some groups/regions look poor on paper, but all their needs are met because they have a good interactive social/cultural system. Other groups/regions look rich on paper, but huge numbers of people fall through the cracks, are hungry, houseless, ill, and uneducated - even though they work long hours. Costs of living, currency values, and social support, are wildly different, so being pulled up out of poverty can’t be just a numbers game. How do you measure global poverty with those real variables in costs and social support?
As he explains, Milanovic has a very tough job in trying to bring different countries on the same "scale" so he can both make international comparisons and to arrive at a global decentile income distribution. Clearly he has been taking into account cost of living (PPP), currency values, etc ("numbers" as you call them), but you are making a very valid point that there is much more to global (and local) poverty.
May the next US administration and other rich nations support further research in this area.
I wonder how this is impacted by the homesteading lifestyle, or farm families or sustainable communities who grow their own food, sew, repair machinery, build/mill their structures? All of that labour is not reflected monetarily, and GDP is useless in determining their income, social class, and quality of life.
Yes. I thought of such disparate communities/countries as Bhutan, Mormon, Amish, and other societies or communities and cultures where labor and product are often shared and traded - including coalitions of families or townships getting together and paying for someone's legal, medical, teaching, or veterinary, education, or pitching in to build a well, or cook, do early child care, or install solar power. During the Depression my grandfather was foreman on a cotton ranch. They got to live in the foreman's house. They had a cow, big vegetable garden, and chickens. She sewed their clothes, cleaned, and cooked 3 meals a day served on the big family table, for the family and the 3 men who slept in the bunkhouse. Hardly any money - and hard work - but they did not consider themselves poor. They weren't poor. They just didn't have much cash. Some of my grandchildren have bought 40 acres (no mule, unfortunately) They are going back to the land - and are near an established communal settlement of neighbors. Not much money. A lot of trading, sharing, and sweat equity. How to quantify those lifestyles?
As Targut says, it's about establishing and reliably converting to common units of measurement (in this case PPP). On the one hand, there are certainly improvements to be made in those data standardization and conversion methods, but on the other hand, if you change methodology you may then have the challenge of comparing disparate measures over time!
There's good work in this area in psychology and sociology, but the short answer is that it is complicated. Certainly inequality and happiness are not entirely independent of one another, but there are many other intervening variables, particularly cultural ones. In fact, happiness and inequality are probably more strongly linked in richer nations/economies than in broadly poorer ones, but that could be because in places like the US we are fed a steady media diet of "lifestyles of the rich"
Be very careful about ceteris paribus when reading Piketty. Piketty himself is careful, but as with many economists it is very easy for others to misinterpret their work without such careful attention.
As I noted, my interest was mainly on the data sets.
And yes, counterfactuals are a trick in themselves and to then assume other things equal on top of that, especially in this case when force was the deciding factor more often than not, can lead one astray.
I've been reading the good Professor since the mid 90s as I began to learn economics to fill in my trading experience. Like many in the early derivatives game, I got hired for my math skills.
Agreed. It's great to walk through his daily thought process unfiltered by NYTimes editorial constraints - especially in the current moment.
I am familiar with Metcalfe. Today is going to be a great example of such - No Kings all over the country.
I sold my business in 1999 and "retired" - meaning I just managed my and my family's money.
This gave me lots of time to correct exactly the educational deficits you mention. History is such a help. Otherwise, as Walter Sobchak puts it, "you're like a child who wanders into the middle of a movie...."
26 years to read all that I should have read before and the list of what I still want to read keeps getting longer.
It would be nice if Profs. Milanovic and Krugman had connected the various elements that they brought up. They spoke of the state of distribution ("inequality" or "concentration") but they didn't speak about the act of distribution, which might have connected concentration with capitalism and classes.
One way of connecting them is to note that, in our industrial economy, commercial production is mainly done by large firms, whose sales income is the money value of output. Personal income is received almost entirely by the business sector's act of distribution of that income, and income concentration results from that act.
The principle on which firms distribute income is profit maximization. That is, the people who control the firms — capitalists — make their decisions regarding products, techniques, hiring, etc. to maximize the benefits for themselves. Over time, they shape their firms and technology to minimize the share that other people get, in large part by automation etc., which reduces the number and skills of employees needed and thus allows employees share of the income distributed to be pushed down.
Is that the way the professors would put it? If not, then what?
You have put your finger on a core problem in economics, and especially in the incomplete (deliberate in many cases) understanding of what economics teaches us by policy makers. Every Econ 101 student understands that the interaction of supply and demand leads to an equilibrium wherein the right amount of a good is produced to meet demand at a particular price. Across lots of different goods and services and lots of individual profit/utility maximization decisions, these equilibria result in an efficient distribution of resources to meet society's demands (the so-called invisible hand and all that). What most econ 101 students don't learn (or forget) is that this equilibrium only function in atomistically competitive markets, which effectively don't exist in the real world for many reasons including technological and capital barriers to market entry and exit, monopoly rent seeking, network effects, and so on. About the only effective tool we have to correct market inefficiencies are public policy interventions which are themselves plagued with all sort of imperfections. Inequality is not the result of economic forces, especially in a modern world where we could produce and distribute enough for everyone, but rather is the result of policy decisions interacting with economic, sociological, and psychological forces.
Fascinating, especially the piece on Smith. In addition to what Milanovic said, Smith seemed fairly uninterested in the output from the Industrial Revolution, which he usually describes as trinkets and baubles - but saw the great advantage deriving from the fact that the landowning classes were frittering away their income (and hence their power) on these baubles. More at https://substack.com/home/post/p-163917124
Great conversation, Paul and Branko. The data doesn’t lie: global inequality is down a notch, but let’s not kid ourselves, the deck’s still stacked. World Bank says poverty reduction has stalled, and labor rights are falling off a cliff (only 7 countries fully protect them now, down from 18 a decade ago). That’s a structural risk that doesn’t show up on most people’s Bloomberg terminals, but it should.
Investors love a good macro trend, but the truth is, extreme wealth concentration and collapsing worker protections are red flags for long-term stability, markets or otherwise. We can debate theory all day, but in the end, if the scaffolding beneath the so-called “middle class” crumbles, the whole market pyramid shakes. Curious to hear your take: Is there a way capital markets can actually help reverse the slide, or are we just along for the ride?
What else to say? It is wrong to use troops. They know that and move to authoritarianism anyway. It will be soon that the tensions on this strap will break and violence will escalate. I am not hopeful that protest peacefulness can be sustained. The authoritarians are stoking the flames to start the fire. https://hotbuttons.substack.com/p/troops-in-los-angeles?r=3m1bs
We used Paul Samuelson's textbook in Econ. 101. I loved the book. It was part of the reason I changed my major to Economics. I was dismayed by developments in the '80s when attacks against Keynesian economics and ideas like Rational Expectations became commonplace. I had thought that Samuelson's text was accepted conventional wisdom. I had no idea it could be viewed as being controversial or liberal.
I arrived in Boston in mid-70s from India and had imbibed Paul Samuelson's textbook, and thought the world's problems can all be solved... and then found nothing was solved -- first came rational expectations, then sticky wages, later behavioral economics --- and we were all floundering to understand the world, rather than solving the problems
Great discussion! I view the global inequality display as a sort of three-dimensional elephant graph with global location as the third dimension and time as a fourth dimension, something that computers are great at producing now days. Also loved the discussion about the social viewpoints of the central economic figures. I will have to go find a copy of Branko's book with which I am not familiar.
Thank you for today's talk. I learned in Edinburgh that Adam Smith held far broader beliefs than those I'd heard of. I visited his home & attended a splendid talk on his life & scholarship, incl., as I recall, correspondence with Rousseau in France.
This was timely, as I've just started reading prime minister Mark Carney's book "Values". He opens with economic theory and three of your discussed theorists.
The best of your work is these interviews. Thank you for continuing to introduce us to fascinating thinkers and authors. Echoing others comments, more like this please...
Fabulous discussion! Many thanks.
C. Peter Timmer
Cabot Professor of Development Studies, emeritus
Harvard University
I am regularly surprised by how much I don't know.
Wow,great interview with a fascinating guy with a range of information I know nothing about! Now I have to go get his new book and Rawls's book, and that other person... geez, it's like just signed up to audit a class! Thank you for the truly enlightening info!
This was absolutely terrific. I love these interviews. But I am curious about how you measure and compare poverty/wealth in different regions. In a poor country or region, if peoples’ needs are met, even though their incomes are low on a global scale, their lifestyles are comfortable and relatively secure. But in a rich area, 10x that income, might not lift you out of poverty. So how do you square the cost of living with real life experience, with such extreme differences in currency values and social support? Some groups/regions look poor on paper, but all their needs are met because they have a good interactive social/cultural system. Other groups/regions look rich on paper, but huge numbers of people fall through the cracks, are hungry, houseless, ill, and uneducated - even though they work long hours. Costs of living, currency values, and social support, are wildly different, so being pulled up out of poverty can’t be just a numbers game. How do you measure global poverty with those real variables in costs and social support?
As he explains, Milanovic has a very tough job in trying to bring different countries on the same "scale" so he can both make international comparisons and to arrive at a global decentile income distribution. Clearly he has been taking into account cost of living (PPP), currency values, etc ("numbers" as you call them), but you are making a very valid point that there is much more to global (and local) poverty.
May the next US administration and other rich nations support further research in this area.
I wonder how this is impacted by the homesteading lifestyle, or farm families or sustainable communities who grow their own food, sew, repair machinery, build/mill their structures? All of that labour is not reflected monetarily, and GDP is useless in determining their income, social class, and quality of life.
Yes. I thought of such disparate communities/countries as Bhutan, Mormon, Amish, and other societies or communities and cultures where labor and product are often shared and traded - including coalitions of families or townships getting together and paying for someone's legal, medical, teaching, or veterinary, education, or pitching in to build a well, or cook, do early child care, or install solar power. During the Depression my grandfather was foreman on a cotton ranch. They got to live in the foreman's house. They had a cow, big vegetable garden, and chickens. She sewed their clothes, cleaned, and cooked 3 meals a day served on the big family table, for the family and the 3 men who slept in the bunkhouse. Hardly any money - and hard work - but they did not consider themselves poor. They weren't poor. They just didn't have much cash. Some of my grandchildren have bought 40 acres (no mule, unfortunately) They are going back to the land - and are near an established communal settlement of neighbors. Not much money. A lot of trading, sharing, and sweat equity. How to quantify those lifestyles?
As Targut says, it's about establishing and reliably converting to common units of measurement (in this case PPP). On the one hand, there are certainly improvements to be made in those data standardization and conversion methods, but on the other hand, if you change methodology you may then have the challenge of comparing disparate measures over time!
I am curious how wealth inequality would compare to happiness inequality — would it be obvious?
There's good work in this area in psychology and sociology, but the short answer is that it is complicated. Certainly inequality and happiness are not entirely independent of one another, but there are many other intervening variables, particularly cultural ones. In fact, happiness and inequality are probably more strongly linked in richer nations/economies than in broadly poorer ones, but that could be because in places like the US we are fed a steady media diet of "lifestyles of the rich"
This is excellent. Thank you both. A crash course, will need to read this article again at the end of today.
Great discussion. Thank you.
As Piketty was mentioned here's some of his more recent work.
https://wid.world/news-article/unequal-exchange-and-north-south-relations/
Some interesting global data sets
Be very careful about ceteris paribus when reading Piketty. Piketty himself is careful, but as with many economists it is very easy for others to misinterpret their work without such careful attention.
As I noted, my interest was mainly on the data sets.
And yes, counterfactuals are a trick in themselves and to then assume other things equal on top of that, especially in this case when force was the deciding factor more often than not, can lead one astray.
I've been reading the good Professor since the mid 90s as I began to learn economics to fill in my trading experience. Like many in the early derivatives game, I got hired for my math skills.
Agreed. It's great to walk through his daily thought process unfiltered by NYTimes editorial constraints - especially in the current moment.
I am familiar with Metcalfe. Today is going to be a great example of such - No Kings all over the country.
Very cool indeed.
Heady times in Computer Science for sure.
I was a Physics/Philosophy student but didn't go beyond Undergrad as I got picked up by Wall St.
I sold my business in 1999 and "retired" - meaning I just managed my and my family's money.
This gave me lots of time to correct exactly the educational deficits you mention. History is such a help. Otherwise, as Walter Sobchak puts it, "you're like a child who wanders into the middle of a movie...."
26 years to read all that I should have read before and the list of what I still want to read keeps getting longer.
It would be nice if Profs. Milanovic and Krugman had connected the various elements that they brought up. They spoke of the state of distribution ("inequality" or "concentration") but they didn't speak about the act of distribution, which might have connected concentration with capitalism and classes.
One way of connecting them is to note that, in our industrial economy, commercial production is mainly done by large firms, whose sales income is the money value of output. Personal income is received almost entirely by the business sector's act of distribution of that income, and income concentration results from that act.
The principle on which firms distribute income is profit maximization. That is, the people who control the firms — capitalists — make their decisions regarding products, techniques, hiring, etc. to maximize the benefits for themselves. Over time, they shape their firms and technology to minimize the share that other people get, in large part by automation etc., which reduces the number and skills of employees needed and thus allows employees share of the income distributed to be pushed down.
Is that the way the professors would put it? If not, then what?
You have put your finger on a core problem in economics, and especially in the incomplete (deliberate in many cases) understanding of what economics teaches us by policy makers. Every Econ 101 student understands that the interaction of supply and demand leads to an equilibrium wherein the right amount of a good is produced to meet demand at a particular price. Across lots of different goods and services and lots of individual profit/utility maximization decisions, these equilibria result in an efficient distribution of resources to meet society's demands (the so-called invisible hand and all that). What most econ 101 students don't learn (or forget) is that this equilibrium only function in atomistically competitive markets, which effectively don't exist in the real world for many reasons including technological and capital barriers to market entry and exit, monopoly rent seeking, network effects, and so on. About the only effective tool we have to correct market inefficiencies are public policy interventions which are themselves plagued with all sort of imperfections. Inequality is not the result of economic forces, especially in a modern world where we could produce and distribute enough for everyone, but rather is the result of policy decisions interacting with economic, sociological, and psychological forces.
Fascinating, especially the piece on Smith. In addition to what Milanovic said, Smith seemed fairly uninterested in the output from the Industrial Revolution, which he usually describes as trinkets and baubles - but saw the great advantage deriving from the fact that the landowning classes were frittering away their income (and hence their power) on these baubles. More at https://substack.com/home/post/p-163917124
Great conversation, Paul and Branko. The data doesn’t lie: global inequality is down a notch, but let’s not kid ourselves, the deck’s still stacked. World Bank says poverty reduction has stalled, and labor rights are falling off a cliff (only 7 countries fully protect them now, down from 18 a decade ago). That’s a structural risk that doesn’t show up on most people’s Bloomberg terminals, but it should.
Investors love a good macro trend, but the truth is, extreme wealth concentration and collapsing worker protections are red flags for long-term stability, markets or otherwise. We can debate theory all day, but in the end, if the scaffolding beneath the so-called “middle class” crumbles, the whole market pyramid shakes. Curious to hear your take: Is there a way capital markets can actually help reverse the slide, or are we just along for the ride?
What else to say? It is wrong to use troops. They know that and move to authoritarianism anyway. It will be soon that the tensions on this strap will break and violence will escalate. I am not hopeful that protest peacefulness can be sustained. The authoritarians are stoking the flames to start the fire. https://hotbuttons.substack.com/p/troops-in-los-angeles?r=3m1bs
We used Paul Samuelson's textbook in Econ. 101. I loved the book. It was part of the reason I changed my major to Economics. I was dismayed by developments in the '80s when attacks against Keynesian economics and ideas like Rational Expectations became commonplace. I had thought that Samuelson's text was accepted conventional wisdom. I had no idea it could be viewed as being controversial or liberal.
I arrived in Boston in mid-70s from India and had imbibed Paul Samuelson's textbook, and thought the world's problems can all be solved... and then found nothing was solved -- first came rational expectations, then sticky wages, later behavioral economics --- and we were all floundering to understand the world, rather than solving the problems
Great discussion! I view the global inequality display as a sort of three-dimensional elephant graph with global location as the third dimension and time as a fourth dimension, something that computers are great at producing now days. Also loved the discussion about the social viewpoints of the central economic figures. I will have to go find a copy of Branko's book with which I am not familiar.
Thank you for today's talk. I learned in Edinburgh that Adam Smith held far broader beliefs than those I'd heard of. I visited his home & attended a splendid talk on his life & scholarship, incl., as I recall, correspondence with Rousseau in France.
This was timely, as I've just started reading prime minister Mark Carney's book "Values". He opens with economic theory and three of your discussed theorists.