Social welfare functions that assign weights to individuals based on their income levels can be used to document the relative importance of growth and inequality changes for changes in social welfare. This method is applied in a new working paper by David Dollar, Tatjana Kleineberg, and Aart Kraay. They find that, in a large panel of industrial and developing countries over the past 40 years, most of the cross-country and over-time variation in changes in social welfare is due to changes in average incomes. In contrast, the changes in inequality observed during this period are on average much smaller than changes in average incomes, are uncorrelated with changes in average incomes, and have contributed relatively little to changes in social welfare.
Equitablog, run by the Washington Center for Equitable Growth, has launched a series of 'Notes and Finger Exercises on Thomas Piketty’s “Capital in the Twenty-First Century”.' Brad DeLong's post, 'There Are Four r’s', details some alleged oversights in Piketty's book. In particular, DeLong focuses on how the real interest rate behaves at different levels of economic activity. He highlights Larry Summers' concern about secular stagnation and the risk that rich folks might retreat from investing in industry. And DeLong pulls out some sexy math.
Matthew Gentzkow has won the John Bates Clark Medal, an honor conferred by the American Economic Association for his contributions to "our understanding of the economic forces driving the creation of media products, the changing nature and role of media in the digital environment, and the effect of media on education and civic engagement..."
Last week, Oxfam released a powerful report on inequality, “Working for the Many: Public services fight inequality.” The report makes a persuasive case for the need to bring more attention to the issue of inequality in policy discussions. Indeed, at the recent World Economic Forum Annual Meeting, World Bank President Jim Yong Kim stated that “at Davos, income inequality should be front and center” as an important item on the global agenda. I was recently a discussant in a session on the Oxfam report at a Spring Meetings event alongside Max Lawson of Oxfam Great Britain and David Coady of the IMF's Fiscal Affairs Department. The case Oxfam makes that inequality is harmful to the global economy is well articulated and their prescription for a solution is highly focused: increase the amount of progressive taxation to fund free and universal health and education. In the following slides, I provide a few examples of where we might want to broaden our thinking on the issue of inequality. In particular, I offer a couple of illustrations where a singular focus on inequality would lead us to undervalue some very important progress that has been made in the fight to eliminate poverty. In contrast, by ‘twinning’ the goals of eliminating extreme poverty and boosting shared prosperity, the policies we design may be more likely to ensure that everyone shares in growth and prosperity.
In today's NYT opinionator blog, Joe Stiglitz writes about inequality and the research of Branko Milanovic, World Bank lead economist and inequality expert. In his post, Stiglitz draws from Milanovic's research on long range inequality trends to ponder who the winners and losers of globalization have been and how the most recent worldwide financial crisis affected both the level of global inequality and the relative importance of differences in mean country income vs. nationally based inequalities. His post explores whether we envisage a situation where income inequality continues, by and large, to increase within nations, but, spurred by the high growth of China and India, decreases globally. Stiglitz also ponders the hollowing-out of traditional middle classes in rich countries.
The World Bank Group (WBG) has established that its mission, endorsed by the governors of its client countries, is centered around the goals of sustainably ending extreme poverty and promoting shared prosperity. Extreme poverty is monitored by the percent of people living below the $1.25-a-day threshold. The Bank’s mission thus gives a clear message: Extreme poverty, hunger, destitution must come to an end.
To monitor progress in shared prosperity, the WBG will track the income growth of the bottom 40 percent of the population in each country. The clear signal the WBG wants to give is that the institutional mission is about reducing poverty, fostering growth and increasing equity, so we need to monitor what happens to welfare of the less well off in every country. Improving averages is not enough; a laser focus on those who are at the bottom of the distribution at all times, everywhere, is needed.
The January 2011 revolution in Egypt that overthrew 30 years of autocratic rule was in part due to a sense of deteriorating economic situation, injustice and growing inequality in the society. This was voiced by protesters during the revolution but also by intellectuals and the press after the fall of the old regime in an effort to explain the revolution. The World Values Surveys administered in Egypt in 2000 and 2008 confirm that the subjective aversion to inequality has intensified between the two years and for all social groups.
It is thus surprising that economic inequality in Egypt as measured by household surveys is low and has been declining during the past decade. In 2009, the most recent year when a large household income and expenditure survey was administered, the Gini coefficients for inequality in incomes and expenditures were 32.9 and 30.5 respectively , far lower than in surrounding countries, southern Europe or the United States. This finding led observers to dismiss these figures as “unreliable” and incapable of capturing the true economic inequality in Egypt.
The economic liberalization during the last couple of decades led to impressive economic growth and poverty reduction in many developing countries. This period has also witnessed worsening of income inequality and widening of spatial disparity (World Development Report (2009); Kanbur and Venables (2005); Kim (2008)). There is considerable worry among policy makers about the extent to which this rise in spatial inequality is due to increasing disparity in opportunities in terms of provision of basic infrastructure and services. The recent growth and poverty reduction experience places Bangladesh as an exception to this trend of increasing spatial inequality. Bangladesh made significant strides in poverty reduction between 2000 and 2010 with incidence of poverty falling from 48.9 percent to 31.5 percent. During the same period, the incidence of poverty declined more than proportionately in traditionally poorer regions, reducing welfare gaps across regions. There is also no evidence of significant change in overall inequality over the same period. What made spatial disparity in Bangladesh to decline while its economic growth accelerated substantially? What were the sources of decline in spatial disparity in welfare?
It sounds impossible. Unthinkable. A world free from extreme poverty. A world in which no child is born to die, no child goes to bed hungry, every child lives a life free from violence and abuse and has quality health care, nutrition and learns in school. This has long been Save the Children’s vision but could now be a shared global vision, and by 2030 perhaps, a reality.
On May 30, 2013, a special panel of world leaders handed in their recommendations to the United Nations (UN) Secretary General on the future of global sustainable development and they, too, believe this can be our reality.
It’s quite fun being picked up by a prime minister. Not literally of course. Unless you happen to be a baby seized from your mother’s arms during an election campaign, in which case it must be rather exciting, and quite possibly the highlight of the day. No, I mean being picked up in print.
In a recent Washington Post op-ed, former UK Prime Minister Gordon Brown, and current United Nations’ Special Envoy for Global Education, cited a Let’s Talk Development blog post of mine asking whether inequality should be reflected in the new international development goals. Toward the end of the post I presented some rather shocking numbers showing how – in a large number of developing countries – the poorest 40% have made slower progress toward key MDG health targets than the richest 60%. Although I didn’t actually offer any evidence on education, I argued: “If inequalities in education and health outcomes across the income distribution matter, and if we want to see “prosperity” in its broadest sense shared, it looks like we really do need an explicit goal that captures inequality.”
Poverty is indisputably central to the World Bank as we sharpen our mission, but inequality matters too, and we underplay or ignore it at our peril. When this message comes from eminent economist and Nobel laureate Joe Stiglitz, Bank staff and the general public tend to sit up and take notice.