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The winners and losers of globalization, Branko Milanovic’s new book on inequality answers two important questions

Branko Milanovic Global Inequality Harvard University Press Cover Image

Branko Milanovic begins his book, Global Inequality, by posing a question: “Who has gained from globalization?” Many thoughtful Americans have the confidence to answer in a sentence. The gains have been captured by the top 1 percent. And the book ends with another question: “Will inequality disappear as globalization continues?” Many might be just as quick to answer: Of course not, the rich will get richer!

But life is not so simple. Between these two questions Branko Milanovic offers us not just a plethora of facts about income inequality that will surely make his readers think twice. More importantly, he shows us the power of bringing the facts into focus by putting a new lens over these pressing issues—a global perspective. He takes more than 200 pages to answer the first question, and only a sentence to answer the second.

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Two dead philosophers buried 10 metres apart, still living: John Rawls and Robert Nozick

My year as a visiting professor with the Department of Economics at Harvard is coming to an end, and I am on a pilgrimage of sorts. Today was spent in Mount Auburn Cemetery, visiting the notable and still living dead.

Visiting John Rawls in Mount Auburn Cemetary Cambridge Massachsetts

John Rawls died on November 24th, 2002. He is buried in a part of the cemetery called Harvard Hill, where you can see over the tree tops, just barely, the spire of Sanders Theatre in Memorial Hall. Professor Rawls is the author of A Theory of Justice, published in 1971. I read it for the first time in the early 1980s as a graduate student when working on my Master’s degree at McGill University. Rawls asks what kind of social contract would we enter into to govern the workings of our society if we had to negotiate it behind a veil of ignorance, not knowing where we stood in society, knowing nothing at all about ourselves, not our social rank, not even who are parents were. His answer? A good society is one in which the interests of the least advantaged have priority: social welfare is improved only when the least advantaged advance.

Also buried on Harvard Hill, barely 10 meters away, is Robert Nozick, who died on January 23rd, 2002. Nozick’s great work is Anarchy, State, and Utopia, a forceful response to Rawls, published in 1974. Nozick argued for a minimal state, focusing on the importance of individual property rights. Social welfare is based upon process, the freedom to engage in voluntary exchange in the exercise of property rights is what makes a society good, and the state should play a minimal role providing only those most basic services that uphold property rights. Let the outcomes be what they will be, as long as this process respected.

Robert Nozick in Mount Auburn Cemetery Cambridge Massachusetts

Two books, still alive, and very much for our times.

Long live the mandatory census! or maybe not?

[This post is based on my comments at “Celebrating the Census,”  a panel discussion organized by the McGill University Centre on Population Dynamics held in Montreal on April 29th, 2016. Other members of the panel were Jean-Yves Duclos, Sebastien Breau, Ian Culbert, Ariane Krol, Mary Jo Hoeksema, and the moderator Celine LeBourdais.]

The Census is built block-face by block-face. It is built sub-division by sub-division. Village, township, city, municipality, it is built until the entire country is perfectly and completely tiled.

The Census is a machine, complicated and intricate. And the public servants working at Statistics Canada should be rightly proud of the hard work and dedication devoted to the development, maintenance, and management of this machine. Even the most jaundiced among us, regardless of political persuasion, should recognize and acknowledge this accomplishment.

RH Coast looking north over Jean Talon S0001

The Jean Talon building, in the bottom right, was originally called the “Census Building.” Photograph by Philip Smith.

The value of this machine is that it lets us see ourselves in detail more precise than any other mirror, and the return of a mandatory long form, in which Canadians are required to offer up a description of some of the most private aspects of their lives, is hailed by many as a major turn in public policy that will allow this picture to stay clearly focused.

But the Census is more than a machine. Jean Talon knew that. The very first Census he conducted, beginning in the later part of 1666, was clearly an act of nation building. He used it to help him, and France, develop and build a viable colony extending from the shores of the Saint Lawrence River, transforming the countryside into a prosperous agricultural region that would prepare the way for waves and waves of more immigrants. The Census is an act of political imagination.

And the public servants who work at Statistics Canada are not well placed to exercise that imagination, even if at times what they do in managing the machine casts them in that role.

There is still much to be done for Canadians to accept and appreciate the benefits of the Census, and for the federal government to give them ownership of the results. The Census is mandatory—by law it must be filled out—but we should strive to think of it as voluntary, our participation to be both exercised and celebrated as an act of citizenship in a way that fosters each Canadian’s political imagination.

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Higher inequality leads children to drop out of high school

I am in Washington DC at the Brookings Institution participating in a conference based on the papers that will appear in the next issue of the Brookings Papers on Economic Activity, and specifically to discuss a paper called “Income Inequality, Social Mobility, and the Decision to Drop Out of High School.”

The authors, Melissa Kearney and Phillip Levine, say in the abstract of their paper:

we posit that greater levels of income inequality could lead low-income youth to perceive a lower return to investment in their own human capital. Such an effect would offset any potential “aspirational” effect coming from higher educational wage premiums. The data are consistent with this prediction: low-income youth are more likely to drop out of school if they live in a place with a greater gap between the bottom and middle of the income distribution. This finding is robust to a number of specification checks and tests for confounding factors. This analysis offers an explanation for how income inequality might lead to a perpetuation of economic disadvantage and has implications for the types of interventions and programs that would effectively promote upward mobility among low-SES youth.

You can learn more and download the paper from the Brookings Papers on Economic Activity web site for the 2016 Spring conference.

The slides for my discussion of the paper are here.

Corak Comments on Kearney and Levine income Inequality Social Mobility and the Decision to Drop Out of High School

My comments revolve around three questions raised by this nicely crafted paper:

  1. Inequality of what?
    • the authors focus our attention on the degree of inequality in the lower half of the income distribution
    • but they also use a measure of inequality based upon all sources of income, including benefits from government transfers
    • so policy makers might wonder about the scope and design for government transfers to lower inequality in the lower half, and in particular of expanding the EITC to include men
  2. Social Mobility for whom?
    • state-level inequality raises the chances that boys from low status backgrounds will drop out of high school, there is no statistically significant influence for girls
    • but these patterns also depend upon the abilities that these boys have when they start high school
    • I show that these abilities are actually correlated with the abilities children have when they were kindergarten age, so we might also wonder about whether policy should be directed to individuals and high schools, or to families and young children
  3. Whither Dropping Out?
    • the trend in dropping out of high school has actually been on the decline since about 2000, yet inequality has not changed that much during this period
    • but this paper helps us to think more constructively about trends, it may be that the degree of disenchantment about future prospects have changed

Figure 1 Richard Murnane US High School Graduation Rates Journal of Economic Literature

Why Canada should foster a ‘second-chance’ society

[This is the unabridged version of an article published in the Globe and Mail on February 22nd, 2016.]

Canadians should be thumping their chests, after all many others are patting us on the back. When it comes to social mobility we are among the world leaders. Even U.S. President Obama acknowledged that a poor child is more likely to move up in life in Canada than in the United States.

This kind of mobility, the capacity for children to become all that they can be without regard to their starting point in life, is the bedrock of fairness.

For sure this distinct Canadian accomplishment of making the American Dream more of a reality north of the border was never without its imperfections, ringing rather hollow for many native communities, some immigrant groups, and certain visible minorities. Great accomplishments on average never reveal the full diversity of experience.

But just as importantly winning the social mobility sweepstakes is something for the record books, not a guarantee for the future. The foundations of fairness are shifting; luck will matter more, meritocracy will be perverted by growing inequality, and our public policies haven’t really changed to prepare for the new reality that is already pressing on young people.

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American Economic Policy, as told by Martin Feldstein at Harvard University: Lecture 10, Preventing and Responding to Financial Crises

“Good morning, our subject today is financial crises and policy responses. I’m going to focus mostly on the crisis of 2008, which seems like it has been going on forever.”

So begins Larry Summers in addressing the students attending the 10th lecture of the course “American Economic Policy” that he is co-teaching with Marty Feldstein and others.

“It was a scary moment and had substantial consequences. The US gross domestic product dropped by 10%, and today is estimated to be 10% lower than would be predicted by the pre-crash trend. That’s $1.7 trillion a year, or $20,000 for the average family of four. Unemployment reached highest level since the depression: 10% in the aftermath of this event, and even today there are several million more people unemployed or out of the labour force as a result.”

What I would like to do today is the most basic economics behind a crisis of this sort, and in the next lecture I give to use it to talk about policy responses to crises.

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