Sunday, November 24, 2013

The Other "Nuclear Option"

November 24, 2013

This week, the Senate passed a bill so labelled by some. It simply reduced the number of Senators required to prevent filibusters, or to require an "up-down" vote without delay, from 60 to 51. At the present time, this assures the Democratic majority in the 100 member Senate, that if the Democratic party holds together on such matters as appointments to judgeships, there will be a positive vote--i.e. Democrats will be able to fill critically important judgeships with judges of their liking--presumably of a more liberal persuasion.

This is a proper bill to pass. It is a proper step toward reducing partisan gridlock in our Congress.

There can be little doubt about its value--both parties have argued for such a measure when in majority and both have argued against it when in minority position. It simply cannot be imagined that the Republicans would not have done the same, had they the Senate majority at this time--and similarly, it cannot be imagined they have such "principle" around this rule of order that they will reverse it when they next have the majority.

The main argument is that this allows the majority (in the Senate) to decide, that this will result in a swing, like a pendulum, for whichever party has the majority. That is true, but isn't that the way many other democracies in the world work--essentially a government is "formed" after election, such that there is a majority of votes to enact most important legislation around which this elected and "formed" majority can reach agreement. This enables action to be taken, movement, hopefully progress, and if not, the next government can change it.

For example, many of us did not agree with the austerity measures enacted by the the combined majority of David Cameron's Conservatives and Nick Klegg's Liberal Democrats. This may have been a pendulum swing to the right, and it may be swung back by the next majority party or combined formed majority. However, it is not gridlock, as we have seen in the US, where it seems nothing can be done. Our Federal Reserve has been the main engine of the economic recovery here, with fiscal policy (after a few crisis measures--bailouts and one stimulus program) being sidelined over inability to agree on tax reductions and spending reductions.  The debate between the Keynesians and the Friedmans, et. al., has resulted in no action.

So, this bill is both fair and is good.

What's most interesting about the aftermath of it is that the politicians on the right have reacted vehemently, as if some capital crime has been created, as if they forget they wanted this when last in power, but couldn't get it done. The have threatened retaliation.

This is both insulting to the intelligence of the American people, and disgusting. Insulting because we are smart enough to know both parties want this if they have the power to get it. It's not some kind of sacrosanct rule. Filibustering? How can that be defended? Ted Cruz would want this bill if he had a majority in the Senate--God forbid!

Disgusting because the threats issued by some of the most senior Republicans exposes the worst element of our political system--if I can't have it my way, I'll do everything I can to prevent any progress. This attitude has been consistently apparent in the attack on "Obamacare." Why not join with Democrats in constructive ways to alter and fix the health care system? The answer appears to be that you'd rather see it fail than be fixed--you'd rather avoid being somehow "tarnished" by joining in to support something. And/or you're just too beholden to the ultraconservative factions that have arisen in the Republican party.

John McCain, who deserves great appreciation for his service to our country, lowers himself when he threatens "a heavy, heavy price" to be levied as punishment to the Democrats for exercising this privilege of their majority vote. And, he insults us by saying "I don't think Americans understand it very well."

We understand this very well. It's abundantly clear.

Nuclear Deal with Iran

November 24, 2013

Late last night, an interim nuclear deal was signed between the P5+1 (US, Britain, Russia, China and France, plus Germany) and Iran. The build-up to it, and now the announcement, has been met with polar opinions. Some claim Iran has deceived the West, falsely claiming they never intended a nuclear weapon capability (just nuclear power), cleverly buying time without much conceded, and that Iran will determinedly continue to use any means to develop nuclear weapon capability. They argue that while Ahmadinajed was clearly a threat to world order, Iran is simply putting forward Rouhani (a wolf in sheeps clothing) to try an opposite end-run.

Others feel this deal is a major positive development in the pursuit of peace in the Middle East and the world, and has strong potential to result in resolution of the Iranian nuclear threat in six months when the target date is reached for full resolution.

An opinion highly critical of the deal comes from the respected political commentator Charles Krauthammer, writing in the Washington Post on November 21, "Sucker's Deal." His argument makes sense, as does most of what Krauthammer says: Sanctions have brought Iran to the table, but what Iran concedes in the interim deal is little (as it relates to ultimate nuclear capability) and it would be far more effective to just double down with more sanctions until they concede every element of nuclear weapon capability--now--do not trust them to keep their word, and definitely do not give them an extra six months with relaxed sanctions.

An opposite view comes from Fareed Zakaria, in his "GPS" program of today. His best argument is that sanctions imposed on Iran across the last decade have done little to stymie the nation's nuclear development. The number of centrifuges to process nuclear material has grown from 164 in 2003 to 19,000 today, as more and more sanctions have been imposed. Zakaria asks, "what would have happened without a deal?"

As an aside before continuing, wouldn't it be great if all Americans, all world citizens, could take a little time and examine the issues and take a stand on such major world issues as this? Wouldn't that make democracy and world governance work better? Our American legislators are supposed to be responsive to our wishes, but too often we don't take the time to develop and express opinions clearly and thus, legislators are left to operate on their own prejudices and convictions or to hedge. Former Senators Scott Brown and Evan Bayh were interviewed this morning on TV, and honestly, while they are very competent politicians, I felt they both hedged their positions--seemingly to accommodate the supporters of Israel's concerns, stated well by Krauthammer.

And this is one where the outcome can perhaps be judged in a relatively short period of time--six months, unlike the matter of climate change or world population growth. So, it will be an interesting test--like betting on the winner of the Superbowl, something many Americans take the time to understand and predict--but far more important to the world.

In setting about to take a stand, it's best to start by recognizing the existence of biases. No one can be free of them entirely, even with the best of intentions toward objectivity.  There are those of understandable sympathy to the state of Israel, a tiny nation surrounded by threats to its existence. There are those who are hawks and have a bias in favor of use of force to resolve such matters.

And, there are those among whom I fall, who feel too much life, opportunity, and prosperity has been lost to war in recent decades and that we need to make every effort to avoid it. I do recognize that the hawks would claim that force of sanctions or threat of military attack is the best way to achieve peace, but I do not hold with that--at least not in most cases.

To illustrate the element of bias and also the difficulty of reaching an opinion on matters such as this, consider how Krauthammer and Zakaria each describe what the deal concedes in the way of sanctions during this interim period. Krauthammer: "It widens permissible trade in oil, gold and auto parts. It releases frozen Iranian assets, increasing Iran’s foreign-exchange reserves by 25 percent while doubling its fully accessible foreign-exchange reserves. Such a massive infusion of cash would be a godsend for its staggering economy, lowering inflation, reducing shortages and halting the country’s growing demoralization. The prospective deal is already changing economic expectations. Foreign oil and other interests are reportedly preparing to reopen negotiations for a resumption of trade in anticipation of the full lifting of sanctions." Zakaria: "In return, Iran gets about $7 billion of sanctions relief, a fraction of what is in place against it. The main sanctions – against its oil and banking sectors – stay fully in place."

Similarly, they express polar opposite views on their individual interpretation of what Iran has conceded for the interim in regard to uranium enrichment.

My sympathy is with the Zakaria opinion--sanctions have not worked, threats have not worked, and it's wise to give an entirely different approach a solid try. This is essentially the major contribution (in my opinion) of the Obama Presidency--that he has assiduously avoided actions which would prolong our existing wars or expose us to engagement in other wars. Relatively little has been conceded in the sanctions for the interim deal--only about $7 billion in frozen assets, while the sanctions on trade privileges, far more damaging to Iran, remain in place until we reach the full deal in six months.

The best tally of gain or exposure in the deal would involve reading the agreement and then researching key elements--e.g., what sanctions remain in place, and what limits on enrichment have been conceded and what rights retained.  I have not done that yet, but will set about to do so.

Because there is significant opposition to the negotiated approach in the American Congress, interim sanctions relief could only be limited--what the President alone is empowered to authorize. Most of it requires the approval of Congress, suggesting that this concession is indeed modest--Iran will need and want far more to achieve their goal of economic freedom and renewed economic growth.

We now have Iranian approval to daily inspection by IAEA personnel. It is highly unlikely that any hidden enrichment facilities can be sustained with all the inspections and all the eyes of the world on Iran.

More on this major world event, as the details and opinions unfold.

Tuesday, November 19, 2013

Contrary Argument to Robert Samuelson's "Government is not Beholden to the Rich"

In a Washington Post article of November 19 (, Robert Samuelson makes this argument.

To try to prove his point, he simply explains how the federal budget is spent, showing that a majority of our social support spending (a huge part of our budget) goes (one way or another) to provide for the elderly in our nation--individual benefits, health care, veterans benefits, etc.

The information Samuelson uses come from the Congressional Budget Office, and we trust it is accurate.

Nevertheless, this does not prove Samuelson's point: "Democracy’s problem is not the influence of money. It’s the influence of people. As the CBO report shows, so many Americans have become dependent on government that consensual change is difficult and, perhaps, impossible."

It is certainly true that Americans resist giving up Medicare and Social Security entitlements, and it is also true that we have to make some adjustments in these to preserve the financial integrity of our federal finances.  It is also true that consensual change is difficult in this country--we are legislatively gridlocked.

However, if the rest of Samuelson's argument were true--essentially that the people (we assume he is referring to the "99%")--control what happens in our federal budget, then how could he explain these developments:

Have a look at the Piketty and Saez 2004 study "Income Inequality in the US 1913-2002" ( or look at Real World Economics Review Blog's ( showing the dramatic increase in the degree of US inequality across the last 3-4 decades.

Piketty and Saez found that the top decile's share of wage income in the US rose from about 25% in 1957 to about 34% in 2002. Real income of the 99% was about the same in 2002 as it was in 1972, inflation adjusted--i.e., about the same buying power--no improvement. However, the top 1% saw real income double across that period.  If all types of transfers are included, real income of the 99% has grown by 40%, but real income of the 1% has grown by 3.3X.

Wordpress reports that the top tax rate for millionaires in 1945 was 66%, and in 2010, that rate was 32%. In 2007, the bottom 50% of the US owns 2.5% of total US wealth. The top 50% owns the remainder, with the top 10% owning 71%, and the top 1% owning 35%.

No matter how the government's social welfare system is configured (Samuelson's focus), it is irrefutably true that in almost any social breakdown (by income, by skin color, by educational achievement, etc.), the US has markedly worsened in terms of increased inequality since the 1970s.

So, how can one fail to recognize that the income and wealth and power of the country is increasingly with the wealthy and connected?

If we don't concern ourselves with ways in which to remedy this trend, we are likely to experience great instability in our country in the future. There are practical answers we should galvanize around.

Monday, November 18, 2013

More on the Problem of Power and Influence between Government and Industry

The Washington Post article of today (Nov 16, 2013) entitled "Capital Gains: spending on contracts and lobbying propels a wave of new wealth in D.C." is worth reading (

As in the previous post in this blog, there is a problem with how the wealthy elite of our country are enabled to enjoy privileges which other qualified businesses without these connections (guanxi, as it is called in China) cannot access. A related problem is how certain "connected" individuals are able to personally benefit, thus enlarging the dangerous inequality gap which has dramatically risen in the US since around 1980.

We have no rules preventing government employees moving into positions in private industry or in lobbying firms, where they then work the connections they developed in their work inside government agencies, securing favorable legislation for their new employers.

The ramifications of this are numerous and mostly negative:

Many qualified vendors to government and many companies with legitimate interests in legislation under consideration do not have access to these privileged channels. Thus, they suffer a disadvantage in competing for equal consideration.

Second, this system feeds on itself. Undoubtedly, there are many federal employees who clearly have in mind a future long and lucrative career--and are simply in those key (and relatively modestly paying) federal jobs only as long as it takes to build up those contacts and knowledge of just how things are done--how new drugs are evaluated, just who is key to those decisions, what his/her personal perspectives, preferences, weaknesses are, what are their phone numbers, cell phone numbers, e mail addresses. Before leaving the agency, they can learn who likes what brand of whisky, wine, who loves which particular restaurant or sports event. They learn whose children go to which private school, and what that school needs in the way of support--etc., etc., etc.

This is how relationships work, how they ARE worked, and how business is done in Washington.

I am not here to contend that everyone in lobbying or everyone who leaves government to serve business which they previous oversaw, is dishonest. That's clearly not true. There is a lesser issue of honesty and corruption which this system enables, but the main issue is one of unfair advantage, and resulting legislative decisions which are not based on facts and objective judgments, but based on privilege and personal favors.

As Americans, we need to ask ourselves why we want this "system" to continue, with the obvious tendency to prejudice the judgment of government decisions to the favor of the few. Is there any possible positive to it?

We certainly cannot deny that this system adds to the problem of growing inequality in our country.
Those privileged few described in the article are enjoying benefits which are being denied to the large majority of hard working Americans.

Who would be harmed if we had prohibitions on government officials going to work for businesses in industries they supervised in their government roles, or going to work for affiliated lobbyists?  It's hard to make a good argument in favor of allowing this system to continue.

Saturday, November 16, 2013

Federal Officials and Lucrative Jobs

Timothy Geithner has taken a lucrative job in the top ranks of Warburg Pincus, a big name in the private equity arena.

Speaking only of Geithner, it's not fair to blame him for accepting such an offer. After all, he seems to have been an honest and effective servant of government for us for many years. In those roles, he certainly sacrificed the opportunity to potentially make a great deal more money working for firms such as Goldman Sachs or Warburg Pincus.

So, what's wrong with the type of development?

It is my opinion that we should have a "cooling off" period of at least 5 years between anyone working in key government positions and their taking positions in entities which they essentially supervised or governed in their previous roles. It would be hard to argue that a large private equity fund was not a matter of concern for the head of the NY Fed or the Treasury Secretary. If he took a job as head of a wind power firm, that would be another matter, as an example.

Why is this important? Because the cozy relationship between our government and and the powerful business entities they presume to govern is dangerous. We need an "arms length" assurance that there will not be any favoritism given any such entities, such as to potentially lead to powerful jobs later offered to those who are beneficial to their interests while in key government positions.

Similarly, those who occupy high positions in private industry should not be considered for positions in government involving oversight to those same industries, until after a cooling off period of perhaps 5 years. That's because they can't generally be considered to be impartial in their oversight.

Even more so, this kind of rule should apply to the lobbying industry--too many of our government officials leave and join a lobbying firm focused on the same area they governed. These former officials have strong relationships inside the agency they supervised and have the ability to influence in favor of the industry when they leave. This is inappropriate. In fact, in the case of government officials going to lobbying firms which were among those under the federal jurisdiction of the official, I believe this should simply be prohibited. A cooling off period is not enough in such cases.

It's not the job of the American public to determine whether either of these situations indeed results in favoritism. That's pretty hard to determine, anyway. We need rules like this just to assure that there is not the temptation of such between government and business.

These are not new ideas--this is just a reminder to all of us that we need them enacted. Resistance from powerful interest groups is strong. This type of cronyism is a piece of the big picture which has exacerbated inequality in our country across the last 30 years.

Wednesday, November 13, 2013

Xi's 3rd Plenum of the 18th Central Committee

November 9, 2013

November 9 begins a major conference of Chinese leaders, with focus on reform. The world of economics followers is focused on this conference, to determine what changes will truly emerge.

The Economist, a rather neoliberal publication, argues largely for more liberalization: less protection and support for State Owned Enterprises (SOE's), ideally privatize the remainder of them (still representing more than 25% of China's GDP); further liberalize interest rates, exchange rates, and capital flows ("Go on, bet the farm," Nov 2, 2013). This focus fails to recognize that the controls China exercised over its economy are the primary reason for China's extraordinary success across the last 35 years. What other major economy avoided every financial crisis across that period of time? As one (major) example, if the free hand of financial capitalists had been at play in Chinese capital and financial markets across the time of the E Asian or the 2008 World financial crises, without doubt China would have fallen prey to the same damage as did its SE Asian neighbors in 1997 or the US and the rest of the world in 2008.

However, The Economist is right to identify land reform as a major area needing significant reform. Peasants in the countryside are not allowed to own or sell the land they farm, and the land which is useful for further expanding China's industrial and services economy or its infrastructure, is frequently appropriated by local governments and sold off to developers at bargain prices. This is the main source of revenue to local governments, since the income tax system is very weak and there are no property taxes as a result of no land ownership. The current system of land sales is also considered by many to be the largest factor leading to corruption between local officials and real estate developers. Peasants have essentially no rights of preventing what we know in the West as eminent domain--which in the West involves a difficult labyrinth for authorities to navigate in order to take your land--and a good chance for you to get fair compensation.

Solving this problem will be slow and painful. A property tax will be needed to provide a replacement source of revenue for the local governments, which have been asked to shoulder an increasing share of the expense burden of the range of services to be provided by governments. The federal government will probably have to take some of that burden back, and the property tax system will undoubtedly take years to be brought to a level of effectiveness. Much of the land has not been properly mapped and there will be much controversy as to who gets the benefit.

Another key area is the need to continue progress toward equivalency in the rights of holders of urban and rural "houkou's." The latter include about 300 million who moved to the cities to work in factories, but who are denied equivalent access to health care and to education for their children, as well as other social services. Some city governments claim they cannot find the revenue to meet those needs.

China's level of corruption and inequality are major concerns. It's not clear whether either is increasing across the last few years, but it is very clear to Chinese leadership that both have risen rapidly across the reform period (since 1980) to very high levels, and are the focus of increasing protests in China.

Other major problems China must address include water, perhaps the greatest economic sustainability challenge, but also pollution and the need to continue progress to move the economy to reduced reliance on exports and greater reliance on internal consumption.

I do not agree that the problem loans of the state owned banks will result in a financial crisis. China has bailed out the banks one way or another in periods of past excess and has the capacity to do so again.

China is likely to make its way through these challenges.

One reason is that China has the type of government and institutional system that can direct resources where it needs them, without the interference of democratic processes, such as we have seen in the US or India. Admittedly, such powers are diminished by China's accession to the WTO with the attendant acceptance of many Washington Consensus liberalizations. Also, there is clear evidence that the growth of entrenched wealth interests in China provides significant resistance to any form of redistribution.

Nevertheless, we must remember that those who have forecasted the demise of China since 1980 have been consistently proven wrong--and careful analysis suggests there are possible solutions to all these problems. Steady and gradual progress is what we hope for--not overnight miracles.

Tuesday, November 12, 2013

Let's Clarify the Need for Redistribution

November 9, 2013

First, we need to demonstrate the need for redistribution, then discuss the wide variety of ways in which it can be accomplished.

Can there be any question that there has been significant divergence of incomes between countries and within most countries, since about 1980? In fact, if India and China are excluded, there has been little reduction in poverty worldwide, and significant increase in inequality. Inequality has increased, not only between countries, but within countries.  While the US and China were both egalitarian in 1950, in 2013 both are recording record levels of inequality.  Some fear we could be exposed to the possibility of revolution.  There does not yet seem to be sufficient evidence to suggest that risk in the immediate future--at least not in China, and not in the US, but there have been rumblings in Brazil, in Egypt and other countries.

While China does not seem likely to suffer a significant reduction in growth rate, if such were to happen for an extended period of time, the danger of such would rise significantly there. There are still more than 300 million people in China living below the poverty line of $1.25 per day.  Hirschman's "tunnel effect" states that if you are in the slow lane in the tunnel, you are not disturbed for a while--thinking that you will also experience the improvement soon. But, if your lane doesn't move for a considerable period of time, you become increasingly discontent.

It does appear that in both China and the US, Hirschman's tunnel effect is still in the first of two stages: there is an abundance of citizens, while not enjoying much in the way of benefits, who don't yet want to overthrow the system because they expect to be able to capitalize soon, like those in the fast lane. In fact, it's perplexing, particularly in the US, to consider that there are many in our blue collar population who continue to support the ideology of the Republican right and even the Tea Party, while those are just the principles which assure that few of those will enjoy the benefits of the privileged.  More and more, in order to get onto that train, one needs private high schools and expensive prestigious universities. Real wages of America's blue collar workers have hardly moved across the last 30 years, while the share of GDP to the to 10 percent has risen dramatically, as have CEO salaries, the cost of higher education, the cost of health care, etc.  The Right has done an amazing job of brainwashing America's underprivileged.

The methodology of such persuasion takes the form of arguing that those without jobs are lazy, on drugs, and only want government handouts. Further argument goes that economic growth depends on the wealthy to garner the profits and invest them in productive capacity, creating jobs.  And who can argue that those who work harder or are smarter should not reap the benefits of their superior contribution?

It turns out that most of those without jobs are anxious to work, and the liberals do not want to cavalierly bestow benefits on the small few who do not want to try. It also turns out that much of the wealth garnered by the owners of capital is simply invested in financial assets and not in productive capacity, thus not creating jobs for others.  And, if the opportunity to succeed is unfairly limited to children of wealthy, is it really fair to say none of that should be shared to better balance the equation?

Finally, the mention of "redistribution" has been tortured by the right to suggest that we would take land and property from the wealthy and give it to the poor. In fact, there are many ways to try to achieve better balance without doing that. A gradual and modest adjustment in a wide variety of types of taxes can enable significant adjustment over a period of say 10 years.  Assuring improvement in access to equivalent high quality education can enable significant adjustment across a generation. There are many other levers.

If we don't address the dramatic increase in inequality, we face a world of increasing conflict, and that conflict will certainly come to our gated communities. Revolution will become a real risk, in time. Furthermore, if we enable the poor to improve their lot, they will become the great consumers of the future and economic growth will be enhanced. There are many prominent economists who hold the proposition that increased inequality slows growth, improved inequality improves growth--and this is a promise of improved wealth for the wealthy--with improved life for all.

Sunday, November 3, 2013

The Future of Work

November 3, 2013

For all who are perplexed or troubled by the dramatic changes in the nature of work across the last 30 years or so, the LSE sponsored debate between Robert Skidelsky and Maurice Glasman, both members of the British House of Lords, is a fascinating and revealing 


It kicks off from John Maynard Keynes' forecast around 1930 that we would be enjoying about a 15 hour workweek by now. Technology would enable that, and we would all be enjoying much more leisure. That has not happened, and the discussion at the LSE focuses on why? What has happened that results in our continuing to work almost the same number of hours as in 1930?

If it because we love work?

Because we fear leisure?

Because the human appetite for more (greed) draws us every more into work?

Is it the capitalist system, the owners of capital finding evermore ways to exploit the less privileged?

And, what are the solutions that can improve the outlook for the future?

I believe both commentators would agree that their differing views both fall short of realistically defining a path to better conditions.

Nevertheless, both are highly intelligent students of the issues and worth hearing--twice already for me!

Wednesday, September 11, 2013

Syria--Latest Proposals by Russia

September 11, 2013

For the last few days, since Secretary Kerry made an offhand remark and Russia then obtained a quick approval from Assad to comply with the Kerry idea--surrender chemical weapons to international control--since then, it seems most media focus has been on whether the US and Obama "lost face" by no longer remaining in full control of the direction of resolution.

It seems to us that this focus is ridiculous. Many, especially US Republican Congress members as well as political commentators, take the position that we have somehow "lost something" in our world leadership by allowing Putin to have a significant hand in the resolution of the problem.

Our view is that the focus should be on effective non-military resolution of the Syrian civil war.  It doesn't really matter whether it is Russia or Zambia or the US who lead a successful negotiation to effect some progress toward resolution of this human catastrophe. If the US or Obama make threats and do not follow up on them, that is not a catastrophe. It's not a great idea to do that repeatedly, but the US has military might greater than the next dozen nations combined, and has far superior economic might to that of Russia, China, the EU or any other group of any consequence. As to the third element of unipolar superiority, soft or diplomatic power, there is not any significant international support for Russia, China or any other group as offering a comprehensively more appealing ideology. Furthermore, it's appropriate and in the interest of world peace for the US to step back wherever possible and let other nations take leadership roles in affairs of international conflict. This is the right way to develop world cooperation--not for the US to demand leadership in everything--that breeds hatred and enmity.

Our view is that while chemical weapons are bad, they're really not so far beyond many other forms of killing of civilians. All forms are bad. Assad should leave. However, it is not our conflict. We have thoroughly determined that even our military superiority does not translate to quick wins in foreign wars, and that even the dictatorship is removed, there is no assurance the succession is better--e.g., Iraq, Afghanistan, Egypt.

Diplomatic solution is the only right answer. We are not the policeman of the world.

Again, I can warn you repeatedly. I can choose not to take action if you don't comply. I can ultimately choose to punish you severely if I am clearly superior (which the US is). As long as I am clearly superior, my failure to punish you (or to state it differently, my choice of giving you another chance and another chance) does not lead everyone else in the world to decide they can do whatever they want. There are multiple controlling factors on such behaviors, most of the local to the given country. It's not as if numerous nations of the world are constrained from vast humanitarian violations by the proof that when the US warns, it always punishes misbehavior immediately. That's entirely ridiculous and entirely political hogwash intended to try to find fault with our existing administration.

It's massive, entirely massive, that we have had a President who has consistently stretched and stretched to find ways to delay and avoid engaging us in the conflicts far from our shores--for a change. This is a mark of true and strong leadership--far more so than a macho call ordering the US military machine back into engagements we can never win.

Wednesday, February 27, 2013

The Human Development Index vs. Income Per Capita

February 27, 2013

The HDI is a more accurate measure of human well-being than either the income per capita approach or Amartya Sen’s capability approach.

The concern with finding better ways of measuring human well-being has been a growing focus of economics in recent years. Its importance is underscored by the vigorous debate over the degree of progress (or lack thereof) that has accompanied the accelerated globalization of the last 30 years. The answer depends in large part on which measures one feels are most accurate. Often the reason for choosing measures depends on the ideology of the researcher.

“Human well-being” is an ambiguous concept with varying definitions. While recognizing that my definition foreshadows the direction of this paper, I will use the definition found in the 1990 UNDP report (Klugman, F. and Choi, H.: 3) that states human well-being is concerned with human capabilities and freedom of choice in one’s life. Choices may be many, but three which are arguably universal are the freedom to live a long and healthy life, freedom to learn, and freedom to have a decent standard of living.

I argue that the Human Development Index (“HDI”) is indeed a more accurate measure of human well-being than either income per capita or Sen’s capability approach, but there is, as yet, no ideal measure which is universally applicable­.. Furthermore, I argue that it is unlikely that a universally applicable and acceptable measure can be found.  However, the search for one has succeeded in leading to a deeper analysis of the objectives of the comparisons being made, consideration of the relevant models, and determining the relative weighting of variables which differentiate populations being compared. I will also suggest that the roots of the debate lie in differences in economic ideology.

I will describe the background leading to the creation of the human development index, followied by the developmental work around the capability theory. Major arguments in support of this new index will be reviewed and analyzed. Following that, each of the four areas of common criticism will be addressed and the weaknesses of the criticisms will be shown.  Last, I will summarize by adding that the over-arching value of the index has been to point the way to a highly differentiated future of comparisons chosen around the particular objectives of policy makers.

Supporters of HDI (beyond the team of creators) include the United Nations (UNDP), Nobel Prize winner Joseph Stiglitz (Goodman, P.: 2009) and Dani Rodrik (Rodrik, D. : 2011) of Harvard amongst others. Their central argument is that there is a great deal more to human well-being than improvements in income. Criticisms mainly fall into four categories: How to define human well-being, composition of the index, usefulness, and measurement. Among the critics are Mark McGillivray of the World Institute for Development Economics Research and Martin Ravallion of the World Bank.

 GDP or GNP per capita had previously been the predominant measure of growth, with the presumption that economic growth and well-being were synonymous until the 1970’s, when the income measure came into question. Nordhaus and Tobin challenged the reliance on this single variable in 1972, and later others joined the search. Ultimately, the HDI emerged as the most widely used index, when considering human well-being. (Simon 2006: 261)

The capability approach was the foundation for the work leading to the development of the HDI. It is not an index in itself, but a theory. As such, we could rule it out as not addressing the essay question, because it does not measure.  However, it is a powerful and influential theory addressing the question of how best to understand human well-being, and it has stimulated the creation of valued indices including the HDI, so we shall consider it.

Professor Amartya Sen (2001:1), 1998 Nobel Prize Winner who was the leading force, along with Nussbaum, Anand, Foster and others to create the theory, describes his capability approach in this way:

Development can scarcely be seen merely in terms of enhancement of inert objectives of convenience, such as a rise in the GNP (or in personal incomes), or industrialization, or technological advance, or social modernization. These are, of course, valuable — often crucially important — accomplishments, but their value must depend on what they do to the lives and freedoms of the people involved

The capability approach does not directly challenge the value of income.  It argues that there are additional values which are important, and for many people, some of those are more important than income. Here are some of the benefits scholars attribute to the capability theory: (1) Sen’s view that a person’s well-being is determined by capability within his own situation is an advancement over the idea that standard of living can be equated with real income; (2) since indices are about seeking equality and equity, the capability approach raises a valuable question of just what it is that we are seeking to equate; (3) capability fills a space between two things which have been the prior focus--goods and utility—that being functionings and capabilities; and (4) it draws attention to the valuable consideration of varying interpretations of development. (Gaspar 1997) There is little literature to be found which in any way denies the value of these considerations in human life.

The capability theory work evolved to the creation of the HDI which was first released in 1990. The creators of the HDI were, most notably, Amartya Sen, collaborating with Mahbub ul Haq, Martha Nussbaum amongst others. They pointed out that there are many among the bottom half of world income who feel they have human well-being, and there are many in the upper half who do not feel they have satisfactory human well-being. Consider a young woman of great potential and ambition who lives in the tribal regions of Afghanistan and feels the education denied her is far more important than her family income. We can trace the realization regarding the exaggerated value of wealth all the way back to Aristotle (Aristotle: 384-222) who told his world that “…wealth is evidently not the good we are seeking, for it is merely useful and for the sake of something else.” Sen and colleagues were attempting to point toward that “something else.”

The United Nations Development Programme (“UNDP”) Human Development Report for 2006 (2006:  263) describes the structure and intent of the index:

Each year since 1990 this report has published a human development index (HDI) that looks beyond GDP to a broader definition of wellbeing. The HDI provides a composite measure of three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrolment at the primary, secondary and tertiary level) and having a decent standard of living (measured by purchasing power parity, PPP, income).

UNDP adds that they do not defend the index as comprehensive in measuring all of human development. They do not argue for HDI as a replacement for GDP, and they do not argue that the particular indicators of the HDI are the only relevant measures. They argue that it adds (“looks beyond”), and in that respect it may be seen as “better.” The formula has grown in popularity and is now widely used and studied. (Ashok, V. 2010)

However, some critics claim there are flaws and/or limitations to the HDI.  Martin Ravallion of the World Bank is one economist who takes issue with the HDI as an effective index. Ravallion (2010:  9) describes indicators of the nature of the HDI as “mashup indices,” and he has serious problems with such indicators:

Some mashup indices have alluded to theoretical roots, to help give credibility. However, there is a large gap between the theoretical ideal and what is implemented. For example, the HDI claims support from Sen’s writings arguing that human capabilities are the relevant concept for defining welfare or well-being...Yet it is quite unclear how one goes from Sen’s relatively abstract formulations in terms of functionings and capabilities to the specific mashup index that is the HDI. Why, for example, does the HDI include GDP, which Sen explicitly questions as a relevant space for measuring welfare?

It is appropriate to correct a possible misinterpretation here. It is true that Sen questions the use of GDP, but only as being the only measure, or the best measure. He does not argue against it being use as “a” measure, evidence by his including it as one of the three elements of the HDI.

Ravallion (1997: 637), acknowledges the value of other indices, but also defends income. He says there can certainly be “low quality growth,” but the bigger issue is that there is just not enough growth “of even quite normal quality.” Ravallion’s comments do not directly challenge the concept (definition) that human capabilities and freedoms are a relevant concept, but he does challenge the composition of the HDI. One could certainly identify dozens of indicators, each with an arguable bearing on well-being, such as freedom from oppression, sacrosanct property rights, gender equality, and many others. Some might be easily measurable, and others only with great difficulty. The end result of too many indicators was perhaps seen by Sen and colleagues as only adding to the unwieldiness and difficulties of comparison.  Also, there is reasonable data available for life expectancy and education. Many other indicators have less reliable data available.

UNDP (UNDP 2011) provides the best answer to the question of why not other indicators, or more indicators. Their statement is that they support complementary indices to cover the “missing dimensions” in the HDI. It should be self-evident to all that HDI is not, and was never promised to be, a universal measure of all aspects of human well-being.

It is important to note that Sen does not speak of specific indices as determinative, even in 2001, subsequent to his launching of the HDI. He speaks of “a deeper basis of evaluation,” of “focusing on interconnections,” and of “seeing how” we can strengthen our understanding of human well-being. Sen has sometimes been misinterpreted as suggesting that a single index (HDI) will simplistically address the heterogeneity of different nations and cultures and magically make them entirely comparable. Rather, he clearly recognizes the different values placed on different freedoms under different circumstances. Sen  said clearly (above) that he was only trying to stimulate valuable examination with the capability theory and the HDI. He did not argue that the HDI was “perfect” as an index.

Mark McGillivray (1991:  1497), Australian economist, challenges both composition and usefulness of the HDI. Labeling the HDI as “yet another redundant composite intercountry development indicator,” he finds the strong correlation of life expectancy and education indicators with GDP as suggesting the HDI adds nothing to GDP.

One might well ask the  question—if GDP is as powerful as both Ravallion and McGillivray imply, then what is the disadvantage of including it?  A three part blended index with GDP included adds something to health and education taken alone, and the addition of health and education add something to GDP taken alone.

As to whether there is so much correlation to make the HDI essentially redundant to GDP per capita, one must only take a look at the 2011 UNDP Report, especially the column showing GNI per capita rank minus HDI rank (UNDP 2011: 127) for an easy answer. If it made no difference, there would be little variance shown, but what about Qatar at -36, Georgia at +36, and Equatorial Guinea at -91, to name only a few? There are many significant differences. There is clearly more than enough lack of correlation between GNI and HDI to potentially lead to discovery of valuable future policy options for particular countries. This also counters the usefulness charge from McGillivray—the HDI is useful if it leads to insights not revealed by income per capital alone.

What can we say concerning the adequacy of income per capital taken alone? The argument is that income per capita seems a necessary condition for poverty reduction and enhanced human capability. Critics of the HDI further argue that while economic growth is not the same as economic development, economic growth is closely associated with such positive factors as employment creation, productivity improvements, diversification of production, increased fiscal revenues (which enable social spending on health and education), and development of groups such as labor unions and political parties (which are among the “choices” which Sen and Nussbaum value in their research of human well-being). This is true, but it doesn’t really address the previous point that HDI does indeed reveal opportunities that income does not.

Pritchett and Summers (1996: 38), see value in both approaches. They admit income per capital explains less about mortality than would be desired, but argue only that there is some correlation. Such scholars have not really denied the value of the HDI. They only argue that income measurement is valuable and gets close in many cases. They even acknowledge that the HDI’s “other variables” may be important.

Similarly, even McGillivray (1991:  1467) makes a concession, acknowledging that the search for better indicators, motivated by the HDI,  may lead to the advancement of the understanding of development. This appears to be the central motivation of Sen and the UNDP in supporting the HDI as better than income per capita.  Subsequently, McGillivray calls for more research to obtain data on indicators other than GNP or HDI. McGillivray points to our conclusion—that the search for better indicators is the path to progress.

Returning to my definition, perhaps the answer to the question of which most accurately measures human well-bring is best understood in reviewing underlying ideology. While the dominant theory of the last 30 years has been neoclassical (Stein 2006: 596), economists are far from agreed with the neoclassical view that GDP is the key measure of growth, much less well being. The major point of disagreement centers around the fundamental neoclassical belief that inequality is important as an incentive to getting one’s needs met (Hunt 1989: 326). Clearly, Sen does not put the highest priority on this aspect of human behavior. He is joined by many scholars, as argued above.

Dedication to GDP growth alone and the associated neoclassical view that exchanging goods is the full definition of human happiness even came to be questioned by none other than the World Bank (World Bank 2005: xiii) in its 2005 Report “Learning from a Decade of Reform.” Noting that across the 90’s and early 2000’s, there were great successes to neoclassical “Washington Consensus” prescriptions to developing countries, there were also great failures, they admitted:

The central message of this volume is then that there is no unique universal set of rules. Sustained growth depends on key functions that need to be fulfilled over time: accumulation of physical and human capital, efficiency in the allocation of resources, adoption of technology, and the sharing of the benefits of growth

The report goes on to highlight the need for a better understanding of noneconomic factors—history, culture, and politics—in economic growth processes. While the World Bank may not be a leader in challenging neoliberal theory in its policies and practices, it is noteworthy that this powerful organization was forced to acknowledge as early as 2005, that there are other factors to be considered in the reals of history, culture, and politics.

I should add that there is much opportunity for advancement in this realm of research. There is a need to understand the data: Do countries with poor birth and death registrations have accurate life expectancy measures? If life expectancy in one culture as valuable as education?  Does enrollment mean education? There are many challenges to “getting it right.”


While it appears likely that the income per capita approach will not to be (and should not be) abandoned  by reason of the arrival of the HDI or other such indicators designed to measure human well-being, the capability approach and the index borne of that work, the HDI (and other more recently developed indices), have advanced understanding of development economics by including valuable indicators. The HDI points the way to a deeper understanding of developmental differences and opportunities than is addressed by income per capita. In this regard, the HDI is better than income per capita as a measure of well-being. The above argument has shown that the HDI is very useful. It reveals important comparisons that are not provided by income alone. It includes income, recognized as also important. It is based on measurable data sources.

As to criticisms of definition and composition, it does not purport to be a universal solution to all valuable comparisons, although some have used it in this manner, thus perhaps generating some of the unjustified criticism.

The question of this essay asks about human well-being, not about growth or even “development.” If the HDI leads to relevant comparisons, and a study of differences leads even further to consideration of policy changes that may yield development advances, then HDI has played a very valuable role, a role that income alone cannot play.

The HDI and its underlying capability theory have clearly advanced  development economics beyond that which would have occurred if the science rested solely on income per capita. HDI is better than income alone. It is more “accurate,” in part because it is broader than income alone, in part because it includes other valuable meaures. The challenges serve not so much to disprove the value of the HDI as to confirm its underlying theory—that we need to look beyond income. One imagines Sen would enjoy hearing such challenges, as they lead mostly to greater study of well-being variables, which appears to have been his original intent with the capability theory. The continuing proliferation of other indices based on data increasingly available points to a better opportunity for research and policy adjustment in the future, while not promising a single universal solution.


Aristotle, Nichomachean Ethics..???

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Poverty and Inequality--Is Globalization Benign?

February 27, 2013

The question presumes agreement that there has been a reduction in poverty and inequality attributable to globalization. To the contrary, there is significant dispute among scholars and policymakers as to the direction and the degree of change in poverty and inequality across the period of recent rapid globalization. The debate extends to the importance of inequality in the matter of growth.  Certain measures will support findings of convergence, and others of divergence. The influence of globalization on the trends is yet another matter of disagreement. Finally, there is dispute about whether anything should be done or what should be done about the trends.

There is a body of argument supporting the statement as entirely true. Believers include Thatcher, Reagan, and economists who support their policies—Friedrich Hayek, Milton Friedman, Jeffrey Sachs, and others. There is a body of argument and another group who believe the statement is at best misleading and that if the proper indicators are used, the findings are increased poverty and inequality. Joseph Stiglitz, Shamsul Haque, and Branko Milanovic are among these.

I argue that there has indeed been a reduction in poverty across the years since 1980, but the trends in inequality are much less clear. I argue globalization has been good for poverty reduction, but globalization should and can be managed more effectively by IGO’s and nation states in order to deliver benefits to a large segment of the world’s population which has not seen improvement.

I will assume globalization to be focused on the period of recent acceleration, 1980 to the present. Due to the space limitations of this paper, I will assume poverty is measured primarily by income per capita. The term “good” may mean different things in different cultures (e.g., income, freedom from oppression, access to health services, education, etc.). I will assume income per capita to be the measure of good for this paper. Doing so, I do not concede to income as the best measure for all purposes. I will primarily rely on the widely used “GINI” coefficient in regard to inequality, also without conceding that this measure fully addresses the concept. I will review the criticality of methodological choices for both poverty and inequality. Reference will be made to schools of thought which perhaps bias the choices of methodology and the findings.

A good place to begin is with the work of Bob Sutcliffe who describes five different methodological decisions which must first be taken by any serious student of change in poverty and inequality: (1) what is to be studied (wealth, life expectancy, etc.); (2) inequality between whom (between countries, within countries, etc.); (3) how to deal with currency differences; (4) choosing from among many sources of data; and, (5) what types of measures (integral, ratios, etc.). (Sutcliffe 2005:1-20) Choices among these methodologies can yield radically different conclusions.

Depending on the variables chosen, one can either confirm the essay statement or refute it. Poverty has been reduced if we include India and China, but has increased if we do not.  Similarly, there is decreased inequality between population weighted countries, based on income, but greater inequality within countries, based on income (Sutcliffe 2005:1-20). 

Two widely respected economists are examples of the dramatic divide that exists over the choices and interpretation of data: Jagdish Bhagwati, in his best seller, In Defense of Globalization, states clearly, “[…] as it happened, the proponents of globalization have it right,” when speaking of the poverty reducing policies associated with free trade (Bhagwati 2004:52). To the contrary, Joseph Stiglitz, excepting China, Vietnam, and a few Eastern European countries, says, “poverty has soared as incomes have plummeted” (Stiglitz 2012:214). Both scholars can easily defend their views with data and methods selectively chosen. One can only wonder whether an ideological predisposition determines the selection of methodologies, or the thoughtful choice of methodologies determines the attitude of an unbiased scholar toward the benefits of globalization. Too often, it may well be the former.

Poverty and inequality do not necessarily track together. It is possible one is improving and the other not. Also, most widely used poverty measures use a fixed measure for poverty, such as $1.25 PPP per day, whereas inequality is a relative measure. Sutcliffe reports that while poverty is a major focus of concern among economists in recent years, inequality has been “systematically avoided” (Sutcliffe 2005:14). Underscoring his point, the focus of the Millenium Development Goals is on poverty reduction. Inequality is not mentioned in the MDG’s, except in the context of gender.

What was it that the advocates of free trade, opening borders, and globalization were expecting as Thatcher and Reagan launched the explosion of neoclassical economic policies in the early 1980’s? Globalization was expected to result in convergence of real incomes between wealthy and poor countries, for the following four reasons: (1) Poor countries would get foreign direct investment because low wages would attract capital expecting big returns; (2) poor nations would import technology from the wealthy world, and thus inexpensively copy the advancements the rich world had already paid dearly to develop; (3) poor countries could specialize in whatever they do best, import the rest from other countries; and (4) the poor countries could take all the policies, laws, and institutions that were successful elsewhere, and painlessly institute them (Milanovik 2011:104-5).

What was actually delivered? Neoliberals feel actual experience since 1980 validates the policies administered by the World Bank, the IMF, and the WTO in driving the developing world toward less poverty and greater equality (Wade 2004:567-8). By the measures of the World Bank, we are headed to reaching the poverty goal in the MDG’s. They argue that the countries which chose to fully adopt the free market theory indeed advanced, and the countries whose growth was stagnant simply failed to sufficiently free their markets of constraining influences.

Concerning inequality, If only the predominant measure is used to determine inequality, PPP income inequality between population weighted countries (intercountry), then it is widely accepted that income inequality has improved--constant or falling since 1980 (Wade 2004: 576).

Summarizing the neoclassical view, if only these two widely used measures are selected to answer the question, one can accurately claim that globalization has delivered improvement in both poverty and inequality across the last thirty years of accelerated globalization. 

Of course, all such claims assume that the key elements of what constitutes globalization are agreed and that we disregard other forces (outside globalization) which may have had influence on the results. As Wade explains, we may simplify by saying globalization is everything that occurred in the period loosely called the period of globalization (1980 to the present), but we know there are elements in the period other than “[…] just those things which really did expand global interchanges of goods, capital and people” (Wade 2004: 17).

Writing in the Asian Journal of Social Science, Shamsul Haque describes the opposite view of poverty resulting from the policies during the globalization period:

In terms of poverty, after the neoliberal reforms since 1980, about 100 countries have experienced economic decline or stagnation, 1.6 billion people have seen their incomes dropped, 70 countries have average incomes lower than they were in 1980, and 43 countries have incomes lower than they were in 1970. In a study of 28 countries in 2000, it was reported by the World Bank that between 1981 and 1997 (a period of neoliberal structural reforms), the levels of income, poverty, and life expectancy deteriorated in 54 percent of these countries (Hague 2008:20).

Chen and Ravallion agree by pointing out that if China is excluded, the developing world is an entirely different story—not likely to achieve MDG goals (Chen and Ravallion 2008: 20). This is because the preponderance of poverty alleviation worldwide has occurred in the world’s largest country, and many other areas have regressed.

Intercountry population weighted PPP poverty reduction over the 30 years since 1980 may well be offset in value by the dramatic intracountry inequality measured by the GINI index. Joseph Stiglitz argues that in the US, we have allowed too much political power to be dominated by the top 1%, and that the result has been joblessness, stagnant wages, lower social benefits, and dangerously rising inequality within America (Stiglitz 2012).

Bloomberg (2012) reports that across the period since January 1978, the cost of higher education in the US has increased 1,200%, medical care 600%, and shelter 400%. During this period, CEO pay in the US grew by 725% while worker pay grew by only 5.7%, notwithstanding significant improvements in productivity—the surplus went to corporate profits and to top management (Huffington Post 2012). These are staggering developments which should concern us.

Wealth interests can survive and gain more from the financial crises of globalization. Hedge fund manager John Paulson made $3.5 billion betting on the current financial crisis coming, and is now buying foreclosed homes from banks, with potential to make billions on both sides of the crisis. (Economist: 01 December 2012:81) The middle income and poor do not have the information or capital resources to profit from such volatility.

The world’s second largest economy has been experiencing similar rising levels of inequality. The Chinese state immediately suppressed internet access to recent reports from the NY times, in the immediate aftermath of the Bo Xilai scandal, that the family of Premier Wen Jiabao had amassed wealth amounting to some $2.7 billion. The Atlantic reported observing growing Chinese reading of DeToqueville, who believed that revolution is more likely to occur when things are improving than when declining, an ominous observation in regard to a country which has a reported 500 organized protests per day (The Atlantic January 2012).           

There is now a growing debate over whether inequality reduces growth. Stiglitz says, “The bottom line […] that higher inequality is associated with lower growth—controlling for all other relevant factors—has been verified by looking at a range of countries and looking over longer periods of time” (Stiglitz 2012:117).  He adds that globalization (“as it has been managed”) is almost certainly worsening inequality (Stiglitz 2012:63-4). If true, there is a strong argument to the politically powerful to address inequality—this could actually benefit the wealthy economically in the long run. Reflecting recent growing concern for inequality, the UNDP introduced the Inequality HDI (“IHDI”) in 2011, with inequality factored into each of the three components of the index: income per capita, life expectancy and education.

What is behind the dramatic rise in the Gini coefficient in many countries (U.S., China, and others) across the period discussed, and what, if anything, should we do about it? Classic explanation for the behavior of inequality in economic growth is based on the work of Simon Kuznets (1955), who theorized that within country income divergence occurs at intermediate levels of development as people move to cities and power shifts to different factors of production, and decreases as greater country wealth is attained (Kuznets 1955: 2) In this view, things might naturally get better over time.

However, theories based on the work of Joseph Schumpeter see capitalism as involving continuous transformation, upheavals, such that any hope for stability is vain and instead, there is “a constant drive toward inequality” (Korzeniewicz: 579-80).  Korzeniewicz reports in 2007 that there has been a lot of focus on methodology and determinations of the degree of change inequality, but relatively little attention to effective theorizing as to underlying processes that lead to the trends (Korzeniwicz 2007: 563-592).  So, we really do not yet understand well the nature of the progression of inequality.

The answer seems to be in the middle—globalization has been good, but it is clear we cannot rest while so many still fail to benefit from globalization. Things might get better, but we cannot count on it.

The answer to further relieving poverty and inequality could lie partially in expanded freedom of migration between countries—letting people go freely to where the work is, as they are now permitted to do within the European Union, for example. However, the political mood of most developed countries does not welcome immigration, especially in the aftermath of a crisis, when jobs in developing countries are scarce. Michael Teitelbaum of Harvard Law School and the Alfred P. Sloan Foundation summarizes for one country this way: “US policy on immigration is emotional, stalemated, and full of contradictions” (Teitelbaum: 2012:10). For many other OECD countries, immigration is similarly problematic in recent years. See the Pew Study of Global Attitudes in 2007 (Pew 2007:25). Respondents in most countries surveyed were at 75% or higher in opposition to increased immigration.

Recognizing the immigration stalemate, Milanovic (2011: 163) has a suggestion:

The trilemma of globalization, to use a phrase coined in a somewhat different context by Harvard economist Dani Rodrik, is how to continue with (1) globalization while (2) the differences in mean incomes among countries are huge, and increasing, and (3) the international mobility of labor remains very limited.” The key issue here is the political resistance to immigration, thus the better answer if this cannot be allowed, it to try to fix differences between countries—to help improve the poor countries.”

To improve the poor countries in respect to poverty and all in terms of inequality, the prescription of those on the left is mainly that we need a tightening, in a variety of different ways, to the public policy limits, which have given market forces virtually free rein across the last 30 years (Wade 2004: 568).  Observing the success of China in reducing poverty while controlling market forces, this makes sense.

Stiglitz has a number of prescriptions in chapter 10 of his new book: controls on cross border capital flows; revisions of tax codes; redirecting the Fed to focus on full employment; willingness to use fiscal policy to accompany monetary policy; measures to gradually restore trade balance; greater support for labor and improved social policies; governmental engagement in re-training workers; changes in the legal system to return greater protections to workers; focus on elimination of discrimination; focus on greater access to good; tax breaks only for those who invest; government investment in infrastructure, technology, and education; campaign finance reform, and other such methods of moving focus from the wealthy to the betterment of the entire population (Stiglitz 2012:265-290).

Paul Collier has recommendations especially for developing countries in The Bottom Billion. He is essentially calling on the wealthy world to put the plight of the lowest billion in the world at the top of its agendas, calling for such as military aid in warring states, more aid focused on high risk areas, and trade protections for poor countries from the “Asian Giants.” He sees little hope for such countries from continued globalization, as it is now (Collier 2007:175-92).

Then, there is the perspective that world governance may be inevitable in the long run, and may be for the good: In his Worlds Apart, Milanovic argues that the world will eventually become a global community with global rule. Seeing the struggles of the European Union as a harbinger of the challenges, he nevertheless projects the growing international collaboration of governments to portend a future of increased cooperation resulting in such a union—and he urges us to move ahead to address the left out—because they are citizens of the one world of our future (Milanovic 2005:162).

A potential for improvement is offered by Dic Lo in his 2012 book, in which he describes egalitarian improvements undertaken by Chinese state authorities since 2000, affecting this estimated 25% of the world’s labor market. He suggests these kinds of state interventions could spread to the remainder of the world worker class and result in a more humane world (Lo 2012:16708).

Space limitations do not permit thorough examination of policy alternatives to enable a more widely effective globalization ahead, but these are a few of the better understood factors, all of which do seem to offer potential for improvement.


Assuming the use of population weighted PPP country comparisons, it is true that poverty and inequality have been improving and stabilizing. See Chart 1. If we assume for simplicity that there are no significant influences other than globalizing influences, we can say globalization has been good for poverty and inequality.

However, as shown above, there are major issues with this choice of methodology and this conclusion. Most significant in regard to poverty is the fact that the inclusion of China and India on the population weighted indices dominates the conclusion. If these two nations are removed, then poverty has not improved across the period.

In regard to inequality, if focus is given to intracountry GINI comparison, inequality has been rising rapidly in many countries across this period. See Chart 2. These two negative findings are significant enough to cause any reasonable observer to conclude that globalization may well require some significant adjustments to meet the needs of the large segment of world population who are not experiencing improvement. It is important for recent concerns with inequality to result in more focus and understanding. There are potential dangers we cannot dismiss.

The force of globalization may be unstoppable, and does bring vast opportunity, but we must not allow the next thirty years to simply be an extrapolation of the current trends in poverty and inequality for those who were born in the wrong situations. There are opportunities of significant promise in the realm of state actions and controls and international governance.

Postnote: As mentioned at the beginning, the length of this paper does not allow adequate justice to alternate measures of “poverty,” such as the HDI, but trying to measure and understand progress in education, life expectancy, and measures of human freedom is another rich opportunity to understand how the world is progressing, and to find specific options for different countries.


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