Tyler Cowan proposes an interesting take on global income inequality. Is it more important that members of a particular nation resemble each other in wealth, or that poverty is decreasing globally at the same time that differences in average wealth among nations are shrinking? It's possible that the process of raising a country's standard of living (the average standard as well as the standard for its poorest citizens) also results in a large new group of extraordinary winners in that same country. The gap in wealth between close neighbors increases, but the poorest neighbors are less threatened with poverty and untreatable disease, while whole areas of the globe previously left out of the explosion in material prosperity over the last few centuries begin to catch up.
How much harm are we willing to do globally in order to eliminate the gap between rich and poor in a series of individual countries? It gets back to the old question: is this about compassion or outraged envy?
24 comments:
When it regards the progressives, it's always the latter.
Always.
This sounds like the principle of entropy at work. The system viewed globally is evening out its energy.
Would entropy explain a worldwide increase in average wealth?
Possibly, because wealth is the only kind of energy being measured here. Entropy affects all forms of energy, but that doesn't make it impossible to increase one kind of energy at the expense of others. If the only thing I'm measuring is heat in a house, for example, it could always be going up even though entropy will cause it to spread out throughout the house over time. This ever-increasing heat does not violate the Second Law of Thermodynamics, though it may seem to; it's just that I'm not measuring the fuel being consumed by the furnace.
And would entropy also explain the increase inequality among members of a particular country?
In this way: Imagine that you have one room that is really hot, and the rest of the house is closed off. Now you open the doors to the rest of the house. The heat will not spread from the hot room evenly and at once through the cold rooms, but will spread first to the particles of air that are in closest contact with the hot room.
So imagine that the process of globalization is essentially opening parts of the house that were closed to the heat source. The heat will not reach all corners of the rooms at once, but at first you will find it is quite warm by the door -- and yet still very cold by the far wall.
So by your way of looking at things, any progress in poor countries is prosperity that leaks, in effect, from other, richer countries, not from changes in how the poor countries harness their own human and material resources.
It results from connection to the global economy, certainly. What's been driving China's explosive growth, or India's, is precisely this connection: not only foreign investment, but also the capacity to sell their goods and services in global markets (which are both richer than India or China has been, and more numerous in any case).
But every additional resource that India or China brings to bear on the global market -- by the simple law of supply and demand -- reduces the market value of that resource throughout the global system. That's true for labor, gold, oil, tech support, iPhones, whatever you want.
Entropy.
No one ever comes up with anything new or better? It's just a zero-sum game in which new production drags down the existing prices? It's hard to understand how we managed to raise everyone's standard of living over the last few centuries.
Of course people come up with improvements in technology. But that doesn't get you away from the entropic issue. If you start a new fire, the heat will spread in the same way.
The point is that inequality falling globally is just what you should expect. It's in accord with the basic law governing, really, all forms of energy. Wealth is a kind of energy, that is, a capacity to make things move. Naturally it obeys the Second Law of Thermodynamics.
Let me put it another way. Here are two graphs that get at the main political point of the article:
The evidence also suggests that immigration of low-skilled workers to the United States has a modestly negative effect on the wages of American workers without a high school diploma, as shown, for instance, in research by George Borjas, a Harvard economics professor. Yet that same immigration greatly benefits those who move to wealthy countries like the United States. (It probably also helps top American earners, who can hire household and child-care workers at cheaper prices.) Again, income inequality within the nation may rise but global inequality probably declines, especially if the new arrivals send money back home.
From a narrowly nationalist point of view, these developments may not be auspicious for the United States. But that narrow viewpoint is the main problem. We have evolved a political debate where essentially nationalistic concerns have been hiding behind the gentler cloak of egalitarianism.
Now you know I've never hidden my narrowly nationalistic concerns under a cloak of gentle egalitarianism. I've argued forthrightly that the reason to oppose immigration is that it hurts American workers, to whom we ought to have a certain loyalty as fellow-citizens -- and even if we don't, we're bound to them by political ties, so that it is better for us if they prosper and are self-sufficient vice being poorer and more desperate for government handouts.
The reason to close the door is to retain the heat. (I suppose it's the wrong season for that metaphor. "Close the door! You can't air condition the whole outside," my mother used to say about this time of year. But the concern is the same.)
The heat death of the economy!
Just so. Which brings us back to the first point: wealth is rising, so what are we burning to create it?
A finite supply of innovation.
And other things. But the innovation sometimes allows us to burn things that have hitherto not been useful; or to extend their use.
Still, it's good to see the system as a whole, both what it makes and what it burns. And, too, to think about whether loyalty is owed to those with whom we are bound up in an economic system -- that it might serve all humankind -- or to those with whom we are bound up in a political system.
Between a system that depends on loyalty and one that rewards productivity and voluntary transactions, I have no trouble choosing.
The political system doesn't depend on loyalty -- not, at least, on any of us being loyal to the American working class. It will exist whether we are loyal to them or not. And they will get to vote, whether we have been loyal to them or not.
What they vote for will differ, I think, depending on whether they are feeling secure and self-reliant -- or desperate, fearful, and on the edge of financial and personal disaster. Your own preferences accord more probably with the kinds of votes they will cast in the former case.
But either way -- prosperous or desperate, educated or ignorant -- they get a say in an important aspect of your life. They elect many of the people who make the laws we must endure.
Back from vacation, good discussion. The only thing I'd like to add is that economics are not a zero sum game as some like to believe. If it was, then we'd have to assume that given a finite amount of wealth, as human population rises, the amount per person MUST decrease. That's just simple math. But it doesn't. And the reason is because there is not a finite sum of wealth (regardless of what our friends on the left seem to believe). Wealth is not created by stealing it from the poor (which they claim) but instead through the labor, creativity, and innovation of humans. The natural resources it takes to grow a field of wheat is not so different before and after the use of crop rotation. But the amount of food grown after said innovation is vastly greater than before. More food = more wealth with no greater amount of labor or natural resources than previously used.
Wealth CAN be created "from thin air". And the opening of new markets through innovation creates more wealth. Look to the example of refrigeration. The fact that the morning's catch on the coast can be eaten by someone in Kansas means that the fisherman has a broader market for his labor. Broader markets, more customers, more wealth generated. Globalization is just this writ large.
"From thin air" is how Bill Whittle used to explain it, but it's a little strong. Refrigeration technology requires substantial investment of resources -- not just innovation -- and it only substitutes for other technologies (such as drying or salting or canning) that were used before.
But there's another point, which Nassim N. Taleb raises in his book Antifragile. Let's say you innovate, and create something better than has previously existed. You invest everything in marketing and selling this idea -- only to discover that someone else has invented, just about the same time, a slightly better version.
You lose everything, then, but you were doing just what we want you to do. The economy is being driven by people like you. Now if we protect you from failure, we're hurting the economy -- it's important that you fail, so that the engine of production can speed on efficiently. (As Taleb says, such an economy is 'antifragile' -- the stability and strength of the overall system is improved by this instability.)
But if people are going to take risks like this, there need to be protections -- not for the businesses, but for the individuals or families behind the businesses. Otherwise, innovation will become limited as people protect their families by fearing to invest in their innovations.
Of course, there remains the problem of what to do about the part of humanity -- almost all of it -- who are not innovators, and never will be. Our political system is stronger (as I was just saying to Tex) if they are not living in perpetual fear, and thus poised to vote for a savior. We have to balance our political interest in a society of free people, with laws fit for a free people, against this economic interest which affects our poorer or less-educable citizens most strongly (and who have the least options to safeguard themselves as individuals or families).
Refrigeration technology requires substantial investment of resources -- not just innovation -- and it only substitutes for other technologies (such as drying or salting or canning) that were used before.
But it requires no such investment from the fisherman, nor resources. He performs his work as before, with no changes (except perhaps contracting with the company that will ship his goods across country for him) and he suddenly has more wealth than before. The shipping company, who made the investment, takes their cut from the added profits and sells the fresh fish to buyers in Topeka. Those buyers resell the fish to restaurants and individuals who desire fresh fish. And unless you're somehow of the opinion that this transaction somehow "cheats" the buyer, or impoverishes them, then I submit that the innovation of refrigeration has enriched everyone in that supply chain.
And yes, sometimes inventions fail. Sometimes the markets decide that "the pocket fisherman" is a bad product that no one wants or needs. And those do fail, sometimes impoverishing the investors. No one ever promised a utopia where no one fails. And any who do are lying or trying to get elected. But I stand by my statement. The world is enriched when a true innovation (such as crop rotation, or refrigeration) comes along. It creates jobs and wealth, yes... from thin air. How else would you describe the miracle which is increased food production from a set of fields that do not require additional fertilization, labor (other than the extra harvest), or natural resources than previously used, and yet provides greater crop yields year after year than if the farmer simply plowed the chaff under and replanted year after year? The innovation may take investment (as you rightly point out for refrigeration), but the wealth created by the innovation is NOT limited to how much was invested (else, no one would ever invest in innovation). The investors are enriched when the invention is purchased/licensed/used, the buyers of the invention are enriched when they use the invention to increase sales/use of their business, the suppliers of raw materials are enriched when their goods are purchased to make/take advantage of the invention (see the fisherman above), and the end users are enriched by having access to goods and services that they never had access to before. How in the world can anyone believe this is a zero sum game? Such a belief flies in the face of reality.
And again, I dare anyone to show that "wealth" is a limited resource when you consider that human population is continually increasing, but the individual "share" of total wealth is not decreasing as it MUST if "wealth" was a fixed asset.
And again, I dare anyone to show that "wealth" is a limited resource when you consider that human population is continually increasing, but the individual "share" of total wealth is not decreasing as it MUST if "wealth" was a fixed asset.
That doesn't follow. Say wealth is a form of energy, i.e. a capacity to make things move, as I proposed a bit ago. Then it is necessarily limited, as the total amount of energy in the universe is limited. Human beings are certainly using more energy now than at any point in history, both total and per capita, but that doesn't remove the limit.
Human labor is a form of energy too, which can sometimes be stored in wealth. Capital is a kind of stored energy -- the refrigeration actually works by slowing motion at the micro level, preserving food so it can be moved even farther (through time or space) at the macro level. But it requires energy inputs to create the slow-down effect, as well as energy inputs to create the movement (of the fish to market).
So of course wealth is increasing both absolutely and per capita, if we have more people (thus, absolute increase), and are using more forms of energy more efficiently to enhance our labor (thus, per capita). But this doesn't show that wealth can be theoretically unlimited. In fact, if it is energy, it is strictly limited. There is quite a lot of it to be had, of course, in the whole universe! But it is still a zero sum game, just with a sum so large that it escapes human understanding.
Now, maybe you don't like that explanation. But if wealth isn't energy, what is it?
Perhaps the issue is this. From a philosophical standpoint (which I do understand is your background), a zero sum with a near infinite limit is still limited (the Greeks had the racer who moved halfway to the finish line each time he moved, and would never reach it, as an example). From a mathematical standpoint (which is more where I'm trained) a limit that approaches infinity is the same as infinity (this is a solid premise under calculus). So we're basically talking about the "limits" of wealth being near infinite, but that means different things to each of us.
That could be. There is no proportion between the infinite and the finite: as Nicholas of Cusa demonstrated in his geometric model for thinking about the relationship between human beings and Jesus. Assume Jesus is like a circle, and a human being is like a finite shape inscribed in the circle. Now with effort, the human soul can come to appreciate more of the divine, so that a shape that started as an inscribed triangle might become an inscribed square or pentagon. 5 can become 6, 7... n sides. This process could go on, so that more and more you become like to the nature of God by more and more approximating the circle.
But no matter how many sides you add, you are still infinitely far from the circle -- just as if you'd never begun. In a way, you've made a lot of progress! In another way, you're still infinitely far from your goal.
Economics doesn't work quite like that, though, because the finite resources of the universe aren't all available at once. Their value varies, too, depending to some degree on what is more scarce and desirable at any given time. Wealth is a very unstable sort of energy, then: even if you store it in gold, the amount of energy -- "the ability to do work" -- that your gold represents can vary quite a bit. If your potential wealth comes mostly from your ability to sell your labor, you can easily find that it isn't worth anything to anyone (even though there is quite a bit of 'ability to do work').
Still, the concept needs to be pegged to something. Wealth isn't magic. It certainly isn't divine. It's something else, and energy is the best analog I can come up with.
"Which brings us back to the first point: wealth is rising, so what are we burning to create it?"
Humans that refused to obey Hussein, the European Union, or the UN's rape squads.
That's what is burning
Wealth is created by either enslaving the weak, as the Left does, or by burning up the lives of the young or old (in other words, reproduction, making humanity into a replenishing resource).
The West and the rest of the world has chosen Death as the source of their wealth. So be it, and so shall they have it.
Refrigeration works by using a gas to shuffle heat to an external side (slaves or newborn workers), in order to suck the heat out of an insulated container (the wealthy bubble of Chelsea and other aristocrats).
Humans seem to realize this, on some level, and feel guilt. Fortunately they can expiate this guilt by burning up more slaves. Al Gore did plenty that with his Green hedge funds. It really covered up all the jet fuel and electricity his mansion was using up.
It's easy to believe in entropy, all one has to do is to look at how the LEft is allowed to operate. They are entropy's handmaidens. If entropy does not exist vis a vis wealth, why then is the Leftist alliance for human equality and utopia allowed to exist at all?
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