Branko Milanovic on inequality

Prof. Branko Milanovic wrote this in the Guardian a couple of years ago-

I am asked this question very often: why should we care about inequality? There are three reasons.
First, every inequality in the treatment or position of individuals – including inequality in income and wealth – requires understanding and justification, because we are all fundamentally the same.

If we are fundamentally the same then how do we tell each other apart? We don't need to 'understand and justify' why we are different from each other because we know God didn't create us in his image. We evolved by natural selection on an uncertain fitness landscape.

That does not mean we should all have the same incomes because our effort and luck may vary, but we need to think about the reasons for any and every inequality.

Why? What good would it do?  

For example, we can adopt Rawls’ perspective – that inequality can be justified only if it is in the interest of the least well-off (that is, so long as it raises the absolute income of the poorest).

But this is better done through a compulsory Social insurance scheme which provides a Social minimum. 

Or we can agree with Hayek that inequality is acceptable so long as the rules of the game, such as equal access to the market, are observed.

Convicts don't have equal access to the market. Nor do people who live in remote areas. So what? 

Or we can provide another rationale.

Why bother? We could talk about the new Netflix series instead. It would do as much good.

But no matter which philosophical opinion we find the most attractive, we have to address the reasons for the existence of inequality.

You may have to because you are a Professor specializing in that sort of shite. Nobody else needs to, coz it does no good. 

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This tells us that Wealth distribution worsened as Britain rose up to be a great global power and the workshop of the world. It fell steadily as it became weaker, more vulnerable to external threats and internal conflicts, and a more squalid place to live, till the Left was defeated, equality was off the table, and smart people stopped feeling they had to emigrate to have a decent quality of life.

Second, we want to study inequality and its effects on economic growth – not only on the growth of the mean, like GDP per capita, but along the entire income distribution: for the poor, the middle class and the rich. This, unlike the first reason, is a very instrumental reason: we want to find out whether inequality helps or retards economic progress.

Why? We can't change either inequality or economic progress. Saying silly things about how the two might be linked helps nobody. 

Common sense, some heuristics and empirical evidence suggest that neither of the extremes – that all incomes are the same, or that inequality is extremely high – are desirable.

So there's no need to study this problem at all. 

The former might stunt incentives to work hard, study or take risks, meaning economic growth will suffer: communist economies are a case in point.

Nonsense! Fear of being shot in the head is a tremendous incentive. 

The latter might imply perpetuation of inequality across generations, where people who do not work or study still remain on the top of the pyramid thanks to the wealth of their parents, while those with talents are stuck at the bottom because they cannot pay for school, for example. Latin America is, broadly speaking, a good example of this extreme.

 It is a good example of how very poor people having lots of babies causes those babies to grow up very poor. 

So the objective is to find out what types of inequalities may be good for growth (for example, inequality due to differential effort) and what are not (inequality due to gender, race or parental wealth).

Growth happens when sensible decisions are made. An inequality which transfers resources to a smart person who will do something sensible with those resources helps growth. 

We could increase inequality due to differential effort by taxing the poor and underemployed and subsidising those who work long hours for high pay. However, the thing is not financially sustainable. You have to tax people with money and pay poor people so they don't end up dying in the street. 

Thus inquiring into the link between growth and inequality is wholly useless. 
Furthermore, if parental wealth is taxed away, there will be a disincentive effect on people with scarce skills. They will emigrate or trade leisure for work. Since they can't pass on their wealth to their kids, they will prefer to stay home teaching them or just enjoying their company.

Finally, we need to look at the relationship between inequality and politics. In every political system, even a democracy, the rich tend to hold more political power. The danger is that this political power will be used to promote policies that further cement the economic power of the rich. The higher the inequality, the more likely we are to move away from democracy toward plutocracy.

Nonsense! The plutocrat has to compete for votes from the poor. Moreover, plutocrats will want to hobble each other's industries with taxes and onerous compliance codes. 

The implicit theme in all three reasons is that nuances are important.

The explicit theme is they are useless because Marxism is dead.  There will never be a 'final crisis' or a 'proletarian revolution'. Thus, there is no point pretending anyone will ever do anything about either inequality or growth in any Democratic country. There will only be virtue signalling and hypocritical pi-jaw.

In each case, we are dealing with a continuum: justification of inequality is not black or white, and nor are our conclusions about its effect on growth or democracy.

Instead we just have an interminable torrent of junk Social Science.

There is also a spillover from one sphere to another: suppose that more equality is good for democracy, but bad for economic growth of the poor. How do we work around these trade-offs?

We don't.  There may be a couple of Professors who are paid to pretend otherwise- but they don't matter in the slightest.

Such problems are not likely to be solved theoretically, nor once and for all. They will have to be dealt with empirically. And this is why the new and up-and-coming areas of inequality studies will benefit enormously from Big Data.

It will also benefit from A.I. Computers will write Junk Social Science papers by the billions and other A.I's will pretend to read them.  

The current interest in inequality should be seen as an important instance of the general growth of interest in heterogeneity of phenomena, as opposed to our hitherto almost exclusive focus on averages (such as GDP per capita and the consumer price index), “representative agents” and the like. As often happens in history, this interest has fortuitously coincided with much greater availability of data to study such heterogeneity.

It has also coincided with everybody thinking Economics Professors are full of shit.  

Let me conclude with the four areas where I think this rising interest and ability to address difficult questions leads us to expect most progress:
Inequality of opportunity: we should empirically show its magnitude and (presumably negative) impact on growth.

Why? The thing is bleeding obvious mate. We see a malnourished kid living in a shack and realize that if the kid had good food and was sent to school then there would be economic growth coz he could get high value adding employment. 

Intergenerational inequality: tracking the transmission of wealth and advantage across generations, then showing how noxious are its effects.

How? Either the next generation blows everything on coke whores or else there are no noxious effects.  

Empirics on the political influence of the wealthy.

Right! We really need such empirics coz we don't know Trump is a billionaire.

Global inequality of wealth and income: this topic’s importance increases as the world becomes more globalised, and capital and labour move more easily (despite the recent setbacks) than ever in history.

Some countries which worked hard and made smart decisions are now wealthy. Others that did stupid things are now poor. Inequality doesn't explain anything. Both Poland and South Korea were repressive countries. But Poland borrowed money and pissed it against a wall. That's why South Korea became the leading ship-builder and exporter of OLED tvs and so forth. Poland was more equal. Much good it did it. All that matters is not doing stupid shit. 

Has Prof. Milanovic's preoccupation with inequality led him to write smart stuff or stupid shite? Let us look at his most recent blog post-

There are obvious and (to some people) surprising similarities between global climate change and global inequality.

No there aren't. One is the subject of the Natural Sciences. The other of the soi disant Social Sciences. 

Both are obviously global problems.

Global inequality is a global problem. Wonderful! 

Neither can be solved by a single country, group or individual.

One can be solved. The other can't.  

In both cases, there are significant externalities and consequently coordination problems.

There are concurrency problems for combating Climate Change.  However, large enough economies have an incentive to take action because of deteriorating air quality etc. Progress will be made even absent any International agreement. 

By contrast, global inequality has no significant externality. Nor is there any 'coordination problem' quite simply because there is no focal solution. Tossers getting together to virtue signal don't solve anything. 

Both issues are even formally linked (that is, not only conceptually): elasticity of carbon emissions with respect to real income is around 1. This means not only that if person’s (or country’s) income increases by 10%, emissions tend to increase at the same rate, but that the distribution of emitters mimics the distribution of income. Since in the global income distribution the top decile receives at least 50% of global income, it is also responsible for at least one-half of all emissions.

So what? Economic growth rates vary greatly. Inequality could disappear of its own accord if poor people stop having babies and real interest rates go negative. 

There may have been a time when Professors could pretend that voters in wealthy countries would shoulder the burden. Ever since the Yellow Vests gave Macron a kicking, that pretense has had to be dropped. 

But there are also significant differences. The effects of global inequality are in part the product of high within-country inequalities that obviously have to be dealt with at the level of nation-states.

The same is true of carbon emissions.  I bet the people of Lhasa or Ladhak have better air quality than those of Beijing or New Delhi. 

There are only two parts that are truly global. The first is that high global inequality also means high global poverty;

Nonsense! High global poverty is about poor people having babies while those who don't want to be poor stop doing so.

the second is that high global inequality is due to a significant extent to high inequality between countries’ incomes

no shit, Sherlock! 

which in turn fuels migration.

Migration is fueled by the expectation of not being shot at the border.  

The issue of global poverty is an ethical issue for all those who are not poor.

Why isn't it an ethical issue for the poor?  In my experience, poor people are more compassionate, not less so, to their less fortunate brethren. 

It is not otherwise an issue that affects the non-poor in their daily lives.

So there is no externality.  

Moreover since they do not share space with the global poor, they, in their daily lives, tend to ignore them.

Because there is no externality. 

Migration is the only concrete manifestation of global inequality that affects people in rich countries.

It can be easily stopped. 

If some of them want to reduce migration, it is in their self-interest to help growth of poor countries.

No it isn't because that would increase carbon emissions. A better solution is to deport illegal migrants.

But the benefits and costs of migration are unevenly distributed within rich countries’ populations. Some groups like employers, users of many services, and workers with complementary skills gain from migration while others who compete with migrants, or those who are afraid that their culture would be “diluted”, lose. Thus the overall effect of global inequality on the lives of most people in rich countries boils down to the effect of migration.

Which is why it looks as though illegal migration will be more and more harshly punished.  We will go back to the days of 'guest workers' with very restricted rights and much lower real wages. The Gulf countries and Singapore show how this would work.

The effect of global climate change is different in the sense that it is more remote in time and is uncertain. The winners and losers are not clear. To combat climate change requires adjustment of behavior by individuals and countries in order to forestall effects which lie in the future and whose benefits are unclear, while costs of adjustment are obvious and present.

Focusing on stuff like Air Quality and improving technology till Green Energy is cheaper show that individual countries can get to the same result as a binding International agreement.

Individual adjustment, while entailing often significant monetary or convenience cost for that individual, has close to zero effect on climate change and is therefore not rational to undertake from a purely personal perspective. Change in the behavior of larger groups, induced by taxation of especially “bad” activities, can produce effects but the distribution of benefits from these adjustments is unknown.

Briefly, Carbon taxes are palatable if the 'income effect' is compensated for in some other way. Macron just learned this the hard way.

Even if the benefits were somehow equally distributed, a group that adjusted its behavior would receive a very small share of all benefits. It is a typical externality problem.

So what? It can be easily solved. There was a time when people emptied their chamber pots onto the streets. Local Governments solved the problem by using property taxes to pay for a proper sewage disposal system. They also started levying fines on those who preferred hurling their shit and piss onto the heads of passers-by.  

This implies that no group of people and no individual country has an incentive to do anything by itself:

Rubbish! Most people live in large enough economies for such an incentive to arise at the National level. 

they have to be roped into an international framework where everyone is compelled to reduce emissions and where, in the case of success, net benefits would be, most likely, unequally distributed.

Sheer nonsense!  In any case, no international framework has the power to impose itself on countries like the U.S, China or even India. 

(Note the similarity with social insurance schemes.)

Very true. Social insurance schemes can only be implemented by an international framework.  

This is indeed what has happened with Kyoto and Paris accords.

What happened to them was that everybody decided they weren't worth the paper they were written on.

To complicate the matters further, however, nation-states are not really the best units to do this, although they are the only ones through which, given the current global governance structure, such policies can be conducted.

So, such policies belong in La La land.  

This is because the main emitters who should be targeted are the rich, regardless of where they live. Thus, a much more appropriate approach would be an international (global) taxation of goods and services consumed by the rich.

Why stop there? Why not a global system of Income support for the poor- regardless of where they live? Why not global elections to a Parliament of the World?  

But for that one would need to have an international authority that would be allowed to tax citizens of different countries and to collect revenues globally.

And arrest defaulters and send them to prison. Thus there would have to be a global police force and Army and Judiciary and so forth. 

As I mentioned above, there is a formal equivalence between global inequality and climate change.

In which case we are powerless to do anything about either coz nobody has as yet conquered the whole planet and imposed a World Government.  

Migration, which is the strongest “negative” (from the point of view of some) effect of global inequality, also requires international coordination.

Rubbish. A country which can defend itself can easily seal its borders and capture illegal migrants. 

The increased migration of Africans into Europe cannot be solved by any individual country alone.

Europe is changing fast. But then Milanovic's native country also changed very fast. Few would have predicted that Tito's Yugoslavia would so swiftly descend into ethnic cleaning. 

There is no reason to believe Europe can't get rid of not just migrants but indigenous minorities. Complacency in this matter is dangerous.

It can be “solved” or rather managed only by a joint action (distribution of quotas) involving both the emitting and receiving countries.

These are merely short term solutions- a case of kicking the can down the road. 

But unlike climate change which is basically considered an overall “bad”, migration is not an overall “bad”, but rather an overall “good”.

Nonsense! We are not speaking of people wishing to relocate to a country whose culture and traditions they admire. Rather we are dealing with desperate people who have been lied to about 'streets paved with gold' by unscrupulous traffickers. 

There may be a 'global good' in people moving to where they will fit in best- e.g. a superb athlete from Sudan joining a leading American basketball team, or a gorgeous lady from Somalia becoming a super-model in Paris- but there is no 'global good' in desperate people being lied to and cheated and exploited.

Therefore targeting for more action countries that are likely to be the largest emitters of migrants does not make sense.

Rubbish! If we can put an end to a civil war or ethnic cleansing in a troubled region, we should do so by all means. If we can't, we can at least protect our own borders from a spillover of undesirables.

In fact, in the case of migration, we deal with a “global good” that reduces global inequality and global poverty even if it may in some cases produce negative effects. Because of these real or putative negative effects (economic and social) we need rules that would assuage some people’s fears lest these people wreck and stop the whole process of migration.

Cretins like Milanovic can't assuage anybody's fears. Rules have to be enforceable in a manner which yields a greater benefit than cost. Sealing borders against illegal migration has a positive benefit because it also keeps out noxious substances and may catch criminals. Having rules which can't or won't be applied is a waste of time.

This is where the idea of “circular migration” and differentiation between job-related rights (equal for all) and civic rights (not available to migrants) comes from (in my “Global Inequality” as well as in the forthcoming “Capitalism, Alone”).

This is silly. Different countries have different laws with respect to who can vote and who can hold elected office. 

In the case of climate change, we are dealing with something that is essentially a “bad”, but we have trouble making those who are generating the bulk of this “bad” pay for it and forcing them to change their behavior.

Rubbish! We can tax the consumer and fine the producer.

Thus in one case we try to keep what is globally good (migration) by reducing fears of those who may, locally, be affected negatively. In the case of climate change, we try to avoid something that is globally bad by using the only instrument that we have (nation-state) which is clearly suboptimal for that purpose.

This cretin thinks nations exist just so he can use them as instruments. He thinks they are sub-optimal. We think his brain is so far from optimal it is filled with nothing but shit. 

We are thus in both cases trying to devise what may be called “second-best” solutions, mostly because of a political limitation called the nation-state.

You are a cretin. You aren't devising anything at all. This isn't the fault of the nation-state. It is the fault of your brain's having turned into shit.