The New York Times reviews The Haves and the Have-Nots, what appears to be a fascinating new book from World Bank economist, Branko Milanovic. In addition to the review, the Economix blog features this extraordinary representation of world income distribution by country:
Milanovic has broken income (adjusted for purchasing power) by country down into twenty “ventiles.” So the lowest five percent of income earners are in the first ventile and the richest five percent are in the top ventile. What this piece shows is that the poorest of the poor in America are in the 70th percentile of world income. Compared with India — the average American in that first ventile has as much income (adjusted for purchasing power) as the richest Indian ventile.
I find that astonishing.
I also note with interest that there is a very steep ascent of the American distribution, indicating the poor here are really, really poor in relative terms, but the rest of the country is in pretty good shape. The median income in the US in comfortably in the top 10% of world income.
But are we any happier?
Well, I’m pretty happy, but maybe that’s just me.
Professor Gerard recently wrote about the views of Schumpeter and Stigler on Intellectuals. In the paper he cites, Stigler wonders why Intellectuals hate economics, and considers the possibility that our extremely technical field and extremely poor communication style might have something to do with it:
Less than a century ago a treatise on economics began with a sentence such as, “Economics is a study of mankind in the ordinary business of life.” Today it will often begin: “This un- avoidably lengthy treatise is devoted to an examination of an economy in which the sec- ond derivatives of the utility function possess a finite number of discontinuities. To keep the problem manageable, I assume that each individual consumes only two goods, and dies after one Robertsonian week. Only elementary mathematical tools such as topology will be employed, incessantly.” (Stigler: The Intellectual and the Market Place)
A paper I looked at recently reminded me of another reason why many Intellectuals look askance at us economists: the long and solid tradition of “economic imperialism.” That is, the tendency of a number of economists to think that our economist’s toolbox can be (and should be!) used to explain just about anything that reasonably falls under the heading “social science.” The paper I referred to is Well-Being Over Time in Britain and the USA by David Blanchflower, and the abstract includes this:
Money buys happiness. People care also about relative income. Wellbeing is U-shaped in age. The paper estimates the dollar values of events like unemployment and divorce. They are large. A lasting marriage (compared to widow-hood as a ‘natural’ experiment), for example, is estimated to be worth $100,000 a year.
I agree that research on happiness is very much relevant to economics, but I can just see a psychologist or a sociologist or a humanist read that and not know whether to laugh or to cry. (And what’s up with talking like Tarzan?) Blanchflower looks at survey data (essentially asking people whether they are happy or not) over the past few decades and then runs a bunch of regressions. There is nothing wrong with that, except for a dozen issues that cast doubt on the conclusions and that have probably been the subjects of extensive research in psychology, sociology, history, and maybe even economics. Without passing judgment on Blanchflower (about whom I know nothing), I am pretty confident in saying that a number of papers in economists have been guilty of applying economic tools to broader problems without bothering to understand the broader literature (you know, what those “soft” social scientists write).