The first session rolled along pretty well, I thought, with 14 students and four faculty participating. I was pleased that everyone had something to say, and I hope you will make an effort to talk about this outside of the group. Our next meeting is February 16 at 3:30, and I am still looking for a regular room to meet.
For next time we will continue our discussion of The Great Stagnation, and in particular we will talk about whether we believe the central thesis. One synopsis of the thesis is that there are three pieces of bad news: there are fewer innovations, the yield on innovations has declined, and innovations are not resulting in high-quality employment gains. We talked a little bit about this idea of raising the status of scientists and what that might look like. In that vein, we might take a look at one of Cowen’s recent blog posts: a simple theory of why so many smart young people end up in finance and law. I’m not sure how to square one with the other.
On this point, I might add, Schumpter was optimistic that norms could change:
the prestige motive, more than any other, can be molded by simple reconditioning: successful performers may conceivably be satisfied nearly as well with the privilege—if granted with judicious economy—of being allowed to stick a penny stamp on their trousers as they are by receiving a million a year (CS&D, p. 208).
The discussion of science inevitably got at the nature of American higher education, an area that moves at a glacial pace, but might be amidst a revolution (who are you going to believe?). On this topic, Larry Summers’ offers his take on the future of education. I have been thinking about this for a while in terms of how we can do better down here on Briggs 2nd, and am wondering what the take of our new president will be.
We will also forge ahead with Cowen’s “The Inequality that Matters,” from The American Interest. It’s hard to think about the future of capitalism without thinking a bit about what inequality is and why it is (and isn’t) important. We read this in Econ 275 last term and I think it went over quite well.
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.
In response to my post on The Spirit Level, Oscar Koberling pointed out in an email that the most recent issue (pronounce that with an “s”, not “ishue”) of The Economist includes a Special Report on “The Few” (not the proud, but the rich). One article in that Report beats up pretty effectively on The Spirit Level. Thanks for the tip!
Several articles in the Report are interesting. One of them is on higher education, and it points out that “[i]n some of the hardest disciplines most postgrads at American universities are foreign: 65% in computing and economics, 56% in physics and 55% in maths…”
Last time we met for the Schumpeter Roundtable tutorial, we discussed Schumpeter’s point that perhaps the greatest strength of capitalism is that it provides precise, prompt, exact and effective incentives in the promise of great riches and the threat of great destitution. He would know, having been on both ends of that spectrum (well, almost). That sort of system has inequality built into it—inequality that serves an important purpose, some would say. A discussion on inequality and progress ensued, with spiritual, moral, economic, and technological dimensions, eventually leading one participant to remark that “going to Best Buy is a spiritual journey!” But there is, of course, a serious question: Is inequality good for a society (in the long run)? Or, to put it in terms of a trade-off, how much inequality is best? Tonight Tom Ashbrook on NPR spoke with UK Professors Pickett and Wilkinson, authors of The Spirit Level: Why Greater Equality Makes Societies Stronger. The book is based on research that shows, the authors claim, that more equal societies always do better in a number of ways, including overall population health. They argue that more equal societies are even more innovative, contrary to what Schumpeter might say about the importance of incentives in driving progress. As Professor Gerard has pointed out, economists do think about inequality and its consequences, and this book may add evidence to one or both sides. One member of the Schumpeter Roundtable argued that there is so much inequality in the US today, that most people are too discouraged to try hard to reach the top. This book seems to support that argument. Contrast that with Adam Smith’s view that the great driving force of economic development is the extraordinary effort of “[t]he poor man’s son, whom heaven in its anger has visited with ambition,” struggling to attain riches in the (erroneous) belief that money can buy happiness.
Although we economists tend to be a “size of the pie” crowd, the subject of the causes and consequences of income and wealth inequality does not completely escape our notice. Certainly, this has large political and policy implications, especially as inequality and political polarization seem to be proceeding in lockstep.
With that said, I’ve been sitting on these links for a while, waiting to read and digest them so I can say something pithy about them. But, alas, with Capitalism, Socialism, & Democracy in my lap and Where Good Ideas Come From next in my queue, I don’t see that happening anytime soon.
So, here it goes:
Cowen presents a very provocative thesis, one that we should perhaps discuss over tea?
My favorite political science blog, The Monkey Cage, had an interesting symposium on Larry Bartel’s Unequal Democracy. Worth a look if this is something that interests you.