By Tyler Cowen |
Income inequality has surged as a political and
economic issue, but the numbers don’t show that inequality is rising
from a global perspective. Yes, the problem has become more acute within
most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.
The
finding comes from a recent investigation by Christoph Lakner, a
consultant at the World Bank, and Branko Milanovic, senior scholar at
the Luxembourg Income Study Center. And while such a framing may sound
startling at first, it should be intuitive upon reflection. The economic
surges of China, India and some other nations have been among the most
egalitarian developments in history.
Of course, no one
should use this observation as an excuse to stop helping the less
fortunate. But it can help us see that higher income inequality is not
always the most relevant problem, even for strict egalitarians. Policies
on immigration and free trade, for example, sometimes increase
inequality within a nation, yet can make the world a better place and
often decrease inequality on the planet as a whole.
International
trade has drastically reduced poverty within developing nations, as
evidenced by the export-led growth of China and other countries. Yet
contrary to what many economists had promised, there is now good
evidence that the rise of Chinese exports has held down the wages of
some parts of the American middle class. This was demonstrated in a recent paper
by the economists David H. Autor of the Massachusetts Institute of
Technology, David Dorn of the Center for Monetary and Financial Studies
in Madrid, and Gordon H. Hanson of the University of California, San
Diego.
At the same time, Chinese economic growth has
probably raised incomes of the top 1 percent in the United States,
through exports that have increased the value of companies whose shares
are often held by wealthy Americans. So while Chinese growth has added
to income inequality in the United States, it has also increased
prosperity and income equality globally.
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. To clear up this confusion, one recommendation
would be to preface all discussions of inequality with a reminder that
global inequality has been falling and that, in this regard, the world
is headed in a fundamentally better direction.
The
message from groups like Occupy Wall Street has been that inequality is
up and that capitalism is failing us. A more correct and nuanced message
is this: Although significant economic problems remain, we have been
living in equalizing times for the world — a change that has been
largely for the good. That may not make for convincing sloganeering, but
it’s the truth.
A common view is that high and rising
inequality within nations brings political trouble, maybe through
violence or even revolution. So one might argue that a nationalistic
perspective is important. But it’s hardly obvious that such predictions
of political turmoil are true, especially for aging societies like the
United States that are showing falling rates of crime.
Furthermore,
public policy can adjust to accommodate some egalitarian concerns. We
can improve our educational system, for example.
Still,
to the extent that political worry about rising domestic inequality is
justified, it suggests yet another reframing. If our domestic politics
can’t handle changes in income distribution, maybe the problem isn’t
that capitalism is fundamentally flawed but rather that our political
institutions are inflexible. Our politics need not collapse under the
pressure of a world that, over all, is becoming wealthier and fairer.
Many
egalitarians push for policies to redistribute some income within
nations, including the United States. That’s worth considering, but with
a cautionary note. Such initiatives will prove more beneficial on the
global level if there is more wealth to redistribute. In the United
States, greater wealth would maintain the nation’s ability to invest
abroad, buy foreign products, absorb immigrants and generate innovation,
with significant benefit for global income and equality.
In
other words, the true egalitarian should follow the economist’s
inclination to seek wealth-maximizing policies, and that means worrying
less about inequality within the nation.
Yes, we might
consider some useful revisions to current debates on inequality. But
globally minded egalitarians should be more optimistic about recent
history, realizing that capitalism and economic growth are continuing
their historical roles as the greatest and most effective equalizers the
world has ever known.
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