Income inequality and Milanovic

The contrast between the unambiguous success of people at point A and the relative failure of people at point B allows us to look at the effects of globalisation more broadly. Not only can we see them more clearly when thus juxtaposed, but it enables us to ask whether the two points are in some sense related: is the absence of growth among lower middle classes of the rich world the ‘cost’ paid for the high income gains of the national middle classes in Asia? It is unlikely that one can provide a definitive answer to that question, since establishing causality between such complex phenomena that are also affected by a host of other variables is very difficult and perhaps impossible.

However, the temporal coincidence of the two developments and the plausible narratives linking them, whether made by economists or by politicians, make the correlation in many people’s mind appear real. [Link]

This explains Trump, Sanders and Corbyn and a whole host of other politicians including Marie La Pen in France.

Branko Milanovic, in his paper, rightly places emphasis on the rise in incomes in the global median and in the 45th to 65th percentile calling it the biggest since the Industrial revolution. He is anxious not to draw attention to Point B in his paper.

Further, he is right that correlation is taken as causation somewhat thoughtlessly, stoking anti-foreigner and anti-immigration sentiments. The absolute stagnation in middle America (they are the single largest chunk of the global 70th to 85th percentile) is real and the cause  is the dominance of capitalists’ interests over labour since 1980s. Trickle down did not happen.

But, the tug-of-war between capital and labour is cyclical and the pendulum would swing again but robotics might spoil the return of the pendulum. That is a different story.

It is not necessarily the income gains in the emerging world in China, India, Brazil, etc. But, that conclusion is hard to resist. Far easier to direct the anger at foreigners than capitalists of the local variety. Their support may be needed in other areas.


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