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  • Angus Deaton on Global Quality of Life, Health, and Wealth

    In his latest book, Princeton economist Angus Deaton argues that the world is a much wealthier and healthier place today than it was a half century ago, but that progress has not come without some setbacks, and a danger of "vast inequalities." Deaton has an introduction to the book, titled The Great Escape: health, wealth, and the origins of inequality , at Vox , where he shares this graph: The figure plots life expectancy at birth (for both sexes together) against per capita GDP in price-adjusted international dollars. Each point is a country, shown as a circle whose area is proportional to population; the lighter circles are for 1960, and the darker circles for 2010. The arrow points in the direction of progress, where both per capita incomes and life expectancy increase over time. The 2010 line is above the 1960 line so that, for a typical country, life expectancy has increased by more than would have been expected given a movement along the 1960 line. Preston suggested that movement along the curve was the effect of income on health, while the upward movement of the line could perhaps be attributed to technical progress. Death 'ages' as we move along each curve; this is the epidemiological transition. In the poorest countries, parents still live with the agony of watching their children die from long-conquered maladies like pneumonia, diarrhea, or vaccine preventable diseases like measles. In the rich countries, where disease has moved out of the bowels of children and into the arteries of the elderly, death comes from chronic diseases – heart disease and cancer – and comes to the old, not to the young. The aging of death recapitulates what happened in history, though poor countries today have achieved comparable health at much lower levels of per capita income than was the case in the rich countries in the past. When I was born in Edinburgh in 1945, life expectancy in Scotland was lower than it is in India today; when my father was born in the Yorkshire coalfield in 1918, child mortality in England was higher than it is in sub-Saharan Africa today. Progress has been repeatedly interrupted by horrors, not all of which are safely locked up in a historical museum. The Figure shows the huge increase in life expectancy in China between 1960 and 2010, most of which happened, not slowly over time, but immediately after 1960. In fact, this is not a story of progress, but of the unwinding of the disaster of the great Chinese famine. Mao’s demented attempt to catch up with rich countries in a few years, to assume leadership in the Communist world, and to preserve his own political position at home, led him to ignore the mounting evidence that millions were dying. Eventually, perhaps 30 million people died, Yang (2013). This is far from the first time in history that toxic politics has brought human catastrophe. It is sometimes hard to see the benefits that good policies bring, but the Great Leap Forward is a spectacular example of what bad policies and bad politics can do. Read the full post here .
  • The Economist: Average Income by Racial Group in South Africa

    This is an interesting chart from The Economist , but it does not tell a particularly positive story. It shows the average income by racial group in South Africa from the time of Nelson Mandela's birth until this year. Note first that the average income of white South Africans flatlined, and even dropped slightly, during the last decade of Apartheid. Then, all racial groups saw significant income growth following the end of the Apartheid laws. But so far in the 21st Century, the largest racial group, black South Africans, is once again being left behind. (full size chart available here )
  • Mandela At Davos 1999: A Call for Building Economic Ties and Development Cooperation

    As leaders from around the world join South Africans today to remember Nelson Mandela , the World Economic Forum offers up an important speech from 1999. At that year's World Economic Forum in Davos, Mandela addressed top politicos, bankers, and business leaders and he spoke of the need for strong global economic policy that lifted all boats: The challenges we face combine many of the great challenges that face our global society. We need social stability that is based on socio-economic development. We must nurture tolerance, collective wisdom and democracy. Like all countries, we must provide real personal safety and security against criminality and abuse of human rights. The fact that we face these global challenges at the precise moment that we have become free with the world's support, places special obligations on our new democracy. Some people argue that we should focus on our own immense problems and leave others to their own devices. That would be to turn our back on those that helped liberate us, often at great costs to themselves. It would be contrary to our morality, which will not let us desert our friends. Who, in our interdependent world, can turn their back on people in other lands when press, radio and television bring us the graphic reality of abuse, death, genocide and senseless and destructive wars? Is globalisation only to benefit the powerful and the financiers, speculators, investors and traders! Does it offer nothing to men, women and children who are ravaged by the violence of poverty! To answer "Yes" to these questions is to re-create the conditions for conflict and instability. However, if the answer is "No" then we can begin to build a better life for all humanity. Here is the full speech:
  • Marketplace: Mandela's Impact on Global Economy

    The world is mourning the death of one of the most important figures, and admired leaders, in recent memory, Nelson Mandela . Beyond his humanitarian impact and his lasting political influence in Africa and around the world, Mandela has left an important economic legacy. Marketplace's Mitchell Hartman reports:
  • American Families' Heavy Student Debt Burden and the Value of Subsidizing Higher Education

    When it comes to household debt, mortgages still dominate. But you might be surprised to learn, as Brookings 's Isabel Sawhill notes, that student loan debt is now the second biggest source of debt for U.S. households--ahead of credit card debt and car loans. Taking on that debt still is not a terrible idea ... as long as you graduate. Sawhill and Ron Haskins , her co-director at the Brookings Center on Children and Families recently discussed the economic advantages of a college education. And they raise an interesting question: is the U.S. government's approach to subsidizing higher education paying off?
  • Pew Social Trends: Uneven Recovery for U.S. Households

    The slow pace of the recovery in the U.S. has felt a lot less slow in some households. According to a new Pew report, those households in the top 7% saw their mean net worth rise 28% from 2009 to 2011. Net worth for the remaining 93% dropped 4%. And the key seems to have been the rise of the value of financial assets as opposed to property values: From Pew's Richard Fry and Paul Taylor : The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65% of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17% comes from their home. Among households with net worth of less than $500,000, just 33% of their wealth comes from financial assets and 50% comes from their home. The Census Bureau data also indicate that among less affluent households, fewer directly owned stocks and mutual fund shares in 2011 (13%) than in 2009 (16%), meaning a smaller share enjoyed the fruits of the stock market rally. Likewise, fewer had individual retirement accounts (IRAs) or Keogh accounts (22% in 2011 versus 24% in 2009) and the same share had 401(k) or Thrift Savings Plan accounts (39% in both years). Among affluent households, there was also a decline in the share directly owning stock and mutual fund shares during this period (59% in 2011 versus 62% in 2009), but a slight increase in the share with IRAs or Keogh accounts (70% versus 68%) and a larger increase in the share with 401(k) or Thrift Savings Plan accounts (65% versus 61%). Overall, net worth per household in the U.S. in 2011 made up nearly all the ground it had lost since 2005—$338,950 versus $340,252 in 2005, the latest pre-recession data published by the Census Bureau. (Total household wealth doubtless rose for a period after 2005 before falling precipitously during the Great Recession of 2007-2009 and rebounding since then. However, no household wealth data are available from the Census Bureau for the years between 2005 and 2009, so it is not possible to pinpoint when, or at what level, the peak in wealth per household occurred.) Looking at the period from 2005 to 2009, Census Bureau data show that mean net worth declined by 12% for households as a whole but remained unchanged for households with a net worth of $500,000 and over. Households in that top wealth category had a mean of $1,590,075 in wealth in 2005, $1,585,441 in 2009 and $1,920,956 in 2011. Read the report here .
  • Impact of Ethnic Inequality on Development

    There is something of a correlation between ethnic diversity and economic development in developing economies, but the real problem may be economic inequality along ethnic lines. At VoxEU , Alberto Alesina , Stelios Michalopoulos , and Elias Papaiaonnou share some of what they have learned while investigating the impact of ethnic inequality. Ethnic inequality is naturally correlated with the overall degree of spatial inequality. Since we are interested in uncovering the role of ethnic inequality beyond the overall spatial inequality Figure 2 portrays the global distribution of ethnic inequality partialling out the effect of the overall degree of spatial inequality. A few interesting patterns emerge. On the one hand, Sudan, Afghanistan, and Mongolia have much higher ethnic inequality as compared to the overall degree of spatial inequality (which is also very high). On the other hand, the US and Canada score low in ethnic inequality as compared to the overall degree of spatial inequality (which is quite high). Azerbaijan, Syria, Albania, Tunisia, Haiti, and Rwanda score quite high in ethnic inequality, while in contrast the overall degree of spatial inequality is very low. Looking at figure 2, you can see why the authors chose to focus on sub-Saharan Africa. In looking at the data for that region, they conclude that the combination of ethnic fractionalization and inequality is the real culprit: The interpretation of cross-country regressions is always challenging as countries differ across many and hard-to-account-for dimensions. In an effort to improve on the cross-country evidence, we used individual-level data from 17 sub-Saharan countries on wellbeing, education, public goods provision, and ethnic identification and explored whether ethnic inequality correlates with various development proxies across districts in the same country. Moreover, since members of the same ethnic group are present in more than one district, we can look within members of the same ethnic group. Exploiting information from more than 20,000 respondents, our analysis shows that, conditional on an array of individual characteristics, respondents living in the same country and coming from the same ethnic group report worse living conditions, lower levels of education, and inadequate access to basic public goods when they reside in districts/regions characterised with a higher degree of ethnic inequality. These results thus suggest that ethnic inequality may be an important, and so far neglected, feature of African underdevelopment. Our conjecture has been that what is harmful for development is neither inequality per se nor ethnic (or religious) fractionalisation, but the combination of the two. When wealth and poverty are clearly associated with distinct ethnic groups, the resulting ethnic inequality hampers development by generating hatred, social immobility, envy, sense of unfairness, and conflict, which create obstacles to the smooth functioning on the polity and of the economic system. Disentangling the relative importance of these channels is a fruitful avenue of future research. Read the full article here .
  • A Defense of 'Cuddly Capitalism' and Innovation in Nordic Countries

    At VoxEU , three Finnish economists respond to a recent paper in which the authors assert that "cuddly capitalist" countries like Finland and other Nordic economies, "free ride" off of "cut-throat" capitalist countries like the U.S. Not surprisingly, Niku Määttänen , Mika Maliranta , and Vesa Vihriälä see a different picture. First, they take issue with the idea that the U.S. economy is more innovative: As Acemoglu et al. (2012a, 2012b) stress, innovation requires risk-taking. In a very innovative economy, one would therefore expect to find intensive job creation and job destruction, as firms that are successful in innovative activities expand rapidly while others are forced to exit the market. The available data do not suggest that the US economy is unambiguously more dynamic than the Nordic economies (Bassanini and Marianna 2009, OECD 2004). In Denmark, worker reallocation is more intensive, and in Finland almost as intensive as in the US (Table 1). Moreover, time series from the US indicate a marked decline in job and worker flows since the late 1990s (Davis et al. 2012), whereas – at least in Finland – both flows have stayed intensive (Ilmakunnas and Maliranta 2011). The authors go on to challenge the assumption that there is less dynamism in Nordic countries like Finland, and make the case that these are actually highly innovative economies in which entrepreneurs are encouraged to take risks for some of the same reasons they might be described as "cuddly" countries: One explanation for Nordic good performance might be that they are better in mobilising human resources. While hours per capita are higher in the US, a larger share of the working age population is employed in the Nordics owing to more inclusive educational, social and employment policies. This may imply that talents are harvested better for gainful economic activity. A second explanation could be the rather determined public policies to promote innovation. A third explanation might be that the economic incentives for innovation in the Nordics, while weaker than in the US, are not miserable after all, at least not across the board. For instance, all Nordic countries have introduced dual income taxation, according to which capital incomes are taxed at a flat rate. This helps in motivating entrepreneurs, despite quite progressive taxes on earned income. Sweden has recently encouraged wealth accumulation by abolishing wealth and inheritance taxes altogether. A well-designed safety net may also work to promote risk-taking. In particular, unemployment insurance may help risk-taking entrepreneurs by making it is easier for them to hire workers (see Acemoglu and Shimer 2000). Read Are the Nordic countries really less innovative than the U.S.? here .
  • Medium and Long Term Growth in China May Depend on Structural Reform

    Yu Yongding is not surprised that China's economic outlook has begun to look rosier, with the growth rate picking up this quarter. But the past President of the China Society of World Economics and Director of the Institute of World Economics and Politics at the Chinese Academy of Social Science warns China's leaders not to get complacent. At Project Syndicate , Yu writes: The true challenges facing China lie in the medium and long term. Indeed, the current economic rebound is not an achievement worthy of much celebration, especially if it comes at the expense of further reform and structural adjustment. First, as China ages rapidly, the disappearance of its demographic dividend will lower potential growth significantly. Moreover, other things being equal, the extremely rapid rise in fixed-asset investment has eroded China’s investment efficiency and capital efficiency, reducing potential output growth further. And, as China’s economy approaches full technological modernization, its latecomer’s advantage will be exhausted, and its inability to innovate and create may become an important bottleneck to further growth. Although active participation in global production networks has brought significant benefits, it may have locked China into the lower end of the value chain, reducing its scope for future progress. Other constraints loom as well. Rapid economic expansion implies that supplies of energy and raw materials will increasingly limit potential growth. At the same time, the public’s demand for environmental protection and other basic rights will inevitably increase production costs. Similarly, the external environment may become less favorable, as the long process of global deleveraging impedes economic recovery in China’s key foreign markets. Finally, despite China’s status as one of the world’s largest net creditors, it has been running a deficit on its investment balance for years. If this pattern persists, China may well face a balance-of-payments constraint on growth in the future. Read China's Coming Growth Tests here .
  • Women @ Work Data Visualization

    A couple of weeks back, we pointed to the World Economic Forum's Global Gender Gap Report . We love the data rich approach to understanding the impact of increasing participation of women in leadership roles to economic progress. Compliance and Safety has put together a useful infographic that takes a different approach to illustrating the issue of women driving companies' growth. Take a look: Featured By:
  • World Economic Forum: Global Gender Gap Report 2012

    The World Economic Forum 's Global Gender Gap 2012 is out, and there are not many surprises at the very top of the list. Iceland, Finland, Sweden, Norway and Ireland all hold their places in the top five. There is one newcomer to the top 10. Nicaragua comes in at number 9 in the Global Gender Gap Index, up from 27 in 2011 and 90th just five years ago. The jump comes largely from a significant increase in the political empowerment of women in Nicaragua over the last year. That made up for a relatively poor ranking in economic participation of women. The Gender Gap index is based on the World Economic finding that greater participation of women in the labor force and in policy correlates with stronger economic performance overall. As the report's authors note, "The most important determinant of a country’s competitiveness is its human talent—the skills, education and productivity of its workforce—and women account for one-half of the potential talent base throughout the world." The below figure, from the report, plots countries' Gender Gap scores against per capita GDP. From the report: The correlation among competitiveness, income and development and gender gaps is evident despite the fact that the Global Gender Gap Index (unlike other gender indexes) explicitly eliminates any direct impact of the absolute levels of any of the variables (e.g. life expectancy, educational attainment, labour force participation) used in the Index. While correlation does not prove causality, it is consistent with the theory and mounting evidence that empowering women means a more efficient use of a nation’s human talent endowment and that reducing gender inequality enhances productivity and economic growth. Over time, therefore, a nation’s competitiveness depends, among other things, on whether and how it educates and utilizes its female talent. In Figure 10, we plot the educational attainment subindex against the economic participation and opportunity subindex. The data in the Global Gender Gap Index reveals four broad groups of countries: (1) countries that are generally closing education gaps and show high levels of women’s economic participation, (2) countries that are generally closing education gaps but show low levels of women’s economic participation, (3) countries that have large education gaps as well as large gaps in women’s economic participation and (4) countries that have large education gaps but display small gaps in women’s economic participation. You can access the full report, including data tables, here . And watch a summary of the report below:
  • OECD: Continuing Growth in India Will Depend on Continuing Reform

    A new report in the OECD 's Better Policies series focuses on growth in India. While commending India for making structural reforms that helped spark two decades of rapid growth, the report makes it clear that future growth will depend on additional reforms. One area to target, according to the OECD, is inequality. While India has made great strides in reducing absolute poverty, rising inequality matches that of other emerging economies like neighboring China: From the report: The Government’s recent Approach to the 12th Five Year Plan recognises that further lowering the incidence of poverty and reversing the pattern of growing inequality will require a comprehensive strategy. Many key elements of this multi-dimensional approach are addressed in the other chapters of this document, including policies to improve health, nutrition and educational outcomes (see dedicated chapters). In addition, labour market reforms could help reduce the segmentation between formal and informal employment. The tax system delivers only modest redistribution. In the context of the ongoing reform of direct taxation, increasing the tax free-threshold could increase the redistributive effects of the system. There is also scope for making social spending a more powerful tool to deal with rising inequality. Social spending, which amounts to about 5% of GDP in India, is low by international standards, including in comparison to other large emerging economies. However, India does not have much fiscal space to increase social spending, given the high general government deficit. Nevertheless, better targeting of inefficient subsidies offers a potential path for reform. Correcting the serious problems of “leakages” in the subsidies delivered through the public distribution system should be a priority. In addition, eliminating environmentally-harmful subsidies, which are poorly targeted to address poverty, should also be considered. Replacing these subsidies by more direct support to poor households can increase equity. Improving human development outcomes will also require specific and well-targeted programmes. One very important example is the National Rural Employment Guarantee Scheme (NREGS), which provides 100 days or more of employment at a wage determined by the central government to any member of a rural household who wishes to participate. The government may consider maintaining under check the cost effectiveness of the NREGS, which is essential to realize its potential as a mechanism for helping those most in need. In particular, this requires securing that wages are set at a level around the minimum wage, which is very low in India. By limiting the risk of attracting workers with viable alternatives, this would reinforce the important selfselection property of the mechanism. Read the report here .
  • Stiglitz: Inequality and Growth

    Joseph Stiglitz is most concerned about the growing economic inequality in the U.S.--where he points out there is "less equality of opportunity" than in " any advanced industrial country for which there are data--because of what it means for the nation's "values and identity." But in an op-ed at Project Syndicate he goes beyond the values argument to point to inequality as an economic concern for the nation as a whole. Stiglitz argues that there is a great cost to growth of the economy at large when opportunities get more and more disproportional. After all, he writes, " America grew far faster in the decades after World War II, when it was growing together, than it has since 1980, when it began growing apart." This shouldn't come as a surprise, once one understands the sources of inequality. Rent-seeking distorts the economy. Market forces, of course, play a role, too, but markets are shaped by politics; and, in America, with its quasi-corrupt system of campaign finance and its revolving doors between government and industry, politics is shaped by money. For example, a bankruptcy law that privileges derivatives over all else, but does not allow the discharge of student debt, no matter how inadequate the education provided, enriches bankers and impoverishes many at the bottom. In a country where money trumps democracy, such legislation has become predictably frequent. But growing inequality is not inevitable. There are market economies that are doing better, both in terms of both GDP growth and rising living standards for most citizens. Some are even reducing inequalities. America is paying a high price for continuing in the opposite direction. Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset - its people - is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education, and technology, impeding the engines of growth. The Great Recession has exacerbated inequality, with cutbacks in basic social expenditures and with high unemployment putting downward pressure on wages. Moreover, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System , investigating the causes of the Great Recession, and the International Monetary Fund have both warned that inequality leads to economic instability. Read The Price of Inequality here .
  • The Challenges of a Rising Global Middle Class

    One of the great positive global economic stories of the young 21st century--perhaps the top story--is the rapidly rising middle class in developing nations across the globe, especially in South America and Asia. But Johannes Jütting ,Head of Poverty Reduction at the OECD Development Center in Paris, warns us not to overlook the challenges that a burgeoning new middle class bring to nations and the global economy. Writing at Project Syndicate , Jütting argues that the middle class's "dreams" can become "nightmares" if policymakers get complacent and overlook the structural challenges that they must face: In today’s shifting world, with GDP in roughly 80 developing economies rising at twice the rate of per capita growth in the OECD, the club of the world’s richest countries, middle-class citizens paradoxically complain and protest regardless of whether fortunes improve or decline. Moises Naim, a former Venezuelan minister of trade and industry, even warns of a possible “emerging global war of the middle-classes.” While anger over pay cuts and unemployment make sense, it is harder to understand the current protests in fast-growing countries like Thailand and Chile, where standards of living are improving. What is going on? High growth in Asian and southern countries has meant greater export earnings and rents from natural resources. Unfortunately, this blessing can turn into a curse. In China, former Communist leader Deng Xiaoping’s vision – “let some people get rich first” – has led to impressive economic growth and poverty reduction; but it has also undermined the self-proclaimed “harmonious society,” as recent protests and labor conflicts indicate. Indeed, it is telling that, in the spring of 2011, Beijing’s municipal authorities banned all outdoor luxury-goods advertisements on the grounds that they might contribute to a “politically unhealthy environment.” Rising inequality, lack of civic participation, political apathy, and a dearth of good jobs, particularly for the young, comprise the Achilles heel of emerging-market countries’ current development model. A Gallup poll on subjective well-being in Tunisia and Thailand shows that, while income levels and social conditions in both countries improved between 2006 and 2010, life satisfaction dropped. Read The Middle Class Goes Global here .
  • Warren Buffett Wants Policymakers to Know He is Ready to Make Sacrifices for the Good of the Economy

    Whether on Facebook, Google+, or the original social media: word of mouth, odds are pretty good a friend told you about Warren Buffett 's Stop Coddling the Super-Rich column in the New York Times this week. That is if you didn't read it in the Times first yourself. It remains one of the NYT website's most emailed articles. Maybe you think Mr. Buffet has gone mad. Maybe you think he said what needed to be said, and was just the right person to say it. Maybe you take issues with his logic. Whatever the case, it is worth following up the piece by watching Buffet explain himself, on Charlie Rose :