{"id":218,"date":"2015-09-04T23:30:02","date_gmt":"2015-09-05T03:30:02","guid":{"rendered":"http:\/\/commoncents.blogwyrm.com\/?p=218"},"modified":"2023-05-06T19:05:23","modified_gmt":"2023-05-06T23:05:23","slug":"not-all-inequality-is-created-equal","status":"publish","type":"post","link":"https:\/\/commoncents.blogwyrm.com\/?p=218","title":{"rendered":"Not all Inequality is Created Equal?"},"content":{"rendered":"<p><head><\/p>\n<style>\ntable{\nborder: 1px solid black;\nborder-collapse: collapse;\n}\nth,td { text-align: center !important;\n     background-color: #f5f5dc !important;\n     color: black !important;\n     border: 1px solid black;\n}\n<\/style>\n<p><\/head><\/p>\n<p>In a recent article in the Washington Post, blogger Ana Swanson reported on a new study in the field of economics that found some revealing and, perhaps, surprising results.\u00a0 The article, entitled, <em><a href=\"http:\/\/www.washingtonpost.com\/news\/wonkblog\/wp\/2015\/08\/20\/why-some-billionaires-are-bad-for-growth-and-others-arent\/\">Why some billionaires are bad for growth, and others aren\u2019t<\/a><\/em>, summarizes the findings of two economists, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University.  (Note: Bagchi and Svejnar published their findings in the <a href=\"http:\/\/www.sciencedirect.com\/science\/article\/pii\/S0147596715000505\">Journal of Comparative Economics<\/a> and a summary of their findings is available at the link.)<\/p>\n<p>In their analysis, Bagchi and Svejnar, took <a href=\"http:\/\/www.forbes.com\/billionaires\/list\/#version:static\">Forbes magazine annual list ranking the world\u2019s billionaires<\/a>, normalized the raw data to account for country size (either by GDP or by population or somehow \u2013 Swanson wasn\u2019t particularly clear on this point), and then correlated the result with economic conditions in the country as a whole.\u00a0 According to Swanson, what the pair concluded was that as wealth inequality grew so did economic conditions for the general citizen worsen in the form of slower economic growth.<\/p>\n<div class = \"myQuoteDiv\">\nThey also found that their measure of wealth inequality corresponded with a negative effect on economic growth. In other words, the higher the proportion of billionaire wealth in a country, the slower that country\u2019s growth.<\/p>\n<div class = \"myAttrib\">- Ana Swanson<\/div>\n<\/div>\n<p>Also, the Bagchi and Svejnar correlated a percentage of the billionaires\u2019 wealth to their political connections to the government.\u00a0 This measure of cronyism is supposed to help shed light on the positive and negative mechanisms that cause concentrations of capitol to exist in a country and that lead to wealth inequality.\u00a0 To illustrate this point, Swanson notes that the United Kingdom and Indonesia have similar <a href=\"https:\/\/commoncents.blogwyrm.com\/?p=83\">Gini coefficients<\/a> (I found them to be 38.1 and 38.0, respectively, in the <a href=\"http:\/\/data.worldbank.org\/indicator\/SI.POV.GINI?page=1\">World Bank Gini coefficient table<\/a>) but that the business climate in these two countries are quite different.<\/p>\n<p>The implication of this further analysis helps justify the title of the article \u2013 namely that not all concentrations of capitol come about for the same reasons and some billionaires are better than others.<\/p>\n<p>In a nutshell, what Bagchi and Svejnar concluded were:<\/p>\n<ul>\n<li><a href=\"https:\/\/commoncents.blogwyrm.com\/?p=83\">Gini coefficient<\/a> doesn\u2019t tell the whole story determining national growth<\/li>\n<li>Cronyism is a drag on the economy<\/li>\n<li>Innovation isn\u2019t a drag on the economy<\/li>\n<\/ul>\n<p>Wow!\u00a0 What a big surprise.\u00a0 I would never have seen that coming.\u00a0 Some billionaires actually deserve their fortunes because they enable rather than impede growth.\u00a0 To be fair, Bagchi and Svejnar didn\u2019t actually state that billionaires who earned their money without political connections helped economic growth, simply that they didn\u2019t impede it.<\/p>\n<div class = \"myQuoteDiv\">\n\u201cThe negative effects of wealth inequality are largely being driven by politically connected wealth inequality. That seems to be the primary channel that drives this relationship,\u201d Bagchi said in an interview.<\/p>\n<div class = \"myAttrib\">- Ana Swanson<\/div>\n<\/div>\n<p>There are really two points that are worth addressing.\u00a0 The first one is on methodology.\u00a0 The second is on economic and philosophical outlook.<\/p>\n<p>The methodology employed in the study requires one take the data with a grain of salt.\u00a0 For example, a few, simple queries of the Forbes list, Google, and the World Bank find the following data for Columbia and the United States.<\/p>\n<table style=\"width:100% !important; border-style:none !important\">\n<tbody>\n<tr>\n<th style=\"border-style:none !important; background-color:#ffffff !important;\"><\/th>\n<th colspan=2>Country<\/th>\n<\/tr>\n<tr>\n<th style=\"border-style:none !important; background-color:#ffffff !important;\"><\/th>\n<th><a href=\"http:\/\/www.forbes.com\/billionaires\/list\/#version:static_country:Colombia\">Columbia<\/a><\/th>\n<th><a href=\"http:\/\/www.forbes.com\/billionaires\/list\/#version:static_country:United%20States\">United States<\/a><\/th>\n<\/tr>\n<tr>\n<td>Number of billionaires<\/td>\n<td>3<\/td>\n<td>536<\/td>\n<\/tr>\n<tr>\n<td>Billionaire Wealth Held ($B)<\/td>\n<td>18.5<\/td>\n<td>2564.4<\/td>\n<\/tr>\n<tr>\n<td>Percentage Cronyism<\/td>\n<td>84<\/td>\n<td>1<\/td>\n<\/tr>\n<tr>\n<td>Country GDP ($B)<\/td>\n<td>380.1<\/td>\n<td>18124<\/td>\n<\/tr>\n<tr>\n<td>Billionaire Wealth held as % of GDP<\/td>\n<td>4.9<\/td>\n<td>14.1<\/td>\n<\/tr>\n<tr>\n<td>Crony Wealth Held as % of GDP<\/td>\n<td>4.1<\/td>\n<td>1.4<\/td>\n<\/tr>\n<tr>\n<td>Growth Rate (2013)<\/td>\n<td>4.7<\/td>\n<td>2.2<\/td>\n<\/tr>\n<tr>\n<td>World Bank Gini Coefficient<\/td>\n<td>54.2<\/td>\n<td>41.1<\/td>\n<\/tr>\n<\/table>\n<p>The data in this table do support the idea that the larger percentage of billionaires in the population the slower the growth as the percentage of billionaire-held wealth in the US is almost 3 times higher than that in Columbia.\u00a0 But that\u2019s where the data stop making sense.\u00a0 Bagchi and Svejnar determined that 84% of the billionaire-held wealth in Colombia is due to political ties with the government.\u00a0 In other words, it is due to cronyism.\u00a0 In contrast, they found that only 1% of the billionaire-held wealth in the US is due to cronyism.\u00a0 Making the required adjustments, I found that ratio of Crony Wealth to GDP was 4.1% for Colombia versus 1.4% for the US and yet the Colombian GDP growth rate is double that of the US.\u00a0 Paradoxically, the Gini coefficient, which measures income inequality and is supposed to not be a reliable indicator of the harm that concentrations of capitol have on an economy, seems to be much more correlated with the Bagchi-Svejnar conclusion than their measure of \u2018politically-connected wealth inequality\u2019.<\/p>\n<p>Perhaps the way that they chose to classify billionaire-held wealth is the problem.\u00a0 Well, I don\u2019t have access to the original article so I can only quote what Swanson said<\/p>\n<div class = \"myQuoteDiv\">\nSo Bagchi and Svejnar carefully went through the lists of all the Forbes billionaires, and divided them\u00a0into those who had acquired their wealth due to political connections, and those who had not. This is kind of a slippery slope \u2014 almost all billionaires have probably benefited from government connections at one time or another. But the researchers used a very conservative standard\u00a0for classifying people as politically connected, only assigning billionaires to this group when it was clear that their wealth was a product of government connections.\u00a0Just benefiting from a government that was pro-business, like those in Singapore and Hong Kong, wasn\u2019t enough. Rather, the researchers were looking for a situation like Indonesia under Suharto, where political connections were usually needed to secure import licenses, or Russia in the mid-1990s, when some state employees\u00a0made fortunes overnight as the state privatized assets.<\/p>\n<div class = \"myAttrib\">- Ana Swanson<\/div>\n<\/div>\n<p>Now I\u2019m not asserting that the Bagchi-Svejnar conclusions aren\u2019t correct.\u00a0 They may be for all I know.\u00a0 I am asserting that there seem to be correlations that support some of their conclusions and others that don\u2019t.\u00a0 Causation is another thing entirely.<\/p>\n<p>Now on to the second point on the economic philosophy behind this whole revelatory study.\u00a0 Basically, these two economists claim to have discovered a data-driven conclusion that it matters how people get that wealth and how the government spends its money.\u00a0 In other words, that the basic neo-Keynesian idea about money and spending is wrong.\u00a0 That it is not enough for an economy to get money moving.\u00a0 <a href=\"https:\/\/commoncents.blogwyrm.com\/?p=182\">That is does matter if the work is productive<\/a>.\u00a0 \u00a0That those who say \u201cGo ahead and dig ditches even if you have to fill those ditches back up again.\u00a0 All that matters is that we\u2019ve kept busy.\u201d are wrong.<\/p>\n<p>Of course, Bagchi and Svejnar may not say it quite that way but the conclusion is inescapable.\u00a0 For that matter, Ana Swanson may not say it that either but how else can one interpret the subtitle of her article \u2018Not all inequality is created equal\u2019!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In a recent article in the Washington Post, blogger Ana Swanson reported on a new study in the field of economics that found some revealing and, perhaps, surprising results.\u00a0 The... <a class=\"read-more-button\" href=\"https:\/\/commoncents.blogwyrm.com\/?p=218\">Read more &gt;<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-218","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/218","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=218"}],"version-history":[{"count":17,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/218\/revisions"}],"predecessor-version":[{"id":1219,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/218\/revisions\/1219"}],"wp:attachment":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=218"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}