Expectations of the rich

September 20, 2010

This is a fantastic piece from Delong, the economist at Berkeley.  This section on increasing inequality at the top of the wealth distribution is illuminating:

He doesn’t say: “Wow! My real income is more than twice the income of somebody in this slot a generation ago! Wow! A generation ago the income of my slot was only twice that of somebody at the bottom of the 10% wealthy, and now it is 3 1/2 times as much!” For he doesn’t look down at the 99% of American households who have less income than he does. And he looks up. And when he looks up today he sees as wide a gap yawning above him as the gap between Dives and Lazarus. Mr. Henderson doesn’t look down.

Instead, Mr. Henderson looks up. Of the 100 people richer than he is, fully ten have more than four times his income. And he knows of one person with 20 times his income. He knows who the really rich are, and they have ten times his income: They have not $450,000 a year. They have $4.5 million a year. And, to him, they are in a different world.

And so he is sad. He and his wife deserve to be successful. And he knows people who are successful. But he is not one of them–widening income inequality over the past generation has excluded him from the rich who truly have money.

It reminds me of a conversation I had recently with my father.  I was relating my recent (and belated) reading of Polanyi’s The Great Transformation and he was recounting a lecture that argued that critical to our modern economic system was the commercialisation of envy — that desiring or coveting what another possesses is the driving force of our demand-driven economies.  This suggests the causal mechanism operating on the rich — if those around you are becoming richer (or you become increasingly aware of those in the upper echelons of the top 1%, versus those in your immediate vicinity), you will covet more and more.  In addition, I would suggest that this mechanism was mitigated by social norms of modesty and gratefulness.  And that, in addition to increasing inequality at the top, this counteracting mechanism is increasingly unable to discourage the (already) rich from complaining about their lot.

Rodrik asks whether China’s mercantilism policies and its undervalued currency, the renminbi, has a positive or negative effect on other developing countries.

Arvind Subramanian from the Peterson Institute takes the negative position, arguing it makes the goods of other developing countries less competitive on international markets.

Helmut Reisen from the OECD takes the positive position, because the growth of many poorer countries are (increasingly) dependent on China’s growth.

Rodrik argues for the former, but focuses on the type of growth the two positions imply.  The latter sees growth in the provision of primary materials to China, which does the value-adding and final export to international markets.  The former encourages other developing countries to re-structure away from primary goods to higher productive activities, such as manufacturing and service provision.

I think it’s probably difficult to generalise to all other developing countries.  Some countries would have a tougher time re-structuring their economies.  For example, some African countries that export primary materials to China would surely struggle to re-structure their economies; whereas countries like Indonesia would surely benefit from doing more value-adding in country rather than becoming increasingly reliant on primary exports to China?

Here’s the link to the article:

Interesting.  According to an article by Beresford (1957), common informers who made money from reporting misdeeds of fellow citizens to the legal system accounted for a substantial proportion of cases in economic law in the 16th and 17th Century England.  Bacon (1939) writes that this was also the case in the early American legal system.

Cited in Black (1973), The Mobilization of Law, Journal of Legal Studies, 130.

Fascinating article on the rise of judicial elections in the US during the 19th Century by Shugerman of Harvard Law School.  Available on SSRN here.  Here’s the abstract:

Almost ninety percent of state judges today face some kind of popular election. This peculiar institution emerged in a sudden burst from 1846 to 1853, when twenty states adopted judicial elections. The modern perception is that judicial elections, then and now, weaken judges and the rule of law. Indeed, some critics of judicial power in the early republic supported judicial elections for precisely those reasons, but instead, they focused on other more direct attacks on the courts.

Judicial elections swept the country in the late 1840s and 1850s and the key was a new movement to limit legislative power, to increase judicial power, and to strengthen judicial review. Over time, judicial appointments had become more a tool of party patronage and cronyism. Legislative overspending on internal improvements and an economic depression in the early 1840s together had plunged the states into crippling debt. A wave of nineteen states called constitutional conventions from 1844 to 1853, and in addition to direct limits on legislative power, these conventions adopted judicial elections. Many delegates stated that their purpose was to strengthen the separation of powers and to empower courts to use judicial review.

The reformers got results: elected judges in the 1850s struck down many more state laws than their appointed predecessors had in any other decade. These elected judges played a role in the shift from active state involvement in economic growth to laissez-faire constitutionalism. Oddly, the first generation of elected judges were the first to justify judicial review in countermajoritarian terms, in the defense of individual and minority rights against abusive majorities and the “evils” of democracy. This Article concludes with lessons about judicial independence and democracy from this story.

And some key conclusions from the end of the article:

First, judicial elections were not inevitable, but rather arose from a contingent set of events and passionate leaders that reframed the role of the judiciary from a threat to democracy to the protector of democracy.

Second, the concepts of judicial independence and the rule of law were popular and essential to the adoption of judicial elections. Today’s reformers can borrow from the Barnburners’ playbook by arguing that independent courts protect both democracy and law, rather than assuming that the two are inherently in conflict.

Finally, institutional change can move surprisingly fast: Judicial elections swept the nation in five short years, more or less. Perhaps there is another wave on the horizon that will revive the American Revolutions of 1848: a stronger judi‐ ciary for the people, by the people, and more able to stand up to the people when necessary.

The new bill, introduced by David Bahati of the governing National Resistance Movement (NRM), will raise the penalty for engaging in homosexual acts from 14 years to life imprisonment, allow the death penalty for some homosexual acts (those involving a minor, disabled or HIV positive persons), and allow those who counsel or support homosexuals to be jailed for up to seven years. No one has been convicted under the existing laws.

According to BBC, the law has divided political actors: the Inter-Religious Council of Uganda (IRC) and the Minister of Ethics and Integrity support the bill; whereas 17 local and international rights groups oppose the new legislation (unclear how many local, how many international).  Sweden has threatened to withdraw its $30m of budget support, and the Commonwealth has urged Uganda to consider its rights record.  President Museveni has not indicated his position, which the BBC suggests is the result of Sweden’s threat.

My question, does donor advocacy on such issues undermine local social movements?  There are many countries that have human rights included in their constitutions–Kenya’s is a cut-and-paste job of the ECHR–but where rights are included without a strong social basis, what are the prospects for their implementation/fulfillment?

BBC article here.

Update: A NYT editorial on the involvement of three American evangelical Christians who gave a series of anti-gay and -lesbian talks to various government officials just months before the recent push for the repressive legislation.

The BBC reports from Nigeria that the swearing in of the new Chief Justice by the outgoing Chief Justice is illegal.  According to an unnamed lawyer the Chief Justice must be sworn in by the President, Umaru Yar’Adua, who is currently hospitalized in Saudi Arabia.  The article reports the current ceremony was based on the Oaths Act.

Link to the article here.

While visiting Australia last summer (actually winter) I decided to read some Australian history, something I’ve been wanting to do in some time.  There’s obviously a lot written, but in the end I settled on four main works: One, an overview piece, MacIntyre’s Concise History of Australia; two, a topical and more controversial piece, Hirst’s Sense and Nonsense in Australian History; and three and four, two more in-depth pieces on issues that caught my eye: H. V. Evatt’s study of the Rum Rebellion of 1808 and Alan Morse’s account of the establishment of local government.  I won’t summarize the books–as it turns out they all have their strengths and weaknesses–but in separate posts I’ll highlight some issues or events that I thought were interesting.

The state of economics

September 23, 2009

The debates stimulated (pun intended) by Krugman’s recent article in the NY Times Magazine are incredible.  Here’s Krugman’s sensible article; here’s Cochrane’s rebuttal.  And here is Brad Delong ripping into some incredible comments of “freshwater” economists.

I find the freshwater economists slavish dedication to so-called Ricardian Equivalence particularly disturbing. Here’s Cochrane:

In economics, stimulus spending ran aground on Robert Barro’s Ricardian equivalence theorem. This theorem says that debt-financed spending can’t have any effect because people, seeing the higher future taxes that must pay off the debt, will simply save more.

And here’s a graph showing US  government debt:

US National Debt-GDP

And here’s a graph showing US savings:

US Savings Annual

Something wrong?  The relationship seems to hold during WWII, although saving was appparently enforced as government policy during the war, but for the last 30 or so years Ricardian Equivalence seems to have been forgotten: government debt has increased signficantly while savings has declined. This trend is likely to change in the near future, as government debt increases, but surely this is due to households repairing severely over-leveraged household balance sheets rather than expectations of future taxes.

I really think it’s a fascinating time to begin a PhD, as for me the crisis has helped me to understand systems and policies that were previously taken for granted.  That said, I think there’s been some over reactions–that the crisis marks the death of capitalism.  I think what is more at stake (again) is a certain form of neo-classical, deregulated, laissez faire capitalism–which many thought was finished in 1929!

Interesting article from the Mail & Guardian on the state of judicial independence in South Africa. Citing comments from the Western Cape Premier, Hellen Zille, it suggests the judiciary is becoming a tool of internal party machinations. A way to keep Zuma inline and to quickly remove him should the political winds change.

The relationship between legal institutions and politics is something I plan to look at as part of my DPhil research, and South Africa could potentially be one of my case studies.  Still, it’s (very) early days.

I don’t think anyone reads this blog, but, should they, I’d appreciate any suggestions for further reading on South African legal politics specifically as well as law and politics more generally…

Ethics in Development

September 14, 2009

Skidelsky, in his biography of John Maynard Keynes, discusses to considerable length the late 19th – early 20th Centuries preoccupation with distinguishing between good means and good ends—in the context of changing social and ethical values.  The distinction Skidelsky draws is between Intuitionism and Utilitarianism, and he spends considerable time on the debates that raged about JMK while he was in Cambridge as an undergraduate in the 1900s. Although I’m less than a third along, he seems to be suggesting that these ethical shifts provided the basis for his character and possible also his economics and economic policy.

Given JMK’s centrality to 20th Century economics (and arguably government), I wonder whether there is a good paper that explores the ethics of development?  Certainly there is a belief—I have certainly had such thoughts during my time in Indonesia—that development (and nation building) should be undertaken on ethnical grounds?  Development implies change. Should (or is) this change be informed by ethics?  Certainly Sen’s Development as Freedom gives development means a utilitarian value and, following in the footsteps of G.E.Moore, seems to suggest that certain states of mind have an utilitarian value in themselves.

But what are the implications for a development practitioner? It certainly leads to a number of questions:

What or whose ethics?  The Human Rights-based Approach to Development (HRAD) is one attempt to put development on an ethical footing?  Such a framework arguably has broad international commitment due to the widespread ratification of the ICCPR and ICESCR. Less controversially, or perhaps just less legally, the current international commitment to accountability, transparency and participation, etc. incorporates a similar concern with ethical means.

When do the ends justify the means and, more importantly, who should make such inherently ethical decisions?  For example, any instance of HRAD will require interpretation in a particularly situation–who should make these decisions? And how?  In developed countries the formal legal system seems to be increasingly involved in the determination of appropriate means.  But is such a method always appropriate or even possible? Certainly it requires highly sophisticated institutional arrangements.

How does this look practically?  Safeguards at the World Bank are one example whereby the Bank demands compliances with certain ethical means in the execution of projects.  It’s also a reason why many countries no longer want to lend from the Bank, and would rather take “ethic-free” loans from the likes of China.

A large subject…