Thursday, June 4, 2015

Roll over, Mao

The People's Daily (China) allows London School of Economics scholar Frank Cowell space to speak sense to the power hungry;
The claim about the richest one percent is designed to shock. But what does it really mean? Finding the answer is a little tricky, partly because of the problems of making meaningful international comparisons: when we try to compare wealth-holdings in nations with very dissimilar economic and social systems it can be difficult to ensure that types of asset are essentially the same in both places and that the assets are being valued at an appropriate price. But the answer is also tricky because wealth is a trickier concept than income. For example, within the 99 percent who are the people with zero wealth? Do they all live in desperately poor parts of Africa? Not really: they may be people in rich countries who just happen to be observed at a stage in their lifecycle where debts equal the current value of their assets; catch the same people at a different stage of their life (when the mortgage is paid off) and they will be revealed to be quite wealthy.
Which is why, earlier, Cowell warned;
...there is a danger in this well-meaning desire to "do something". What that "something" ought to be surely depends on the forces that have generated the inequality in the first place. Under normal circumstances – apart from emergencies generated by political upheavals or by war, for example -- changes in income inequality are mainly transmitted through market mechanisms. Of course economic mechanisms can be modified and regulated, just as physical mechanisms can be modified or regulated by a clever engineer. But playing with a mechanism that you don’t understand is usually a mistake.
It's also politics. Not economics.

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