Income Inequality can Exacerbate Poverty

The whole idea of money having a fixed value is true only in the limit that each of us has comparable access to money. We don’t have to have strict equality, but the creepy dynamics are at the margin.

Urban dwellers in the US are familiar with the dynamic. Old neighborhood falls apart. Starving artists move in and make it a core cultural resource for the city. Prices go up. The artistic types who saved the neighborhood are driven out. Community is replaced by decay, decay by art, art by commerce. In the end, this is chalked up as a win, but the winners aren;t the folk who deserved to win.

Food is another example. A rich person may have non-food uses for what a poor person ordinarily eats. You think this is a bizarre idea? Well it isn’t, and not just because of biofuels. The rich person wants meat – most meat nowadays is a repurposing of grain, essentially wasting 90% of the food energy for a mixed bag of benefits and drawbacks regarding nutrients, but a perceived win on food palatability.

A Guardian article by Joanna Blythman dances around the economics of inequality, but a new case in point is coming up. Quinoa was a staple in the Andes, and now it is a desired luxury by well-to-do vegans and near-vegans like myself. Through no fault of my own I am apparently disrupting the flow of staple foods to peasants, their local landscape and ecology, and their social structures.

Blythman writes:

In fact, the quinoa trade is yet another troubling example of a damaging north-south exchange, with well-intentioned health and ethics-led consumers here unwittingly driving poverty there. It’s beginning to look like a cautionary tale of how a focus on exporting premium foods can damage the producer country’s food security. Feeding our apparently insatiable 365-day-a-year hunger for this luxury vegetable, Peru has also cornered the world market in asparagus. Result? In the arid Ica region where Peruvian asparagus production is concentrated, this thirsty export vegetable has depleted the water resources on which local people depend.

This misses the key point. The question here is not how to layer more guilt on the already guilt-ridden. It’s how to make the economic signals actually line up with well-being.

I’m not going to stop eating quinoa because that will not put the genie back in the bottle. Instead I’m going to argue that all politics is global.

Comments:

  1. Inequality exists. If you are thinking globally, it is decreasing rapidly. It is only when you look locally, at activity within countries, that you notice that within some countries inequality is increasing.

    The reason it is decreasing globally is globalization and its effects on poverty, which is reducing rapidly.

    The reason it is increasing locally, or at the national level, is globalization, as some are able to get global contributions to their income instead of merely national.

    • I'm unconvinced. Evidence please?

      I do agree that poverty rates have gone down and many countries have been pulled out of abject poverty. And I do agree that is a good thing. But my claim is different.

      My claim is that the spread of wealth remains very broad, and this leaves the poorest vulnerable in ways that would be true were the spread narrower. This means their gains are not stable.

      I do not know if by any measure income inequality is getting better or worse on a global scale. This is different from the fact that many formerly poor countries are doing much better, as Hans Rosling is constantly pointing out. You claim that inequality is "decreasing rapidly". By what measure or measures?

      My point is to claim this quinoa story as an example of how disproportionate access to capital leaves poorer people increasingly vulnerable to shifts in the global marketplace.

      • http://archive.treasury.gov.au/documents/110/PDF/Round2.pdf

        http://www.piie.com/publications/chapters_preview/348/11iie3489.pdf

        http://cje.oxfordjournals.org/content/28/2/229.short

        and for perspective and some interesting discussion,

        http://www.peri.umass.edu/338/

  2. Here's a different sort of example: http://news.ninemsn.com.au/technology/2013/01/17/12/55/programmer-outsources-his-own-job-to-china

  3. You want "Global income inequality by the numbers : in history and now -an overview" http://tinyurl.com/b3jjp33 as a 2012 working paper from the World Bank. Surprisingly clear and informative - everything you want to know in 30 pages, strength of within versus between country differences (which have very different societal implications),with political and historical implications, etc. It states that global inequality has decreased from 1988-2008, although gains seem marginal. See same author, any many others, for why rank inequality is a bad thing (backing MT's general point).

    • Sven, I think we can learn something from the struggle for full equality for females when we talk about inequality.

      Some (but certainly not all--maybe not even a majority) now say that in the U.S., a focus on the glass ceiling led to reduced efforts to establish a 'concrete floor' for incomes and benefits for women. Those who say this think it may have been a strategic error.

      In the 19th and early 20th centuries, those in possession of great wealth actually possessed a significant portion of the GDP of the country where they lived. Nowadays in rich countries, the wealth amassed by Gates or Buffett wouldn't be even an asterisk in the accounts of the U.S. Individual wealth is not important in the developed countries. Hence, neither is inequality.

      Real poverty is. Every human we bring out of poverty counts--and funnily enough also reduces inequality.

      I don't care about putting limitations on the rich. I care about reducing the number of those who are poor.

      It is different in the developing countries where corruption can hijack a very real portion of a country's wealth into the hands of a corrupt elite.

      That needs to be addressed by a new set of international agreements, financial regulations and firm guidelines for companies doing business in those countries.

      But ceasing to tolerate criminality is different than reshaping the global economic system. (It's also easier.)

      Let's catch crooks, repatriate their ill-gotten gains and continue with the real work of reducing poverty.

  4. @Thomas Fuller,

    Agreed that alleviating absolute poverty is indeed an absolute priority. There is very good evidence that a dollar buys much more social good as you go down the income distribution, e.g. child mortality vs. per capita GDP is approximately log-log linear (a simplistic argument for restribution as well as economic growth). Although one can speculate that increased equality is not unequivocally good for the environment, I guess that $50 million dollars of air conditioners for new middle class in India may produce more GHG emissions than $50 million worth of yacht for Larry Ellison.

    However, assertion that inequality is not important in developed countries is odd - there is empirical evidence that inequity (as well as absolute level) is a strong explanatory variable for important social outcomes - again health a good example. As well as qualitative evidence of undemocratic access to levers of power at the very top end.

    And of course, yes to concrete floors, catching crooks, reduced corruption, capital flight and tax avoidance, in developing countries and everywhere else.

  5. In this country, the social safety net has weakened as inequality has increased, while the rich have scored tax cuts for themselves. Sure, correlation is not causation, but it makes one wonder.


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