Thursday, October 20, 2016

Arnold Harberger: Is Growth Yeast or Mushrooms?

Economic growth would be a socially easier process if it was smooth and even across society: that is, if most people could just get steady raises for doing their same jobs a little better each year. When growth benefits some and not others, or even benefits some while imposing losses and costs of transition on others, then controversies arise.

Arnold Harberger offered a nice metaphor thinking about this difference in his Presidential Address to the American Economic Association back in 1998, entitled "A Vision of the Growth Process" and published in the March 1998 issue of the American Economic Review.  Harberger discusses whether economic growth is more likely to be like "mushrooms," in the sense that certain  parts of a growing economy will take off much faster than others, or more like "yeast," in the sense that economy overall expands fairly smoothly overall. He argues that "mushroom"-type growth is more common. Harberger writes:
"The analogy with yeast and mushrooms comes from the fact that yeast causes bread to expand very evenly, like a balloon being filled with air, while mushrooms have the habit of popping up, almost overnight, in a fashion that  is not easy to predict. I believe that a "yeast" process fits best with very broad and general externalities, like externalities linked to the growth of the total stock of knowledge or of  human capital, or brought about by economies of scale tied to the scale of the economy as a whole. A ''mushroom'' process fits more readily with a vision such as ours, of real cost reductions stemming from 1001 different  causes, though I recognize that one can build scenarios in which even 1001 causes could  work rather evenly over the whole economy. Personally, I have always gravitated toward the "mushrooms" side of this dichotomy. I remember being impressed, when I first saw some early industry estimates of TFP [total factor productivity] improvement, by their tendency to industry concentration."
To put this another way, a lot of the policies for encouraging economic growth--like investing in human capital, technology, infrastraucture, and a supportive institutional environment for innovation--seem to suggest the possibility of broadly shared economic gains. But the economic growth that results will often be often mushroom-like and disruptive, affecting certain industries, localities, and kinds of workers more than others.

Paul Romer, who recently accepted the position of Chief Economist at the World Bank, recently  offered on his blog a summary of the social problem that then arises in a pithy aphorism: "Everyone wants progress. Nobody wants change."

Wednesday, October 19, 2016

How Do the French Do it?

From an economic point of view (and doubtless from other points of view, as well), the French present a puzzle. France is often perceived as having a government that practices heavy-handed intervention into the economy, sometimes known as dirigisme, but it is also obviously a high-income economy and has been a high-income economy for decades. So does this mean that France is less heavy-handed in economic interventionism than its reputation suggests? Or that the French have discovered an especially growth-friendly version of heavy-handed interventionism? How does France manage this balancing act?

Pierre Lemieux tackles this question in his essay "France: The end of the road, again?" in the Fall 2016 issue of Regulation magazine  (pp. 34-41). I was also reminded of an essay by Olivier Blanchard, "The Economic Future of Europe," which often uses France as a specific example an appeared in the Fall 2004 issue of the Journal of Economic Perspectives (where I have labored in the fields as Managing Editor since the first issue in 1987).

Both Lemieux and Blanchard point out that concerns about how the French government has a tendency to overcentralize its power and decision-making go back a long time. Lemieux points out that his was a theme of Tocqueville's back in 1856, in The Ancient Regime and the French Revolution. He also mentioned that in 1970, French sociologist Michel Crozier published The Stalled Society. In 1976, Alain Peyrefitte wrote Le mal français (“the French disease”). Blanchard pointed out that in the year before his 2004 article, two books that made the estseller’s list in France were La France qui tombe (The fall of France), by Nicolas Baverezm and Le desarroi Francais (The French disarray), by Alain Duhamel. Lemieus refers to a book published last year by Gilbert Cette and Jacques Barthélémy published Réformer le droit du travail (Reform the Labor Code).

As a starting point, here's some evidence on the higher degree of regulation in the French economy. Lemieux notes: "Public expenditures amount to 57% of French gross domestic product, the fourth-highest percentage in the OECD, after Greece, Slovenia, and Finland. This compares to 45% for the OECD unweighted average and 39% for the United States." In measures of "economic freedom" for the countries of the world, the US tends to rank around 10th, while France tends to rank around 70th.

However, Lemieux also offers some evidence on the other side: "Not all industries are more regulated in France than in America. The OECD’s Services Trade Restrictiveness index shows France as less regulated than the United States in commercial banking, insurance, broadcasting, and many modes of transport. Even the labor market is less regulated in France with regard to many trades and professions. In the United States, nearly 30% of jobs require a license." Moreover, France (like many other economies) has gradually been moving in the direction of less regulation.

But the area of labor market rules, in particular, is one where France stands out as especially heavy-handed. For example, although only about 8% of French workers are officially union members, 98% of French workers are covered by collective bargaining. Lemieux writes:
"[A]ny firm of more than 49 employees must create a “work council” (comité d’entreprise) chaired by a representative of the owners but composed of trade union representatives and representatives elected directly by the employees. Consultation of the work council is compulsory on many business decisions. Even businesses of 11–49 employees are forced to allow the election of employee representatives. To appreciate the spirit of the 2,880-page labor Code, consider that the French government is currently pushing businesses to negotiate with their workers’ representatives a “right to disconnect,” referring to after-hours work-related electronic communications. The Department of labor, Employment, Occupational Training, and Social Dialogue (why they didn’t add “General Happiness” to the name is a mystery) explains that “the employees of a large firm are not obliged to answer emails outside of office hours.”
As another example, here's a figure about "employment protection" from 2015 OECD Economic Survey of France--basically, how hard it is for a firm to fire or lay off workers. The figure shows the US and Canada off on the far left, with little employment protection, while France is off near the far right.

Lemieux notes: "Because of the cost of firing employees, firms are incited to resort to short-term labor contracts, a loophole that further regulations have tried to limit. In France, a short-term contract may not extend beyond 24 months. The employed work force has thus acquired a dual structure: on one side, the “insiders”—regular workers protected against dismissal; on the other side, the “outsiders,” who survive on short-term contracts and hop fromjob to job. Outsiders make up about 15% of the employed, a proportion that climbs over 50% in the 15–24 age category."

The minimum wage in France is also comparatively high compared to other countries. Here's a figure from a a 2015 OECD report on minimum wages, which shows minimum wages as a percentage of the median wage in the country. Again, the US is off on the left, with a minimum wage about 35% of the US median wage, while France is off near the right, with a minimum wage at about 60% of the median wage.

Here's the unemployment rate in France during the last couple of decades, from the Trading website. It seemed for a time in the early 2000s as if France was making some progress on its unemployment rate issues, even if the unemployment rate had only fallen to a still-unsatisfactory 7.5%. But now the unemployment rate is back up around 10% again, and has been there for three years. For comparison, remember that in the aftermath of the Great Recession, the US unemployment rate peaked at 10% in October 2009, before starting a long glide down to the current rate of 5%. Try to imagine the political turmoil in the US if the unemployment rate was higher now, seven years after 2009. That's the situation in France.

France Unemployment Rate

If you focus only on the youth unemployment rate in France, it's been roughly at 24-26%  since 2009. Of course, France's labor market regulations aren't the only cause of unemployment and lower labor force participation in France, the generally torpid European economy bears a large share of the blame. But the many labor market regulations aren't helping, either.

The result of these labor market regulations is that France is running a high-powered modern economy for many of those who have jobs, but with high unemployment or temporary work for many others. Blanchard offered an interesting summary of the situation in his 2004 JEP essay. The table shows that when looking at GDP per capita, France went a little backward compared to the US from 1970 to 2000. However, if one looks at GDP per hour worked during this time, France  caught up to the US level, while if one looks at hours worked per capita, France started at above the US level in 1970 but then declined to 71% of the US level by 2000.

In short, the French are very productive during their working hours. But the French now work many fewer hours per capita, in part because the labor force participation rate (the share of adults either employed or looking for work) is lower in France, in part because of continuing high unemployment rates, and in part because a number of jobs have more vacation per year than is common in the US.

A couple of warnings about those  high rates of productivity in France should be noted. One is that in the US, lower-wage and lower-productivity worker are more likely to have jobs than in France. As a result, France's higher productivity is in part because a substantial share of those who would tend be the lower-productivity workers (like young workers, for example) just aren't working at all.

The other concern is that productivity in France has in fact started to lag, starting in the mid-1990s, especially if one looks at "multifactor" productivity, which doesn't just divide output by hours worked, but also adjusts for other inputs like capital investment. Blanchard had raised this possibility in his 2004 essay, noting that while the evidence at the time of his writing was not yet decisive, "most observers now believe that we have indeed seen a change in relative trends [of productivity growth in the US and continental Europe], starting around 1995." Lemieux cites other evidence and writes:
"Since the mid-1990s, France and many other European countries (but not the UK) have suffered a widening gap with the U.S. standard of living. During that period, the culprit was the slowdown of multifactor productivity growth, especially noticeable in France. According to another paper by Cette and Lopez, the underlying causes were a slower diffusion of the new information technologies, structural rigidities in labor and product markets, and a less educated working population. From 1995 to 2012, French GDP per capita grew at a meager 1% per year."
None of this discussion should be read as a prediction of doom for the French economy, which  seems certain to remain a high-income economy. But it does suggest that French dirigisme is not cost-free: specifically, the costs in the last couple of decades are measured in elevated unemployment, lower labor force participation rates, a larger number of temporary jobs, and sluggish growth in productivity and the standard of living.

Tuesday, October 18, 2016

Global Debt Hits All-Time High

Global debt is at an all-time high: specifically, "nonfinancial debt," which is the combined debt of governments, households, and nonfinancial firms in the 113 countries that make up 94% of world GDP. The IMF discusses the situation in its "Fiscal Monitor" for October 2016, which is subtitled "Debt: Use it Wisely." The report starts (footnotes and citations omitted):
"The global gross debt of the nonfinancial sector has more than doubled in nominal terms since the turn of the century, reaching $152 trillion in 2015. About two-thirds of this debt consists of liabilities of the private sector. Although there is no consensus about how much is too much, current debt levels, at 225 percent of world GDP (Figure 1.1), are at an all-time high. The negative implications of excessive private debt (or what is often termed a “debt overhang”) for growth and financial stability are well documented in the literature, underscoring the need for private sector deleveraging in some countries. The current low-nominal-growth environment, however, is making the adjustment very difficult, setting the stage for a vicious feedback loop in which lower growth hampers deleveraging and the debt overhang exacerbates the slowdown. The dynamics at play resemble that of a debt deflation episode in which falling prices increase the real burden of debt, leading to further deflation."

A few thoughts about this situation:

1) As the figure makes clear, the real debt issue here involves the US and China. The red dashed line, which shows global debt/GDP for the world not counting the US and China, shows only a modest rise over this period, from about 205% of GDP in 2002 to less than 215% of GDP in 2015. As economies grow and develop, one of the standard changes is that a financial sector develops, too. But if one includes the US and China, the global debt/GDP ratio rises from about 200% in 2002 to 225% in 2015, which is a quite substantial bump (remember, we're talking relative to global GDP here!) in 13 years.

2)  Of course, global averages will conceal a number of individual countries which are above-average or below-average in substantial ways. Compared with historical experience, the private sector in the US and other high-income countries has not been deleveraging as quickly as usual since the end of the recession, but for advanced economies the rise in private debt (as a share of GDP) at least leveled off back around 2010 and has even declined a bit.

At present, the bigger worry should be about rising private sector debt in some large emerging market economies. China's debt buildup poses some real concerns: from 2008-2015, its private nonfinancial debt increased by about 70% of China's GDP; in Brazil, the increase over that time is about 30% of GDP; in Russia, 25% of GDP. As the report notes: "In a few systemically  important emerging market economies, private credit has expanded briskly in recent years. The speed  of the increase dangerously resembles that in advanced economies in the run-up to the global financial crisis."

3) The sector that is accumulating debt is shifting. Before the Great Recession, it was primarily households; since then, it's been primarily government. However, this is a shift that has some economic justification. When a society has built up a lot of private sector debt, and then the economy slows dramatically, one of the ways to help a share of that debt get paid off is to get the economy growing again--and public debt can be a way to do that, at least for a time.

4) There's no simple way out of a situation where private debt has gotten excessive, as the world economy learned during the Great Recession and its aftermath. Getting the economy growing again is a huge help, because it means fewer borrowers will end up in default. When cutting a deal to address problems of debt overhand and bad loans, there can sometimes be a role for government loan guarantees when private-sector actors agree to take losses, but the government puts some limit on how large those losses will be.  Restructuring banks and financial institutions so that they are required to address problems of bad loans in the past and hold more capital against the risks of future bad loans is a help. Once a debt overhang situation has occurred, then helping get the bulk of the debt problem into the rear-view mirror  is a legitimate goal of public policy.

Monday, October 17, 2016

How Clones Can Experience Unequal Economic Outcomes

A certain amount of economic inequality is just luck. At the extreme, some people win the lottery, and others don't. But there is also the potential for more subtle kinds of luck, like two equally talented entrepreneurs, where one business happens to take off while the other doesn't. Or two equally talented workers who go to work for similar-looking companies, but one company takes off while the other craters. Richard Freeman discusses the research literature on why this final example might be significant enough to play a role in overall economic inequality in the US in his essay, "A Tale of Two Clones: A New Perspective on Inequality," just published by the Third Way think tank. Freeman sets the stage like this (footnotes omitted):
"[C]onsider two indistinguishable workers, you and your clone. By definition, you/clone have the same gender, ethnicity, years of schooling, family background, skills, etc. In 2006 you/clone graduated with identical academic records from the same university and obtained identical job offers from Facebook and MySpace. Not knowing any more about the future than the analysts who valued Facebook and MySpace roughly equally in the mid-2000s, you/clone flipped coins to decide which offer to accept: heads – Facebook; tails – MySpace. Clone’s coin came up heads. Yours came up tails. Ten years later, Clone is in the catbird’s seat in the job market — high pay, stock options, a secure future. You struggle. Back to university? Send job search letters to close friends? Ask distant acquaintances to help? The you/clone thought experiment may seem extreme, but recent research that I have conducted with colleagues finds that the earnings of workers with near-clone similarity in attributes diverged so much by the place they worked that rising inequality in pay among employers has become the major factor in the trend rise in inequality. ... The labor market has been dominated by economic forces that pull the wages of firms further apart from each other, motivating our analysis of the role of employers in increasing inequality." 
In other words, a lot of inequality is about where you work. The rise in equality is linked to differences across what firms are paying employees who appear to be similarly qualified. As Freeman acknowledges, this argument that this is a quantitatively important cause of rising inequality isn't ironclad at this point, but it's highly suggested in several ways of looking at the data: Freeman  writes:
"This implies that 86% ... of the trend increase in inequality [from 1977-2009] occurs among people with measurably the same skills, whereas just 14% of the trend increase comes from changes in earnings among workers with different skills. The big surprise in the exhibit is that the inequality of average earnings among establishments increased by the same 0.147 points [measuring variance of natural log of earnings, a standard measure of inequality of earnings] as did inequality among workers with the same characteristics. This suggests that all of the increase in inequality among similar workers comes from the increase in earnings at their workplaces." 
Or here is a figure suggesting a linkage from firm earnings to individual inequality of earnings. The blue line shows the change in individual earnings along the income distribution from 1992-2007. As one would expect, given the rise in inequality, those in the bottom percentiles of the income distribution do worse, while those in the top percentiles of the income distribution do better. But now, notice that the blue line for individual earnings almost matches the orange line for firm earnings. That is, there has also been widening inequality in firm earnings, with those at the bottom of the earnings distribution also seeing a decline from 1992-2007 and those at the top seeing an increase. Freeman also offers evidence that those who stayed at firms have seen their earnings change with the fortunes of the firm--thus contributing to overall inequality. As he writes; "In sum, changes in the distribution of earnings among establishments affect the change in earnings along the entire earnings distribution and the increased advantage of top earners compared to other workers."

What makes it possible for successful firms to pay workers more? The answer must be rooted in higher productivity for those firms. Indeed, productivity seems to be diverging across firms, too.

Indeed, as Freeman emphasizes, this figure shows that the equality of revenue per worker--a rough measure of productivity at the firm level--is diverging faster than inequality of wages across firms. Moreover, Freeman argues that a similar pattern of productivity divergence across firms is happening within each sector of the economy.

 Freeman's evidence is consistent with some other studies. For example, last year I pointed to an OECD report on The Future of Productivity, which argued that while cutting-edge frontier firms continue to see strong increases in productivity, the reason for slower overall rates of productivity is that other firms aren't keeping up.

Thinking about inequality between similar workers may alter how one thinks about public policies related to underlying determinants of inequality. For example, it may be important to think about how productivity gains diffuse across industries and how that process may have changed. I suspect there is also some element of geographical separation here, where firms in certain areas are seeing faster productivity and wage increases, and so thinking about mobility of people and firms across geographic areas may be important, too.

Saturday, October 15, 2016

A Coffee Store Not Aimed At Economists: Bulletin Board Material

For economists, a "cartel" refers to a group of firms jacking up prices to exploit consumers. Thus, I infer that this Arizona-based chain of coffee shops is not seeking the business of economists.

The company's website features comments like "WE ARE CARTEL" and "JOIN THE CARTEL." I know nothing about the company's thinking in using the term. I suppose the use of "cartel" may be an ironic comment on the really big coffee-store chains; or perhaps it just sounded cool; or perhaps the company is trying to emphasize the cooperative nature of what happens inside a cartel, while deemphasizing the costs imposed on everyone outside a cartel. But for an economist, telling a consumer to do business with a cartel is like telling the sheep that it's time for shearing.

Hat tip: Victor Claar spotted this store at the Phoenix Airport and posted this picture on Facebook.

Friday, October 14, 2016

The Economics of Noncognitive Skills

When most people think about the goals of education, their minds turn to cognitive skills involved in reading, writing, 'rithmetic, and reasoning. We think about test scores on the well-known US-based tests of cognitive ability like the SAT, ACT, National Assessment of Educational Progress, or international tests like the TIMSS (Trends in International Mathematics and Science Study), PIRLS (Progress in International Reading Literacy Study), and PISA (Programme for International Student Assessment). But maybe we should instead be putting more focus on how students score on some lesser-known tests like the Rotter Locus of Control scale and the Rosenberg Self-Esteem scale. These and other tests that seek to measure noncognitive skills. which are "social, emotional, and behavioral skills" that "include qualities like perseverance, conscientiousness, and self-control, as well as social skills and leadership ability."

For a lot of jobs in the US economy, the problem isn't a lack of measurable cognitive skills: that is, it's not that employers are seeing a wave of job applicants who are truly illiterate or innumerate, or who are unable to complete a particular course or certification. Quite often, the problem as perceived by employers is that job applicants and young workers lack the necessary noncognitive skills. For
example, an article in the Wall Street Journal in late August noted:
"The job market’s most sought-after skills can be tough to spot on a résumé. Companies across the U.S. say it is becoming increasingly difficult to find applicants who can communicate clearly, take initiative, problem-solve and get along with co-workers. Those traits, often called soft skills, can make the difference between a standout employee and one who just gets by."
Diane Whitmore Schanzenbach, Ryan Nunn, Lauren Bauer, Megan Mumford, and Audrey Breitwieser offer an overview of some economics on these issues in "Seven Facts on Noncognitive Skills from Education to the Labor Market" (Hamilton Project at the Brookings Institution, October 2016).

The US Department of Labor looks at the variety of tasks that are required by different occupations. Over time, their analysis has shown a trend away from routine tasks (which of course are more prone to being replaced by software programs and robots), with a shift toward service tasks and social tasks. By comparison, the use of math/analytical tasks has risen only a bit. Of course, jobs are usually mixture of these skills, so this information should be understood as showing that the social and service part of a lot of jobs is rising, while the routine component of a lot of jobs is falling.

While it's true that on average, those with greater cognitive skills also tend to have greater noncognitive skills, the relationship is definitely not one-to-one. Schanzenbach and her co-authors note:
Individuals with high levels of cognitive skills tend also to possess high levels of noncognitive skills ... However, measures of cognitive and noncognitive skills are capturing distinct concepts. While positively associated with each other, an individual’s score on the noncognitive index explains only 13 percent of the variation in AFQT scores. Those in the top 10 percent of cognitive skills will, on average, only be at the 67th percentile of noncognitive skills, whereas those in the bottom 10 percent of cognitive skills will rank at the 32nd percentile of noncognitive skills ..."
More detailed studies show that both cognitive and noncognitive skills are rewarded in the workplace with higher wages, and having both sets of skills is rewarded even more. But the importance of noncognitive skills as a predictor of earnings seems to be rising over time, as job tasks evolve.

It seems clear that noncognitive skills can be taught. There are now hundreds of studies of such programs. The report offers this overview of types of programs and findings (citations omitted here for readability):
Although effects differed in magnitude across the types of intervention, impacts on students’ noncognitive skills were considerable: each noncognitive skill intervention resulted in improved academic achievement and positive social behaviors as well as reductions in conduct problems and emotional distress. These studies show that many different facets of noncognitive skills are malleable and teachable. Social and emotional learning programs were the most broadly studied; they also had somewhat smaller effects than did other interventions. Service-learning interventions integrated community service into a school’s academic program and were found to improve student achievement and social skills. Mindfulness interventions helped students’ present awareness, causing improvements in student achievement and reductions in emotional distress. Self-regulated learning programs cause growth in student achievement, and social skill development programs led to growth in social skills and reductions in conduct problems ... 
However, in much the same way that people may differ in their cognitive and noncognitive skills, there is some evidence that, as the report notes, "teachers who are adept at raising test scores and
teachers who excel at instilling noncognitive skills are often not the same people. ...  Because the correlation between the two abilities is quite low, there are relatively few teachers who are adept
at both cognitive and noncognitive skills development. Under some accountability policies, teachers are judged based on their impacts on test scores. These results suggest that there are many teachers who are adept at developing students’ noncognitive skills who are not also skilled at raising student achievement; these teachers will be identified as “low-impact teachers” under such policies, despite the value they provide to students."

It seems to me that the US educational culture has often emphasized cognitive skills, with a sort of implicit assumption that noncognitive skills would be developed while doing cognitive work, or would be developed outside the school setting by family, peers, and nonschool institutions. I suspect that I'm part of the problem here, in the sense that I'm sometimes suspicious of programs that seek to build noncognitive skills, because they sometimes seem like time sinks and distractions from the "real" tasks of education. But noncognitive skills are measurable and they matter. They should be part of the nation's agenda for building its human capital.

Thursday, October 13, 2016

Snapshots of Global Poverty and Inequality

The World Bank is apparently inaugurating what will be an annual report on the theme of "Poverty and Shared Prosperity." The first report in the series, with the subtitle  "Taking on Inequality," was released in early October. "The report series will inform a global audience comprising development practitioners, policy makers, researchers, advocates, and citizens in general with the latest and most accurate estimates on trends in global poverty and shared prosperity." Here are some themes from the report that caught my ehe.

Global poverty, measured by the number of people living on $1.90 or less per day, has fallen dramatically in the last couple of decades. The blue line (right axis) shows the decline in the total number of the world's poor. The red line (left axis) shows the percentage of the world's population below the poverty line. The fall from 35% just 25 years ago in 1990 to about 10% at present is a dramatic improvement.
There are basically two ways that broad swaths of a population can be lifted out of poverty: broad economic growth and redistribution. It's worth remembering that the overwhelming majority of poverty reduction is due to economic growth--especially in China and India, but in other low-income countries around the world as well. About half of the world's poor live in countries of sub-Saharan Africa, while the nations of South Asia have another third of the world's poor, and not coincidentally, those are countries that have not experienced sustained economic growth.

However, as a result of economic growth, it has now become much more possible for even relatively low-income countries to undertake policies aimed at assisting the poor. A working paper by Chris Hoy and Andy Sumner at the Center for Global Development made this point in "Gasoline, Guns, and Giveaways:Is there New Capacity forRedistribution to End Three Quarters of Global Poverty?" (CDG Working Paper 433, August 2016). Hoy and Summer focus on countries with high levels of poverty, but that also subsidize fuel use and have higher military spending than their neighbors. They find that reallocating funds from fuel subsidies and military spending could address three-quarters of existing global poverty (in what follows, citations omitted):
We also consider the reallocation of two illustrative public “bads.” Specifically, regressive fossil-fuel subsidies which are an aspect of fiscal policy that is unequivocally pro-rich and what we have termed “surplus” military spending which we define as more guns than your neighbours meaning military spending above the regional lowest per capita spent. We appreciate that reducing military spending to this level may seem radical to some as no doubt would the reallocation of fossil fuel subsidies away from cheap petrol. However, our estimates of the impact of such changes in fiscal policy show what is at stake — the end of three quarters of global poverty — and our estimates are deliberately conservative for a number of reasons we outline. Our intention is not to annoy those who enjoy cheap petrol for example but to illustrate the resources now available nationally to governments and the implied opportunity costs in terms of poverty.
The report devoted a couple of chapters to policies for reducing poverty and inequality: "[S]pecific interventions discussed are ECD [early childhood development], including breastfeeding; universal health care coverage; good-quality education; cash transfers, mostly conditional transfers; investments in rural infrastructure, specifically, rural roads and electrification; and income and consumption taxes. The selection means that other policy interventions with potential effects on inequality are not included in the assessment. This is not intended to deny the potential equalizing effects of these other interventions; the evidence of the equalizing effects is merely less compelling, is currently being collected, or a general consensus is absent on how to frame the policies to reduce inequality while reaching other objectives."

It's interesting to me that the highlighted policy choices mostly are about unconditional cash transfers, and little of the focus is on high marginal tax rates for those with high incomes. Instead, the policies here both offer near-term support to the poor and also can work as longer-term investments in productivity and economic growth.

The chapters of the report focused on inequality point out a theme that I've mentioned before on this blog: inequality across the world as whole is falling, perhaps for the first time since the start of the industrial revolution in the early 19th century. But inequality within specific countries is rising. For example, economic growth in urban areas of China will tend to increase inequality within China, but reduce inequality from a global perspective. Thus, here's a picture of global inequality using the Gini coefficient. The break in the line occurs because there was a change how to compare the size of incomes across countries

But even as global inequality is falling, inequality is rising not only in the US, but also in a number of developing economies like China, Indonesia, and to a lesser extent India. 

If you combine these sorts of estimates, you can divide up total global economic inequality into within-country inequality and between-country inequaltiy, and see that the first is rising while the second is falling. 

I think greater inequality in high-income countries like the US is a legitimate cause for concern. But I worry less about greater inequality in low-income countries. Tumultuous economic growth tends to affect some areas more than others. The challenge is for governments in countries that have experienced strong but region-specific or industry-specific growth to make the investments in health, education, and infrastructure that can help the poor who have not benefited from that growth.