Category Archives: inequality

The IMF’s bold moves on inequality are still unconvincing

Published on Oxfam America’s Politics of Poverty blog.

New Oxfam report finds the Fund’s new ‘inequality pilots’ fail to support inequality reduction.

This post was co-written by Nick Galasso, Director of Research Oxfam America; Chiara Mariotti, Inequality Policy Manager Oxfam Great Britain; and Nadia Daar, Head of Oxfam International’s Washington, DC office.

For years, the IMF promoted policies to countries that worsened economic inequality. These increases, the Fund claimed, were an unfortunate trade-off to achieving greater economic growth.

Thankfully, the IMF now concedes the ‘equity/growth’ trade off is flawed. Indeed, the IMF has turned around sharply on inequality. These days it is claiming that tackling inequality is critical to its mandate of ensuring global economic stability and growth. The Fund arrived at this conclusion through its own research and analysis, and civil society’s longstanding critique of its policies. Yet, while the Fund is saying the right things on inequality, its policy advice fails to match its research and rhetoric.

For Oxfam, it has been thrilling to watch the IMF’s research dispel many ‘inequality myths.’ For instance, IMF researchers put to bed the so-called trade-off between growth and equity with work finding that inequality, in fact, harms growth. And high levels of gender inequality in the economy make the damaging effects on growth even worse. Likewise, redistribution (once thought to be a drag on growth) has pretty benign effects; and since it reduces inequality, it is instead pro-growth.

Equally thrilling is Christine Lagarde’s regular mention of Oxfam’s inequality research in her public statements. Lagarde is an important champion for the IMF’s inequality agenda. Last week, she reminded a Harvard audience that excessive inequality hinders growth and hollows out a country’s economic foundation.

Of course, Oxfam believes there are many other reasons to address inequality beyond growth concerns. Inequality causes poverty to reduce more slowly. Through no fault of their own, poor kids face dismal opportunities in unequal societies. Also, inequality has a toxic effect on democracy.

Given our broad concerns about inequality, what the IMF does and says matters a great deal to Oxfam. The IMF’s influence and reach extends to shaping the contours of the global economy. At the national level, its policy advice impacts who becomes economic winners and losers.

Since the Fund now claims inequality is crucial to its mandate, Oxfam set out to understand how inequality is becoming operationalized in its work.

The answer, so far, is a series of ‘inequality pilots.’ These pilots integrate inequality into several of the Fund’s regular Article IV consultations – the Fund’s annual country surveillance exercises done in consultation with member countries and stakeholders. Intrigued, we decided to dig deeper and see what these pilots were about.

Great Expectations?

In a report launched this week called Great Expectations, Oxfam assesses fifteen of the Article IV inequality pilots conducted by the IMF. We find that, despite some improvements, the IMF is still failing to provide policy advice to countries that can help reduce inequality.

In the pilots we examined, we did find some shifts in policy advice in certain areas. However, in none we could identify a systematic inclusion of inequality in policy advice to countries.

Here are our key findings:

The most significant shift is observed in tax policy advice, where direct and more progressive taxes are often recommended. In all countries examined, the IMF recommended safeguarding social spending; however without verifying whether this was compatible with its fiscal adjustment recommendations. On labor markets, the IMF is maintaining a conservative stance. We worry its advice could undermine economic and gender equality, such as the reduction in public wage bills.
When IMF advice called for fiscal adjustment or monetary tightening, in none of the pilots were the inequality effects of these targets assessed. Further, no policy alternatives to achieve these macro-economic targets – such as a slower reduction of the deficit or the inflation rate – were discussed. Instead, they focus on the distributional impact of one single structural reform (i.e., tweaking the value-added tax, cutting subsidies, deregulation).
The pilots demonstrate the IMF isn’t taking its own concerns seriously about the economic threats of inequality. Throughout the pilots, we see the IMF recommend policies that will knowingly increase inequality. They then offer measures to compensate the losers of such policies – often the most vulnerable. If the IMF is serious about the macro-economic concerns inequality provokes, then they should begin with policies that attack inequality rather than mitigating harm caused by their advice.

Overall, the pilots are a step toward integrating inequality in the IMF’s policy advice. But they are a small step, and fail to provide comprehensive advice to countries on how to tackle inequality.

This week, the IMF put forward a new edition of its biannual Fiscal Monitor, in which it recommends countries to tax the rich more, increase public investment in health and education as a solution to inequality, and consider introducing a universal basic income. This is a welcome example of a high profile publication which can significantly contribute to shape the global debate on inequality. But it is time for the IMF to cast its influence well beyond words into policies and programs. A far more radical overhaul is needed in the way it does business. We urge the institution to take the bold steps which could concretely make a difference in the global fight against excessive inequality.

Should we be ashamed of privilege?

Published on Oxfam America’s Politics of Poverty blog.

And more importantly: Will we be able to remedy the inequalities in our society if we are?

Recently, I joined students, faculty and community members at Hope College in Holland, Michigan for their annual Critical Issues Symposium. This year’s Symposium focused on economic inequality and democracy.

During the lunchtime discussion, a really interesting conversation emerged around privilege. Hope is a private college that costs around $45,000 per year to attend, and the student body is nearly 86 percent white. Derek, a student of color from Orange County, raised his hand.

He told us that in high school he felt privileged because all he had to do was focus on sports and studying. Unlike kids living in poorer parts of southern California, he didn’t have to have a job. Derek spoke about how lucky he is that his parents can simply write a check for his tuition and expenses each year. His dad also committed to paying for law school when he graduates from Hope.

I liked hearing Derek’s story. But I was really moved when he said that privilege shouldn’t cause anyone shame. Privilege isn’t something we should hide or downplay. Rather, we should be very open and honest if we live with privileges that others do not have.

I agree that people should not be ashamed for being privileged. In fact, I don’t think we’ll be able to seriously address inequality in the U.S. without such an honest accounting of our individual privileges.

Reflecting on my own life, I can immediately recognize privileges I enjoyed that gave me advantages. For instance, unlike Derek, I had to work throughout high school. Still, my privileges were (and are) abundant. These include the color of my skin, that I’m male, and that I grew up in a stable home. I was also privileged by having a wide network of loving adults who fed my confidence, and the luck of being born in the wealthiest society the world has ever known.

I didn’t grow up in a wealthy household. Neither of my parents went to college, and my dad is an immigrant who was born poor and started at the bottom when he arrived to the U.S. While I didn’t grow up rich by U.S. standards, I was privileged to have parents with sufficient resources to give my brothers and me a good life. We could play sports, ride our bikes in a safe neighborhood, and though most adults I knew ended their school careers around 18, my parents demanded I attend college (I needed convincing). All of these advantages made an enormous impact on my life in terms of creating opportunities that others, including my parents, didn’t have.

I think that honesty about the privileges we are fortunate to have is a crucial step toward empathy; and creating space for the honest conversations needed to move our society forward.

We can’t control our gender, race, the country or family we’re born into. Yet, these things matter a lot for how we develop as human beings. They’re also important drivers of economic inequality. Kids with wealthier parents – who have the resources to access tutors, learn new languages and utilize their parent’s network for internships and jobs – most often end up replacing their parents at the top of the income ladder. The same is true for poor kids who end up stuck at the bottom. In fact, social mobility in the US has actually declined in recent years – so even if you work hard, it’s increasingly difficult to get ahead.

During my visit to Hope, Dr. Temple Smith, a professor of sociology, reminded me that most of us experience some modicum of privilege, despite how wealthy our families may have been. And while it might be most important for those of us with high levels of privilege to recognize and be up front about it, I think it’s also important for us to take a broader view – allowing ourselves to understand that though we might not be privileged in some areas, we may be in others.

Often people with privilege who want to fight inequalities, feel as though they need to downplay their advantages in order to enter into tough conversations about inequalities like racism and sexism. Yet, as Derek suggests, an honest and open accounting of our own privileges can help us find agreement on the things that will help ensure everyone has a fair shot at an economically secure life.

In many ways, my commitment to working to reduce extreme inequalities derives from my recognition of my own privilege. I want to talk openly about my privilege because I believe everyone deserves to have economic security, safety, and opportunity. And if circumstances of birth diminish their opportunities, then there is a moral and political imperative to push for change.

To be clear, I’m not only in favor of policies that create more equal opportunities. I believe extremely unequal outcomes, such as a world where 60 people have more wealth than the bottom half of the human population, is unacceptable. And outcomes and opportunity are intrinsically connected.

It’s important that we all take the time to look deeply at ourselves to understand if and how we’re privileged and how that influences our lives and the lives of those around us. A clear understanding will allow us to speak more honestly about ourselves and to use our advantages to heal injustice.

I invite you to join me.

How I learned to stop worrying and love the Palma v.2

Published on Oxfam America’s Politics of Poverty blog.

This blog was co-authored by Alice Krozer, Visiting Researcher Center on Poverty and Inequality at the University of Stanford, and PhD Candidate at the University of Cambridge’s Centre on Development Studies

Admittedly, inequality indicators may induce sleepiness. Names like the Gini coefficient, the Theil index, the Palma ratio, the Lorenz curve don’t inspire much excitement as party conversation starters.

Despite lacking glamor, the indicator you choose to measure economic inequality matters greatly.

This is because inequality looks different depending on how it’s measured. And indicators can be thought of as alternative lenses for examining inequality.

For these reasons, it’s easy to see how politicians, or researchers, or campaigners, may want to rely on indicators that suit their interests. For instance, some inequality indicators are better at masking extreme wealth among the richest. Other measures, by contrast, omit middle income groups and focus exclusively on comparing the rich to the poor.

Many indicators are not particularly transparent about their focus either. So when using a “default” measure, you might not even realize which part of inequality you are viewing, or the measure’s particular bias.

The Gini

The most famous indicator is the Gini coefficient. This is a number ranging from perfect equality, where everybody has the same income (0.0), to perfect inequality – meaning all income is possessed by a single person (1.0). The Gini is calculated from what’s called a Lorenz curve, which lines up all individuals according to their income to show the cumulative share of people at a certain income level. Figure 1 below offers an example.

Figure 1

Since describing a country’s inequality from a Lorenz curve can be complicated, we generate a Gini coefficient from this data. Calculating a Gini produces a nice, single number to describe the level of inequality. So, instead of saying “X% of the country holds Y% of the income,” we can simply say, “The US has a Gini coefficient of .40.”

While the Gini delivers a convenient single number expressing inequality, it’s far from perfect.

First, the number alone doesn’t tell us much. Does a Gini of .40 suggest inequality is high, medium, or low? There are no objective standards. Instead, you can only make inferences by comparing to other countries, or trends over time.

Second, two countries can have the same Gini without having the same overall distribution. For instance, Germany and Hungary both have a Gini of .29. However, relative income poverty and the ratio between top and bottom earners is higher in Hungary. Alas, it’s hard to say these countries are equally unequal.

Figure 2

Why does this happen? Because the Gini is less good at capturing inequality at the top and the bottom of the income distribution (or, the “tails”). Instead, it’s a bit overly sensitive to what’s happening in the middle.

Often, this isn’t a problem. For instance, we may want to know more about how middle income groups have fared over a number of years. The Gini is a great way to understand whether they are gaining more or less of the national income pie.

The Palma approach

There is a compelling reason for why we may want to ditch the Gini for a different lens on inequality.

Namely, for most countries, inequality isn’t driven so much by what’s happening to middle income groups. Instead, inequality results from a tug-of-war between the richest and poorest.

Across most countries, we see a regular pattern whereby about half of national income is captured by the 50 percent of the population situated between percentiles 40 and 90. The other half of national income is up for grabs between the richest 10 percent and the poorest 40 percent.

Since the Gini is over sensitive to the middle, and under sensitive to the tails, it underestimates the extent of inequality for most countries today.

The Palma measure permits us to look at national level inequality in a way that recognizes this regularity. How so? The Palma completely eliminates the middle groups from its calculation and instead assesses inequality as a ratio between the income share held by the richest 10 percent and the poorest 40 percent.

Of course, you can calibrate this ratio approach. For instance, what we’re calling the Palma v.2 compares the richest 5 percent to the poorest 40 percent. This is an especially powerful way to gauge how well the very richest are faring against the poor. Figure 3 below aligns 111 countries according to the income share their richest 5 percent holds. The more we move to the right side of the graph, the larger becomes the share of the richest, the smaller that of the poorest, and hence the more unequal the countries.

Different indicators can even point to opposing trends: for instance, according to the Gini coefficient as calculated by the World Bank, in the 2000s inequality in Mexico fell. However, other studies find increases in top ten percent’s income shares over the same period and top five percent’s share respectively, which would instead indicate increasing inequality.

Measures remain imperfect

All these indicators have their blind spots. If the Gini “ignores” the tails, the Palma brackets the middle – which can be equally problematic if empirical patterns were to change significantly over time, as Milanovic cautions.

Indeed, no summary measure, whether the Gini, Palma, Palma v.2 or others, is in and of itself enough to fully describe the complexities of income distributions and their various internal dynamics. Instead of relying one a single number, we should select the appropriate indicator(s) depending on the question we want to answer.

This will allow us to identify more suitable policy responses; and in turn, might finally bring us closer to more acceptable levels of inequalities.

How the world really works

Published on Oxfam America’s Politics of Poverty blog.

Forget what you learned in school, the Panama Papers are your new curriculum on how the world works.

Since the release, I’ve been glued to the ICIJ’s Panama Papers. Like a great film, there’s intrigue, star players, and an unbelievable magnitude of malfeasance.

With a box of popcorn by my side, I’ve delved into the meticulous journalism that’s confirmed to the world what many already suspected.

The mega rich, political elites, and unsavory characters like human and drug traffickers get to play by different rules than the rest of us.

Lesson one: Politics is a rigged game, everywhere.

Where countries fall on Transparency International’s corruption indices is irrelevant. As Charles S. Piece put it in Esquire, the Panama Papers reveal “that every political system in the world—even the nakedly authoritarian ones—is hopelessly rigged, and that the marvelous new world of the miraculous global economy is an even bigger thieves’ paradise than you, me, or even Jamie Dimon thought it was.”

Panama, along with at least 50 other countries, are tax havens (a concept you never learned in your freshman International Relations course). This means the governments of these jurisdictions turn a blind eye to the flows of money coming in and out of the banks on their sovereign soil. They also levy no, or very low taxes.

Both of these are ways of attracting customers, like wealthy folks and corporations seeking to hide their wealth from the authorities where they live or do business, or those engaged in explicitly illegal activities, like sex and drug traffickers, who also need to hide their money.

Governments are active conspirators in this elaborately rigged system. For instance, in the U.S., every state permits the creation of shell companies that do not require identifying the real owners of those entities. Shell companies are essentially empty vessels for holding financial assets anonymously. This is a key tool for avoiding taxes, and for criminals to launder illicit money and gain access to banks.

Embarrassingly, my home state Delaware is the global epicenter for shell companies. In fact, there are more shell companies incorporated in Delaware than Delawareans. An applicant has to give more personal information to get a library card in Delaware than to set up a shell company, and it only takes about an hour to be ‘in business.’

Governor Markell and the legislature stomach offering our state to tax dodgers and criminals because of the tax revenue it brings in for the state. This is a point of contention with other states who claim Delaware’s tax haven status robs them of revenues. For instance, the “Delaware loophole” enabled corporations to reduce the tax bill owed to other states by $9.5 billion over the last decade. How bad is it in Delaware? Get this, officials in the Cayman Islands – the world’s most emblematic tax haven – point to Delaware as playing faster and looser with the rules.

Delaware’s role as a tax haven is inexcusable. Not only does it permit corporations, wealthy foreigners, and criminals to hide their money, it facilitates the misery that results from tax avoidance. Your Comparative Politics course, or the one you took on African politics, likely never examined how tax havens are accessories to the robbery of developing countries’ tax revenues, stunting their ability to achieve poverty reduction and development progress. Without tax dollars, governments cannot build schools, hospitals, or the infrastructure to create dynamic and inclusive economies that bring jobs and fight poverty.

The lesson we should be learning from the release of the Panama papers is that today’s global inequality problem, along with other severe miseries, are linked.

They are symptoms of a failed system of global governance. There is essentially no global tax regime to mitigate the scourge of tax evasion and avoidance. This absence of international cooperation, and the ease in which it permits the movement of financial assets from where taxes are due to tax havens, drives the obscene levels of extreme wealth we see today. As my colleagues and I have pointed out, we live in a world where 62 people have the same wealth as the bottom half of humanity. And trust me, this isn’t because those 62 people work harder than the rest of us. They just have better accountants.

Lesson two: “All animals are equal, but some animals are more equal than others.”

Truer words have never been spoken, and the Panama Papers put that into stark relief.

When it comes to taxes, the mantra should be ‘we pay, they play;’ because for the ultra wealthy, corporations, and criminals, paying taxes is optional. Of course, you and I have no option.

UC Berkley professor Gabriel Zucman, whose book The Hidden Wealth of Nations: The Scourge of Tax Havens, calculates that government’s lose about $200 billion annually in revenue to tax havens. All together, he estimates nearly 8 percent of the world’s wealth – $7.6 trillion – sits in tax havens.

Of course, governments don’t do less because they can’t collect taxes from the rich. They simply increase the tax burden on the rest of us. As Zucman put it:

“You know, if billionaires pay very little in taxes, it means that the rest of us – we have to pay more. So it means more taxes for the middle class, and so we all pay the cost of tax evasion by the wealthiest individuals.”

Maybe we did learn this lesson in school? If you read Thucydides, you’ll recall his conclusion that “the strong do what they can and the weak suffer what they must.”

Of course, we’re not that weak!

A glimmer of how the world can work

The events surrounding the Panama papers aren’t all doom and gloom. I mean, it’s pretty bad, given that Mossack Fonseca is one firm in one tax haven, suggesting the magnitude of illicit financial flows and tax avoidance is massive beyond belief.

Still, the impressive coordination among hundreds of journalists, the release of the Papers and the excellent reporting, are extremely encouraging.

This experience demonstrates the power of whistle-blowers, dedicated journalists, and civil society activists to reveal the inner architecture of how wealth is hidden.

More than 7 percent of the people in Iceland came out to call for their Prime Minister to resign because of the revelations exposed in the Papers (and he did). That is a real testament to the power of information as a driver of social change and accountability. And we’re seeing similar outbursts across the world. In the UK, thousands are in the streets calling for PM David Cameron to resign and nearly 400 activists were arrested in front of the U.S. capitol on Monday protesting corruption.

The ICIJ should take a bow, and the hundreds of journalists who collaborated on this project deserve acknowledgement. As someone who works on the links between tax avoidance, global illicit flows and extreme economic inequality, this work is both validating and evidentially powerful. So, thank you profusely.

Putting an end to double standards

Oxfam calls on Congress and the President to pass the Stop Tax Haven Abuse Act and implement aggressive public Country by Country Reporting requirements for all multinational companies headquartered in the United States. Both of which will help address the secrecy surrounding shell companies.

We also urge the US to be a leader in creating a multilateral global rule system that emphasizes information sharing, transparency, and global accountability.

The Panama Papers reveals the extreme, yet largely legal, political rigging that let’s wealthy individuals, corporations and criminals play by different rules than you and me. They also offer a perfect opportunity for citizens to seize on the shock and outrage they are spurring to demand governments create a more level playing field.

Inequality is over! If you want it.

Published on Oxfam America’s Politics of Poverty blog.

The level of wealth inequality in the U.S. is staggering and only getting worse. What happens next is up to us.

In 1969, John Lennon and Yoko Ono famously plastered billboards with the words “war is over! If you want it.”

Their message was that we live in a democracy, and war is a choice. If citizens rose up and demanded their elected leaders end the war in Vietnam (along with all wars), popular mobilization would compel them to do so.

Of course, today we can substitute “war” with inequality.

Inequality is a choice

Free markets lead to economic inequalities. That’s not a value judgment about the market system; it’s an empirical regularity. It’s a fact.

What happens next is up to us.

Citizens have to seriously reflect on whether the levels of inequality we’re living with is acceptable or not. If it’s acceptable, then we can continue allowing our elected representatives to do nothing to stop the nearly 35-year rise of inequality.

If, however, we believe inequality is too high, then we need send a serious signal to Congress to enact policies to reduce inequality.

It seems Americans have had enough with extreme inequality. That presidential candidates from both parties are making inequality a key issue is proof that the public’s discontent is being heard. Across the Internet, people have been expressing disbelief and outrage over Oxfam’s revised global wealth statistic. When we first started counting, 85 billionaires had the same wealth as the poorest half of the planet. Last year it was 80. This year it’s 62. It was 388 in 2010!

How can inequality be reduced in the U.S.?

To grossly oversimplify, the U.S.’s inequality problem boils down to the very rich becoming even richer and everyone else basically staying the same or getting worse.

Workers are feeling this in their stagnant paychecks. Students and parents are feeling it as tuition continues to rise, along with the need to take on more debt. And everyone is outraged that taxpayers had to bail out the banks after nearly destroying the economy, yet Wall Street CEOs and the richest Americans (whose fortunes are tightly bound to stocks) are doing better than ever.

Reduce the wealth gap

The level of wealth inequality in the U.S. is staggering.

While the top 1 percent is often pointed to as the place where all the wealth is accumulating, that’s actually misleading. Pretty much all the wealth captured by the 1 percent is explained by the massive gains going to the richest 0.1 percent! In the 1970s, the 0.1 percent captured about 7 percent of all of America’s household wealth. By 2012, they captured 22 percent. To put it differently, about 314,000 people own nearly a quarter of all America’s wealth.

The wealth gap is growing because the incomes of the top 0.1 percent have been increasing out of pace with other workers. Those income gains are turning into wealth gains, as the richest Americans turn income into assets.

The surest way to close the wealth gap is through progressive taxation on income. We can draw on our own history as evidence. Believe it or not, from the 1940s through the 1970s the top marginal income tax rates were double and triple what they are today. At one point, the top marginal rate was 90 percent. During these decades, economic inequality reduced from its zenith during the Gilded Age and roaring twenties. And, despite claims that higher taxes will damage the economy, corporate America thrived and many created vast fortunes.

Crackdown on tax dodging

Not only are we doing a poor job taxing income, our tax system permits the wealthiest to cheat the system.

Corporations cheat paying their fair share through bookkeeping wizardry that claims their profits in offshore tax havens. Often this is a total farce, as their profits derive primarily from the U.S. Today, it’s estimated that 20 percent of U.S. corporate profits are booked in tax havens (a tenfold increase since the 1980s).

Wealthy individuals can use similar tricks to cheat the system too. By one estimate, 4 percent of America’s wealth is held offshore. This translates into about $36 billion of lost tax revenue.

To be clear, the government doesn’t respond to the loss tax revenue by building less schools or roads. Instead, they pass along this burden to you and me. Tax dodging keeps inequality high by letting the super wealthy hide from the system, and by taxing ordinary citizens more.

Congress needs to close the loopholes allowing wealthy individuals and corporations from using tax havens.

Reverse Citizens United

Raising taxes on the wealthiest and preventing the use of tax havens rests on mobilizing the voices of ordinary citizens.

Yet, the obscene amounts of money deployed by powerful interest groups and corporations who oppose these shifts drown out the voices of a majority of Americans who want to see inequality reduced.

The Citizens United Supreme Court decision has made this even worse. The law allows corporations and super wealthy individuals to spend limitless amounts to influence elections. This means our elected leaders are even more beholden to a small minority whose interests include keeping taxes on the rich low and tax havens available.

The Citizens United decision presents a serious threat to American democracy, and it needs to be defeated. Some are calling for President Obama to issue an Executive order to weaken the ruling. Others are pushing for Congress to overturn the Court’s decision.

The bottom line is: inequality is a choice. And as Louis Brandeis famously said, “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

Message to Congress on Trade and Inequality: Wake Up, ‘Trickle-Down’ is Dead!

Published on Oxfam America’s Politics of Poverty blog. This blog post was co-authored by Stephanie Burgos, Oxfam America’s Economic Justice Policy Manager.

Fast-tracking TPP is unlikely to benefit economic growth and may further exacerbate inequality

The debate over trade is red-hot these days. Proponents in Congress are revving up this week to push through their ‘Plan B’ after a grassroots uprising took them by surprise earlier this month and defeated ‘Plan A’, which the Obama administration had hoped would grant it ‘fast track’ trade negotiating authority designed to facilitate completion and quick passage of the Trans-Pacific Partnership (TPP) free trade agreement. Continue reading →

Is the IMF Dismantling Trickle Down Economics?

Published on Duncan Green’s From Poverty to Power blog

In a new report, the IMF effectively drives the final nail into the coffin of trickle-down economics. The top finding, in their words, is that “if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down.”

In contrast, an income bump to the poorest 20 percent is associated with higher GDP growth. The report concludes, “The poor and the middle class matter the most for growth.” Continue reading →

What is shared prosperity, and how do we know if it’s on the rise?

Published on Oxfam America’s Politics of Poverty blog

What is shared prosperity, and how do we know if it’s on the rise?

This blog post is an adaptation of Nick’s recent article in Global Policy.

The World Bank has chosen an indicator of shared prosperity that’s inadequate, and gives a distorted picture of progress. According to the Bank’s indicator, countries where the poorest forty percent are faring better than the country average are considered to be experiencing shared prosperity. Yet, comparing the poorest to the average masks whether income and wealth are concentrating among the very rich at the top. Given what we know about the dangers of extreme inequality, the Bank’s indicator is not only misleading, but irresponsible. Continue reading →

The World Bank is Getting ‘Shared Prosperity’ Wrong: The Bank Should Measure the Tails, Not the Average

Published in Global Policy

*Contact me and I’ll send the full article*

In October, the World Bank released its 2014 Global Monitoring Report (GMR). The annual GMR is a flagship report produced by the World Bank and the International Monetary Fund (IMF) that traditionally offers an update on the progress of the Millennium Development Goals. In a bit of a twist, the aim of this year’s report is to assess the World Bank’s broad goal of seeing shared prosperity increase in all countries.1 This is a worthy intention, but how can we measure whether shared prosperity is rising? The indicator developed by the World Bank measures the income (or consumption) growth of the poorest 40 per cent and compares it to the growth of the whole country over a five year period. If the bottom 40 per cent fared better than the whole country, the World Bank declares shared prosperity is on the rise. This year’s GMR calculates data for 86 countries between 2006 and 2011. According to the results, the bottom 40 per cent fared better than the average in 58 of the countries (67 per cent), leading the World Bank to declare shared prosperity is rising globally. Below, I argue for why this is an inadequate indicator. Instead, I recommend the World Bank compare changes in growth between the poorest 40 per cent and richest 10 per cent, or fewer. Continue reading →

Extreme Inequality and Oligarchy

Published on Oxfam America’s Politics of Poverty blog

Is the U.S. an oligarchy?

I want to throw out an interesting concept, and discuss how it relates to extreme inequality: Oligarchy. According to Jeffrey Winters, author of this fascinating book that I am reading, oligarchy refers to the politics of wealth defense by a minority who possess incredibly large fortunes. Oligarchs are actors controlling massive concentrations of material power they can use to defend or enhance their personal wealth. Oligarchs may pursue other political ends, but defending their wealth is their fundamental existential interest.

Continue reading →