POL101Y1 Lecture Notes - Public Choice, Crony Capitalism, International Inequality

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8 Apr 2012
Life is Unfair- Birdsall
- income of poor families in U.S declining
- richest people are increasing income in U.S.
- crony capitalism- high concentration of wealth in asia
- Russia/ east Europe end of capitalism = income gaps
- Latin America- wealth and income gaps are largest
- Rich get richer poor get poorer
- Even though there is more democracy and free markets inequality is growing
- Spread of democracy= more visible income gaps
- Tech plays a large role in income gaps- makes situation worse
- Income inequality in U.S. increasing
- High education = econ success
o Poor are at a disadvantage here
- Forces of change like capitalism or global integration have also increased
- In china agriculture and other makets spur growth but large amounts of the
population are left behind
- Not likely that the poor will catch up to the rich
- Inequality is nobodys fault cant be fixed in this life
- History
o History matters
o Slave labour
o Wealth in natural resources
- Poors rational decisions
o Predicatble human behavior
o Rich and educated marry each other so do poor and uneducated
o Rational differences= income inequality
o Same thing happens with fertility- poor have more children
o Poor women have more children- more help
o East asia- decline in mortality and then decline in fertility which
spread to poor
- Prosperity
o Produce inequality
- Bad econ policy
o Policies that hamper econ growth are the biggest cause for the poor
o High interest rates
o Price controls
o Imposition of minimum wage
o Trade protection
o Bad policy = gov failure
o Gov fails to invest in education
o When adequate education is scarce there is not enough skilled
- Protectionism
o Developing coutnries that have been open to trade have the most
growth and reduces global inequality
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o International trade and open markets are less of a problem than
technology that favor skilled workers everywhere
o Obstacles to imports fall and price competition increases prices drop
o Also trade liberalization and open markets weaken unfair advantages
enjoyed by rich and connected
- Special worker
o Presiden roosevelts new deal- set wage rate and labor standards
o It meant that property rights remain protected in international trade
o In developing countries even standards that don’t look so bad may
hurt those they are mean to protect
o Most standards including collective bargaining rights which might
increase wages in some firm would affect only a small amount of
workers increasing the gap
o Loss of new jobs hurt the poor
o Weak infrastructure and less education mean workers in developing
countries produce less
- Underpricing public services
o Governemnts charge industries and houses a lot less for the services
than they actually cost 0 to help the poor
o Prices that are too low reduce the public supply of the underpriced
o Poor are always last in line- cant afford school
- Laissez faire
o Because trade protection and cheap public services can hurt the poor
does not mean the inequality problem can be left to the market
o It is a mistake for government to restrict and distort market activity
but market forces cannot make this better
o Every society has interest in avoiding the worst forms on inequality
and justice role for gov and the rich to ignore issues
What does work
- worker based growth
o economic growth that is based on the intensive use of labor reduces
income inequality
o oil rich countries have grown quickly but this does not last
o worker based growth is encouraged by avoiding the wrong policies-
those that directly or indirectly raise employers cost of labor
o U.S. should encourage more hiring of unskilled workers by reducing
payroll tax rates
- Education
o Educatin and skill represent a kind of wealth
o They are key assets and once acquired cannot be taken away even by
powerful people
o Education is more important that land stocks or money
o Predictor of childs education is her parents education and income
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o The poor especially in developing countries are last in line for
- Democracy
o Low levels of income inequality in china, cuba and society union prove
that at least authoritarian govs can produce equality
- Opportunities not transfers
o Transfers and income subsidies to help the poor make sense they
aren’t long term solutions
o Because the poor tend to be less organized and politically effective,
redistributive programs often respnd to more vocal entrenched
Does electoral democracy boost income inequality nancy
- inequality is a constant in political life
- inequality is clearly increasing
- public and private institutions have created a wave of
- inequality more easily discussed
- the term has roots in math
- inequality makes a difference- humans differ in many ways
- define inequality as the condition of being unequal as regards the command
of any resources deemed valuable for human well being
- Resources include- physical strength, political rights, wealth, income etc
- Empericits write about political inequality, gender inequality and economic
- Economic inequality is a measure of the distribution of material resources
that emerges from the ranking of all the economic actors in a unit of interest
- In Canada the price of a Barbie is $9
- How much will china make for the sale of this Barbie about 35 cents which
goes to peasant women
- China has cheap labour
- Complicated trade rules
o China gets its share of the Barbie from minimal taxes and licensing
fees as well as in worker wages
o Because of the trade rules china is charged with an export value of $2
by the time the doll reaches the U.S.
o Other than china many other countries contributed to the making of
this doll- Saudi supplied the oil, Taiwan used the ethylene and japan
supplied the nylon
o Each country took a cut along the way of the dolls $2 export value
o China has surpassed japan as the country with the largest trade
imbalance with the U.S.
o China of course cried foul, saying that the U.S. figures failed to take
into account the value added to the product in HK
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