I think that after a lifetime of sanctions those countries are doing very well, admirably so in some respects. Cuba's infant mortality for example, is far superior to that of our top dog. Ever been in need of serious medical treatment in America?
I grant you that 50 years of sanctions can achieve their purpose and bring poverty to the "locals". Congratulations. But then you ask the 57% of Americans who are living paycheck to paycheck, and are so satisfied with their lot, they are voting for Trump.
This is a really novel perspective. I kept looking at that chart and thought "...and didn't the Roman Empire collapse pretty spectacularly?"
Back in 2005, a London-based strategist/economist at Citigroup wrote "The Plutonomy Report" https://1drv.ms/b/s!At9od58qwtRejLZlRb06p5ClkiJ1ag , the essential message of which was "anyone with any get-up-and-go (measured chiefly by an excess of brain dopamine) already got-up-and-went ... and dynamic, creative, high-growth economies always tend toward higher Gini coefficients. The author unsurprisingly expanded his narrative to include his own immigrant story arc. As you could imagine, this didn't go over well with his primarily European clientel, and he ended up being sacked. But with the benefit of 20 years hindsight, he was sort of right.
"Fixing these “global imbalances” that many pundits fret about requires time travel to
change relative fertility rates in the U.S. versus Japan and Continental Europe. Why?
There is compelling evidence that a key driver of current account imbalances is
demographic differences between regions. Clearly, this is tough. Or, it would require
making the income distribution in the Anglo-Saxon plutonomies (the U.S., UK, and
Canada) less skewed to the rich, and relatively egalitarian Europe and Japan to suddenly
embrace income inequality. Both moves would involve revolutionary tectonic shifts in
politics and society. Note that we have not taken recourse to the conventional curatives
of global rebalance - the dollar needs to drop, either abruptly, or smoothly, the Chinese
need to revalue, the Europeans/Japanese need to pump domestic demand, etc. These
have merit, but, in our opinion, miss the key driver of imbalances - the select plutonomy
of a few nations, the equality of others. Indeed, it is the “unequal inequality”, or the
imbalances in inequality across nations that corresponds with the “global imbalances”
that so worry some of the smartest people we know."
I'm the descendant of a bunch of Germans who decided they'd had enough of getting pushed around by the kings, queens, jacks, and aces of Europe and skedaddled to what's now the US in the early eighteenth century https://gunnarmiller.substack.com/p/were-all-related . In the > 20 years I've lived back in Europe, I am frequently chided by many locals that I've gone the wrong way on a one-way street. And they were clearly correct, at least in an economic sense. It was definitely a move that took me off the path I was on toward building substantial wealth and kept me solidly middle-class, not because I'd become a different person from an intellectual horsepower or motivational standpoint, but because the economic (and investment compounding) opportunities were greatly diminished. And I've come to the conclusion that some of it *is* indeed a difference in temperment, or at least one of cutural priorities.
I have personally observed that dopamine hits are often the result of impulsive behavior ("you can't fire me because I quit!", or "I'll show them!"). The negative outcomes of this are things like the Iraq War, but the positive outcomes are things such as Intel https://en.wikipedia.org/wiki/Traitorous_eight . In the early 1990s I attended a dinner presentation at an excellent old-school Italian restaurant in midtown Manhattan hosted by the management of a Silicon Valley company. It was a very formal, stuffy, and epicurean (is "epic european" a word?) place, and every time they brought out another bottle of wine, the sommelier would interrupt the CEO to present the bottle for approval, then he'd interrupt him again to sniff the cork, then he'd interrupt him again for him to taste a bit. After about the fifth time, the CEO looked the guy in the eye and seethed "JUST POUR IT!" I'm was reminded of P.J. O'Rourke's description of St. Petersburg as Venice interpreted by a U.S. real-estate mogul: "Give me a bigger ditch, And lose the canoes." Dopamine-driven people seek novelty, have short attention spans, and bore easily. They simply won't sit through three meetings to choose the flavor of coffee that will be finally served when the real meetings start. Repetition and unoriginality aren't seen as comforting; they're disconcerting. After the third annual German lantern parade that's *exactly* the same as the previous two, they'll start wondering why the organizers don't decide to serve Mexican food one year just to change things up a bit. Culturally or traditionally, this may be viewed a bad thing. But economically, it's an undeniable precondition for success.
A final Friday thought: If political conditions continue to worsen in the US, I'm starting to wonder if Europe could benefit in the way the US did in the 1930s from the wave of European Jewish refugees, or in the 1960s from the UK brain drain, or in the 1980s from Eastern Europe https://en.wikipedia.org/wiki/Human_capital_flight#Historical_examples ... or from a general reversal as life for those with immigrant backgrounds becomes increasingly uncomfortable https://en.wikipedia.org/wiki/Reverse_brain_drain . But could it really handle such an influx? Well, after all Angela Merkel *did* say "Wir schafen das" ;-)
I suspect most readers of JK consider capitalism to be the best way of building wealth. However, it must have some regulation and disapproval of misuse.
I do not begrudge Jeff Bezos or Bill Gates their wealth: they worked hard and skilfully to create it. Conversely, directors of FT100 companies who award themselves large pay & stock options - largely - do not create wealth but administer an existing business. The G part of ESG is important.
Bill Gates stands out because he uses how wealth to help others.
Capitalism has also enabled ‘ordinary’ people to share in the benefit via pension schemes. If the pension fund supports investment in new ideas, we all benefit.
Great historical piece, thanks. I assume higher Gini coefficients relate to civilisation collapse? In the phases of civilisation collapse, these times in the US appear to conform to the last phase of 'decadence': arrogance, laziness, greed, complacency and a misguided belief that technology will solve everything. Good times create weak people....
I have a couple of posts on civilisation collapse in the pipeline, though they will have to wait a while since this is a typical Friday topic, not something for the more serious Mo to Th posts. But hint, the key driver of civilisational collapse tends to be several factors coming together at once, one of which could be high inequality.
Shouldn’t the headline read: “Crony or closed shop capitalism creates inequality”?
Isn’t the fundamental problem - evidently demonstrated already in the Stone Age- that capitalism brings itself into disrepute when it relies on anti competitive and other nefarious practices?
Interesting take, but capitalism relies on private property and I think that automatically creates a form of ‘closed shop’ thinking. You can’t really avoid some of it. Though it obviously can go too far and I argue that in countries like the US it has.
From your figure I calculate that the Gini coefficient is rising by 0.0085 points every 100 years. And I expect capitalism will last for about that long. State-directed capitalism is coming next.:)
Brilliant!!! Thanks for the perspective, Joachim. (How do you always dig out these gems? 😂)
By implication, go back to stone age to reduce GINI... well-proven by the likes of North Korea or Cuba
I think that after a lifetime of sanctions those countries are doing very well, admirably so in some respects. Cuba's infant mortality for example, is far superior to that of our top dog. Ever been in need of serious medical treatment in America?
Yeah really well just ask the locals
I grant you that 50 years of sanctions can achieve their purpose and bring poverty to the "locals". Congratulations. But then you ask the 57% of Americans who are living paycheck to paycheck, and are so satisfied with their lot, they are voting for Trump.
This is a really novel perspective. I kept looking at that chart and thought "...and didn't the Roman Empire collapse pretty spectacularly?"
Back in 2005, a London-based strategist/economist at Citigroup wrote "The Plutonomy Report" https://1drv.ms/b/s!At9od58qwtRejLZlRb06p5ClkiJ1ag , the essential message of which was "anyone with any get-up-and-go (measured chiefly by an excess of brain dopamine) already got-up-and-went ... and dynamic, creative, high-growth economies always tend toward higher Gini coefficients. The author unsurprisingly expanded his narrative to include his own immigrant story arc. As you could imagine, this didn't go over well with his primarily European clientel, and he ended up being sacked. But with the benefit of 20 years hindsight, he was sort of right.
"Fixing these “global imbalances” that many pundits fret about requires time travel to
change relative fertility rates in the U.S. versus Japan and Continental Europe. Why?
There is compelling evidence that a key driver of current account imbalances is
demographic differences between regions. Clearly, this is tough. Or, it would require
making the income distribution in the Anglo-Saxon plutonomies (the U.S., UK, and
Canada) less skewed to the rich, and relatively egalitarian Europe and Japan to suddenly
embrace income inequality. Both moves would involve revolutionary tectonic shifts in
politics and society. Note that we have not taken recourse to the conventional curatives
of global rebalance - the dollar needs to drop, either abruptly, or smoothly, the Chinese
need to revalue, the Europeans/Japanese need to pump domestic demand, etc. These
have merit, but, in our opinion, miss the key driver of imbalances - the select plutonomy
of a few nations, the equality of others. Indeed, it is the “unequal inequality”, or the
imbalances in inequality across nations that corresponds with the “global imbalances”
that so worry some of the smartest people we know."
I'm the descendant of a bunch of Germans who decided they'd had enough of getting pushed around by the kings, queens, jacks, and aces of Europe and skedaddled to what's now the US in the early eighteenth century https://gunnarmiller.substack.com/p/were-all-related . In the > 20 years I've lived back in Europe, I am frequently chided by many locals that I've gone the wrong way on a one-way street. And they were clearly correct, at least in an economic sense. It was definitely a move that took me off the path I was on toward building substantial wealth and kept me solidly middle-class, not because I'd become a different person from an intellectual horsepower or motivational standpoint, but because the economic (and investment compounding) opportunities were greatly diminished. And I've come to the conclusion that some of it *is* indeed a difference in temperment, or at least one of cutural priorities.
I have personally observed that dopamine hits are often the result of impulsive behavior ("you can't fire me because I quit!", or "I'll show them!"). The negative outcomes of this are things like the Iraq War, but the positive outcomes are things such as Intel https://en.wikipedia.org/wiki/Traitorous_eight . In the early 1990s I attended a dinner presentation at an excellent old-school Italian restaurant in midtown Manhattan hosted by the management of a Silicon Valley company. It was a very formal, stuffy, and epicurean (is "epic european" a word?) place, and every time they brought out another bottle of wine, the sommelier would interrupt the CEO to present the bottle for approval, then he'd interrupt him again to sniff the cork, then he'd interrupt him again for him to taste a bit. After about the fifth time, the CEO looked the guy in the eye and seethed "JUST POUR IT!" I'm was reminded of P.J. O'Rourke's description of St. Petersburg as Venice interpreted by a U.S. real-estate mogul: "Give me a bigger ditch, And lose the canoes." Dopamine-driven people seek novelty, have short attention spans, and bore easily. They simply won't sit through three meetings to choose the flavor of coffee that will be finally served when the real meetings start. Repetition and unoriginality aren't seen as comforting; they're disconcerting. After the third annual German lantern parade that's *exactly* the same as the previous two, they'll start wondering why the organizers don't decide to serve Mexican food one year just to change things up a bit. Culturally or traditionally, this may be viewed a bad thing. But economically, it's an undeniable precondition for success.
A final Friday thought: If political conditions continue to worsen in the US, I'm starting to wonder if Europe could benefit in the way the US did in the 1930s from the wave of European Jewish refugees, or in the 1960s from the UK brain drain, or in the 1980s from Eastern Europe https://en.wikipedia.org/wiki/Human_capital_flight#Historical_examples ... or from a general reversal as life for those with immigrant backgrounds becomes increasingly uncomfortable https://en.wikipedia.org/wiki/Reverse_brain_drain . But could it really handle such an influx? Well, after all Angela Merkel *did* say "Wir schafen das" ;-)
I suspect most readers of JK consider capitalism to be the best way of building wealth. However, it must have some regulation and disapproval of misuse.
I do not begrudge Jeff Bezos or Bill Gates their wealth: they worked hard and skilfully to create it. Conversely, directors of FT100 companies who award themselves large pay & stock options - largely - do not create wealth but administer an existing business. The G part of ESG is important.
Bill Gates stands out because he uses how wealth to help others.
Capitalism has also enabled ‘ordinary’ people to share in the benefit via pension schemes. If the pension fund supports investment in new ideas, we all benefit.
You mean the same Bill Gates trying to license seed technology? No, he's attempting to immorally hoard even more at the expense of local farmers.
Great historical piece, thanks. I assume higher Gini coefficients relate to civilisation collapse? In the phases of civilisation collapse, these times in the US appear to conform to the last phase of 'decadence': arrogance, laziness, greed, complacency and a misguided belief that technology will solve everything. Good times create weak people....
I have a couple of posts on civilisation collapse in the pipeline, though they will have to wait a while since this is a typical Friday topic, not something for the more serious Mo to Th posts. But hint, the key driver of civilisational collapse tends to be several factors coming together at once, one of which could be high inequality.
Thanks for the heads up, I look forward to them!
Shouldn’t the headline read: “Crony or closed shop capitalism creates inequality”?
Isn’t the fundamental problem - evidently demonstrated already in the Stone Age- that capitalism brings itself into disrepute when it relies on anti competitive and other nefarious practices?
Interesting take, but capitalism relies on private property and I think that automatically creates a form of ‘closed shop’ thinking. You can’t really avoid some of it. Though it obviously can go too far and I argue that in countries like the US it has.
From your figure I calculate that the Gini coefficient is rising by 0.0085 points every 100 years. And I expect capitalism will last for about that long. State-directed capitalism is coming next.:)