Inequality and income support

Villarreal, Francisco (2014). "Monetary Policy and Inequality in Mexico," MPRA Paper 57074.

What happens to household income inequality when there is an unexpected increase in interest rates? "Monetary policy shocks are identified using a structural model, and inequality is measured from household survey data. Then the effect of shocks on inequality is evaluated using a time–series model." Earlier work on the US finds that an unexpected increase in interest rates increases inequality. In Mexico he finds that inequality decreases because median hourly wages drop and workers don't increase labor enough to make up for it, but this effect only lasts for about two years.

Sumner argues in a lot of places that we should focus much more on consumption inequality than on income or wealth inequality; even though the three should be correlated, it's actual standards of living we should be worried about. Oddly enough, then

The correct response to economic inequality (from utilitarian perspective) is to abolish all taxes on capital income, and institute a progressive consumption tax.

Unfortunately, most of the Piketty supporters seem to think it's better to have lower tax rates on a wealthy person who devotes his wealth to riotous living, as compared to a wealthy person who is thrifty, putting the money into capital formation, charity, and/or his children's welfare. I have yet to see a persuasive justification for this bizarre policy preference.

If what we're really concerned about, then, is increasing incomes for the bottom, how do you do it? Economists are best at telling us how not to do it. One example I am likely to mention in my intro macro class next semester from Carden tries to remind people of what is not seen when we choose to pay more to buy American. The broken window fallacy as seen in socks. Meanwhile, here are some comments on a universal basic income, none of which are very satisfying to me but at least it's being discussed.

The Faces of Development

Development in Mexico, according to its census (HT: MR via Andrew Sullivan):

In 1990, one in five dwellings had a bare-earth floor. Now only 6% do. … More interesting still is what Mexicans put in those homes. More houses have televisions (93%) than fridges (82%) or showers (65%).

In part that is because of the impressive Mexican work ethic: “Mexicans work an average of ten hours a day, paid and unpaid labor, even though the country is far from the world’s poorest.  Belgians work the least number of hours a day, at seven."

I was quite surprised, though, when searching through Google Images for a good shot of a bare-earth floor. There were more pictures of Westerners deliberately installing earth floors than there were of people too poor to get a proper floor. Searching for "dirt floor" scored somewhat better. So here's another development paradigm for you: Westerners use earthen floors, everyone else uses dirt floors.

Development in Zimbabwe over the last two years of national unity government and dollarization

The economy grew at nine percent in 2010, following on six percent in 2009. Government revenues climbed to 29 percent GDP in 2010; they were just three percent of GDP in 2008. … This good performance starts from a low base; the economy had contracted by more than 45 percent from 1999-2008. Furthermore, world prices of commodities, such as platinum, tobacco and gold, which are Zimbabwe’s main exports, have been on the rise. Weather has been good in the past two years. But the point is that Zimbabwe was able to make good use of these conditions. There was a supply response to high prices in agriculture and mining, and manufacturing showed signs of life.

Development in Africa: “The African Development Bank says that one out of three Africans are considered to be middle class” – that is to say, earns $2-20/day. Of the 313 million in that range, 180 million are between $2-4/day. “Tunisia, Morocco and Egypt had proportionately the biggest middle classes in Africa, while Liberia, Burundi and Rwanda had the smallest.”

Development through sweatshops, consensual market transaction edition: “Field interviews reveal that subjects perceive their alternatives, including agricultural work and street vending, as less desirable when compared to sweatshop labor. Non-monetary benefits are an important part of this appraisal.” Yglesias puts a different spin on it, based on Duflo and Banerjee’s new book on poverty that surveyed poor people and asked what they aspired to. Mostly what they want for their children is a government job, not entrepreneurship: “What the very poor want, overwhelmingly, is a job where you show up, do as you’re told, and get a guaranteed paycheck at the end. Given the fact that the prospects for government employment are always limited, I assume this explains a lot of the appeal of super low wage sweatshop work when it becomes available in poor countries. “

Willingness to Pay: Livestock

Awono, Dupraz, and Vermersch, (2011) “Consumer willingness to pay for attributes of west-African poultry: using the microeconomics of implicit price,” GREDI Working Paper 11-01.

By west-African they mean Cameroon. They estimate a hedonic function to get at consumers’ willingness to pay for each attribute. They find that the most important attributes are low cost, being sold in separate parts, and distance to find it (the further the distance, the greater the desire for separate, ready-to-cook parts). This gives frozen chicken – imported from Europe or Brazil – a decided advantage over local “wet” market chicken grown locally. Attributes that were not significant included: taste, product quality, household size or occupation, or education. Imported chickens are blamed with putting many local poultry farmers out of business. The main item in favor of local chicken is that you can haggle over prices.

That apparently is not so much the case in China: “They insist on having the animal killed in front of them so they can guarantee it’s fresh. They need to see the gleam in the animal’s eye so they know the merchant is not cheating them.” Oh, the importance of a marketplace based on trust and enforced quality standards!

Among desirable attributes for meat in general is a certain degree of safety. Food safety is significantly increased by cooking your meat thoroughly. One article claims that we have gotten much better at getting rid of pathogens and contaminants in our pork supply chain, so we ought to be able to cook pork at lower temperatures while maintaining adequate safety, as we do with better cuts of beef. But the culture is so accustomed to only well-done pork that there is little call for recipes with medium-done pork.

Behavioral economics has some interesting things to say about willingness to pay in development contexts. Glennerster and Kremer present a handful of interesting conclusions, based largely on RCTs. For one thing, conditional cash transfers (CCTs) are more effective than we think … and often on “control” groups: Malawi varied up the amount of the conditional cash transfer and even the smallest amount was enough to get the average effect, families in Mexico and Columbia who are near the cutoff for receiving the CCT are also more likely to send their children to school without receiving a penny themselves, scholarships for the best-performing girls in Kenya also induced greater effort from boys. Despite all this wonderfulness, the most cost-effective way of getting more students into school was providing information (in Madagascar) while CCTs in Mexico were the least effective. They have similar fun with health research on intervention uptake. Small incentives matter for individual behavior.

Food policies

The price of tortillas in Mexico - The world price for maize is now at its highest since mid-08. "On December 22nd the economy ministry announced that it had bought maize futures, which it said should guarantee price and supply until the third quarter of 2011. It also increased a modest subsidy for corn millers."

Kosher Nation: "If they want to sell their product in the United States and they are not kosher, no one will buy it," points out Menachem Lubinsky.  "Coca-Cola won't buy it, Kellogg's won't buy it.  They'll be cut out of the market.  If you're in China or Thailand and you want to export, you have absolutely no choice but to seek out kosher certification."

From Wikileaks - US Ambassador to France in 2007 argued that the US should retaliate to encourage France to not enact a number of policies harmful to GMO interests.

Equine ethics - Horse lovers used to fight to shut down horse slaughter plants and they laregly succeeded. Owners with very old horses now ship the horses to Mexico for slaughter or strand them to await starvation. Both options involve a lot of pain for the horses and very poor conditions. So animal-welfare experts are beginning to consider other options.

Oh, and recent research has overturned the belief since the 1970s that you shouldn't eat mussels that haven't opened. What you should do is smell your mussels before you cook them to check for freshness and make sure you accurately measure the cooking time.

Eating Remarkable Food: Other White Meats

Back when I’d been at this international aid thing for not very long, I made a promise to myself that food was never going to be an issue for me. Annoyed with fellow expats for whom food seemed justification for going high-maintenance, I resolved to try anything at least once. And always accept whatever a host offered. “It’ll all just turn to glucose later”, I told myself. And to this day, that has been my personal motto, while traveling, where food is concerned.

 Thus begins a fascinating tour of food duty, including:

Dog: The other white meat. Tastes a little like chicken. In fact, quite contrary to the ethnocentric assumptions of some, I’ve heard of Western people going to dog restaurants and being tricked into eating chicken disguised as dog (chicken is much cheaper), rather than the other way around.

Other tales of micro-livestock: in Bolivia, in Mexico,  in DRC.

K, L, and food processing

Let's go back in time a little to when 90% of a person's calories (or more) came from grains. You need about 2 lbs (1 kilo) of grain to turn into various foods that a person can eat every day. This transcript describes why maintaining a city, all of whom need 2 lbs of grains processed every day, is a bit more difficult in Mexico City than many others, complete with capital-labor substitution, gender roles, and a lot more.

Depending on how good you are, it takes somewhere between fifty minutes and an hour to [grind] enough maize for tortillas for one person. That means for a family of five someone is going to be spending four or five hours a day doing nothing but grind. It’s very exhausting, grinding. ...

It is a very, very time-consuming thing. It’s terrible for the individual: arthritis, bad knees, no time to spend with the children, and no opportunity to go to school. It’s also, obviously, not a great thing for the society if you’ve got one fifth of your adults doing nothing but grinding. ...

That kind of labour-intensive grinding was what they did in Ur, and in ancient cities of the Middle East and Egypt. By the time you get to Rome, roughly—by about the birth of Christ—in the Middle East and in Europe, they get a rotary grindstone, and instead of requiring one person per every five to spend all day grinding this two pounds of grain that everybody in the city needs, they get it down to one in thirty. Then they get watermills and it goes down to one in three hundred—and nowadays we don’t even think about it! There are big steel rollers up there in Minneapolis and they’re grinding grain for hundreds of thousands of people, using just a handful of workers.

Now why didn’t Mexico do that? Was it just backward? Why didn’t it move to other forms of grinding? The trouble is if you grind wet, you cannot use these other rotary grindstones. So even if the Mexicans had had them, they couldn’t have used them. When the Spaniards came here they brought rotary grindstones, but you just can’t grind wet maize with rotary grindstones. And if you want tortillas—which we now know have nutritional advantages, but they are also a flexible bread, and hence more appealing than the kind of porridge-y things or tamales that you would have otherwise—you have to grind wet. ...

Therefore, in Mexico, right up until about twenty years ago, large numbers of Mexican women were spending five hours a day grinding.

She goes on to explain how the capital-subsitution finally came about. But it's still not without its costs:

Food Distribution in Mexico

A wonderful post with many pictures. At one point, over 80% of all food in Mexico went through this complex designed to ensure government control of the food system. Today, only 20-30% passes through.

How many want to come here?

Gallup reports that of the 700 some-odd million people who want to permanently emigrate, 165 million of them want to come to the US. That would be a group of people roughly equivalent to 53% of the current US population. Though far fewer people want to move to Singapore, they would see an even larger population increase by percent.

The top ten countries whose people want to move here are:

China - 23 million - 2% of them
India - 17 million - 1.5% of them
Nigeria - 17 million - 11% of them
Ethiopia - 10 million - 13% of them
Bangladesh - 8 million - 5% of them
Brazil - 8 million - 4% of them
Mexico - 6 million - 5.5% of them
Philippines - 6 million - 6.5% of them
Vietnam - 5 million - 6% of them
Japan - 3 million - 2% of them

We let in less than 0.6% that many.

Out of that 165 million, Wiki tells me that a record 1 million became naturalized US citizens in 2008, mostly from Mexico, India, and the Philippines. In 1890, 15 percent of the people living here were foreign-born. "By 1970 immigrants accounted for 4.7 percent of the US population, rising to 6.2 percent in 1980 and to an estimated 12.5 percent today."