Looking at the wrong place on inequality

Via Bernard Hickey’s Twitter feed I saw the following from the IMF:

But this globalisation had a dark side — a large and growing chasm between rich and poor. While trade globalisation is associated with lower inequality, financial globalisation — the big story of recent years — increased it.

Even ignoring other important policy elements, does it make sense to say we should be restricting elements of globalisation in order to “reduce inequality”.  So here, I’m ignoring the efficiency costs, I’m ignoring the fact that any arbitrary restrictions will have an arbitrary welfare cost on individuals – but I’m still not convinced.

Why?  The problem is too little globalisation, not too much.  We need to open the borders – after all nations are just large labour unions, they benefit their members to the detriment to the REAL poor people in the world – those that live in the third world.

But instead of focusing on opening up borders, and helping those that are genuinely poor, the IMF is more interested in complaining about the fact that financial deregulation has made it easier for those who are willing to save to save – and for those who are impatient to get themselves into debt.

Putting on my normative hat, I have close to no sympathy for those who couldn’t find a way to save in the first world relative to the sympathy I feel for those who are born into abject poverty.

8 replies
  1. Matt Nolan
    Matt Nolan says:

    @Eric Crampton

    Yar, I remember that piece.

    I read it a little differently – it was showing what people with low incomes purchased, and many of these purchases fall into what we call “discretionary goods”. However, given the difficultly of defining what a need is and what a want is the very fact that the very poor are still spending on things we would view as “discretionary” really suggests that some minimum level of them is necessary.

    In other words, people value things that some may see as unnecessary a lot higher than we would expect – really suggesting that the moral conception of “need” and “want” often used for policy can be inappropriate.

    I realise the paper didn’t say that – it was just the lesson I took from it at the time.

  2. rauparaha
    rauparaha says:

    If economists ever manage to persuade politicians/voters that trade is not a zero-sum game then I think it will be a marvellous achievement. Then again, when economists give up the idea of Kaldor-Hicks being a worthwhile measure of welfare improvement I will probably also cheer 😛

  3. Matt Nolan
    Matt Nolan says:


    People were starting to get there with trade – then this crisis convinced people we need to arbitrarily do things just because, which includes anything that attacks foreigners like trade-protectionism.

    Hey hey – Kaldor-Hicks provides SOMETHING. It should just be applied more carefully. I mean if we could frame it in the most general terms, then any moral framework could be seen as a derivative of Kaldor-Hicks – it is the application of it where there are issues.

  4. Matt Nolan
    Matt Nolan says:


    You know how hard that is for me Rauparaha.

    I am going to say that it is because I want to make my position as clear as possible, and make sure that we agree on the relevant implicit assumptions included in any statement – but that is because I’m trying to avoid saying “I agree” again

  5. Royal Albert Ross
    Royal Albert Ross says:

    “I have close to no sympathy for those who couldn’t find a way to save in the first world relative to the sympathy I feel for those who are born into abject poverty.”

    Really? For it’s daily apparent that most of us do care more about ourselves, our families, our fellow-townsfolk and our fellow-countrymen (in that order, more or less) than we do about people we don’t know in distant lands, regardless of their relative levels of good fortune or deserving-ness. Objectively, the survivors of the Pakistan floods are far worse off and more needy of charity than the survivors of the Christchurch earthquake, but I suspect the average donation from within New Zealand was far greater to help the latter. It may not be fair or rational, but it’s the reality that politicians live with

  6. Matt Nolan
    Matt Nolan says:

    @Royal Albert Ross

    “It may not be fair or rational, but it’s the reality that politicians live with”

    No disagreement there.

    However, when it comes to discussing globalisation and talking about inequality I think there is traction to be gained by starting with the simple premise of “lets treat all people equally”. Framing things in this way, and discussing them, makes policy more transparent.

    Also as I stated at the start of that para I was “putting on my normative hat” – I was laying down my personal value judgments and how I felt. People are welcome to disagree with that – we all have our own value judgments. I was just hoping that by framing it in the way I did, the subjective elements of what I said were transparent.

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