New York: Basic Books, 2010. 276 pages
This book is fascinating. I use that word a lot so maybe I need a new one. This book has only three chapters, but each is followed by a series of vignettes that illustrate the main point of the chapter. As all of these focus on inequality, one may think that this is a little Commie plot made for us to feel badly about ourselves. Well, it isn't. I also do no feel bad. I actually feel quite fortunate. Here are the highlights:
1. One of the vignettes in the first chapter asks "Who is the richest person in history?" Most people would instantly say Bill Gates, I would guess Marcus Licnius Crassus. Most people and yours truly would be wrong. But, the thing that jumped out at me was that Emperor Augustus enjoyed an income of 1/8 that of the empire as a whole. If this extended to President Obama, his income would be in the neighborhood of $30 billion. As it is, he makes roughly $400,000. (41) Milanovic points out that the best way to judge wealth is to ask the question in a way that figures out the power of purchasing labor. Crassus could purchase the labor of roughly 38,000 people in Rome. John D. Rockefeller could purchase the labor of roughly 116,000 people. (40-42) Who wins? Read the book.
2. Milanovic introduces the idea of Price Level Parity in chapter two. This is a nice way to express GDP per capita by using US Dollars. The idea behind the math is that $100 will buy $100 worth of stuff in the US. In China, "$100 will have twice the purchasing power of $100 in the US." (99) In essence, if you make $42 in China, it is the equivalent of $100 in the US.
Why is this relevant? Milanovic points out that countries are more unequal now than they were in 1820 due to something called "income divergence." In 1820, the UK was roughly 2.5 times as wealthy as China. Now, they are 6 times as wealthy using price level parity. (99) In general, Milanovic notes that the poorer the economy in 1970, the worse the economic performance since then. (101) But, Milanovic then states that inequality is more and more based on citizenship rather than ability. He expands on this quite a bit, and it makes damning reading of a lot of the "Free Market" hogwash that CEOs like to trot out.
3. This inequality and its repercussions is further illuminated by the Lucas Paradox: "capital flows from rich country to rich country and from poor to rich." (106). In 2007, foreign investment in China was $138 billion. In the US, it was $240 billion (105). Wealthy Chinese citizens invested nearly as much in the US as US citizens invested in China.
4. While this book is studded with jaw dropping statistics, the best are saved for Vignette 2.2 about income gaps and income groups. Try this chestnut: the poorest 10% of people in the U.S. are better off than 68% of the people on Earth. Inequality in the US is still far less than that in China or Brazil. (117)
5. The richest 10% of people on this rock receive 56% of the income. The poorest 10% receive 0.7%. (153). For every 80 dollars the richest 10% make, the poorest make $1.
Do yourself a favor and read this book. It is, quite simply, the best book about economics that this humble reader has encountered.
This book is fascinating. I use that word a lot so maybe I need a new one. This book has only three chapters, but each is followed by a series of vignettes that illustrate the main point of the chapter. As all of these focus on inequality, one may think that this is a little Commie plot made for us to feel badly about ourselves. Well, it isn't. I also do no feel bad. I actually feel quite fortunate. Here are the highlights:
1. One of the vignettes in the first chapter asks "Who is the richest person in history?" Most people would instantly say Bill Gates, I would guess Marcus Licnius Crassus. Most people and yours truly would be wrong. But, the thing that jumped out at me was that Emperor Augustus enjoyed an income of 1/8 that of the empire as a whole. If this extended to President Obama, his income would be in the neighborhood of $30 billion. As it is, he makes roughly $400,000. (41) Milanovic points out that the best way to judge wealth is to ask the question in a way that figures out the power of purchasing labor. Crassus could purchase the labor of roughly 38,000 people in Rome. John D. Rockefeller could purchase the labor of roughly 116,000 people. (40-42) Who wins? Read the book.
2. Milanovic introduces the idea of Price Level Parity in chapter two. This is a nice way to express GDP per capita by using US Dollars. The idea behind the math is that $100 will buy $100 worth of stuff in the US. In China, "$100 will have twice the purchasing power of $100 in the US." (99) In essence, if you make $42 in China, it is the equivalent of $100 in the US.
Why is this relevant? Milanovic points out that countries are more unequal now than they were in 1820 due to something called "income divergence." In 1820, the UK was roughly 2.5 times as wealthy as China. Now, they are 6 times as wealthy using price level parity. (99) In general, Milanovic notes that the poorer the economy in 1970, the worse the economic performance since then. (101) But, Milanovic then states that inequality is more and more based on citizenship rather than ability. He expands on this quite a bit, and it makes damning reading of a lot of the "Free Market" hogwash that CEOs like to trot out.
3. This inequality and its repercussions is further illuminated by the Lucas Paradox: "capital flows from rich country to rich country and from poor to rich." (106). In 2007, foreign investment in China was $138 billion. In the US, it was $240 billion (105). Wealthy Chinese citizens invested nearly as much in the US as US citizens invested in China.
4. While this book is studded with jaw dropping statistics, the best are saved for Vignette 2.2 about income gaps and income groups. Try this chestnut: the poorest 10% of people in the U.S. are better off than 68% of the people on Earth. Inequality in the US is still far less than that in China or Brazil. (117)
5. The richest 10% of people on this rock receive 56% of the income. The poorest 10% receive 0.7%. (153). For every 80 dollars the richest 10% make, the poorest make $1.
Do yourself a favor and read this book. It is, quite simply, the best book about economics that this humble reader has encountered.
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