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jasonfurman's review against another edition
4.0
A technical treatment of the ways in which inequality can negatively affect growth, for example through principal-agent models in which imperfect information leads to incomplete contracts that are suboptimal in the presence of inequality (e.g., sharecropping models or too much expensive monitoring). Links these models to some intriguing data on the correlation of "guard labor" to inequality across countries and across cities.
wilte's review
4.0
Theoretical and empirical well-founded argument for more wealth redistribution and equality. Very liberal and left-wing for an American. But well-written, well structured and convincing (but, hey, I live in liberal the Netherlands, with a fairly low Gini coefficient).
In Chapter 1, Bowles argues: Inequality impedes economic performance when it precludes productivity enhancing goverance structures. In other words (p.70/71 Ch.2): "More egalitarian distributions are more likely to be more efficient (...) reduction in wealth inequality would lower barriers which may now exclude people from profiting by putting their new idea in practice".
Three reasons why inequality is bad for economy:
1. inefficient incentive structure
2. Low trust and solidarity because of inequality. Trust is a low-cost solution to co-ordination failures
3. Costly to support inequality. Guard labor, to enforce laws, is not productive
Second key idea: when there are no costlessly enforcable contracts, there are (welath)distributions that are more egalitarian and efficient than concentrated asset-holding, as observed in most capitalist economies.
Third key idea: Pointless to introduce policies that will be undone by private transactions of its beneficiaries. Example: land-grants in Chili in early '70s. New, poor owners disadvantaged on credit markets, no money to invest in fruit-trees, so unable to capitalize. Suboptimal outcome, many sold their land for the short term profit.
Another example: cotton in US South after emancipation in 1863 (work by Ransom & Sutch). Cotton was still cultivated much more than expected, switch to corn would have generated 29% more profit. But poor could not pay the investment and (non-perishable) cotton could be used to underwrite loans (to be claimed in case of default).
Disadvantage on credit markets: poor cannot get the contracts that rich can, or they enter contracts on unfavorable terms.
Chapters 2-4 went over my head a bit, with all the economic theories and subsequent algebra.
Chapter 5 can be found online http://www3.unisi.it/criss/download/disc/fong_bowles_gintis.pdf and deals with experiments and surveys that give "compelling evidence for human generosity and reciprocity". Incidently, "fairness and generosity that inspired Kropotkin and worried Hayek".
p.132: Personal income is a surprisingly poor predictor of support for redistribution. Perceived work ethic of the poor is a better indicator (see https://mobile.twitter.com/wilte/status/5641531253519810560. 60% of US think poor are lazy, 27% in EU (2001 data).
Chapter 6 concludes: "I have explained how the extraordinary economic disparities now characteristic of the US and increasingly other nations are a barrier to the adoption of productivity-enhancing economic institutions." (p.161)
In Chapter 1, Bowles argues: Inequality impedes economic performance when it precludes productivity enhancing goverance structures. In other words (p.70/71 Ch.2): "More egalitarian distributions are more likely to be more efficient (...) reduction in wealth inequality would lower barriers which may now exclude people from profiting by putting their new idea in practice".
Three reasons why inequality is bad for economy:
1. inefficient incentive structure
2. Low trust and solidarity because of inequality. Trust is a low-cost solution to co-ordination failures
3. Costly to support inequality. Guard labor, to enforce laws, is not productive
Second key idea: when there are no costlessly enforcable contracts, there are (welath)distributions that are more egalitarian and efficient than concentrated asset-holding, as observed in most capitalist economies.
Third key idea: Pointless to introduce policies that will be undone by private transactions of its beneficiaries. Example: land-grants in Chili in early '70s. New, poor owners disadvantaged on credit markets, no money to invest in fruit-trees, so unable to capitalize. Suboptimal outcome, many sold their land for the short term profit.
Another example: cotton in US South after emancipation in 1863 (work by Ransom & Sutch). Cotton was still cultivated much more than expected, switch to corn would have generated 29% more profit. But poor could not pay the investment and (non-perishable) cotton could be used to underwrite loans (to be claimed in case of default).
Disadvantage on credit markets: poor cannot get the contracts that rich can, or they enter contracts on unfavorable terms.
Chapters 2-4 went over my head a bit, with all the economic theories and subsequent algebra.
Chapter 5 can be found online http://www3.unisi.it/criss/download/disc/fong_bowles_gintis.pdf and deals with experiments and surveys that give "compelling evidence for human generosity and reciprocity". Incidently, "fairness and generosity that inspired Kropotkin and worried Hayek".
p.132: Personal income is a surprisingly poor predictor of support for redistribution. Perceived work ethic of the poor is a better indicator (see https://mobile.twitter.com/wilte/status/5641531253519810560. 60% of US think poor are lazy, 27% in EU (2001 data).
Chapter 6 concludes: "I have explained how the extraordinary economic disparities now characteristic of the US and increasingly other nations are a barrier to the adoption of productivity-enhancing economic institutions." (p.161)
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