Wednesday, February 21, 2007

Further note on inequality

The relationship between divergent family structures, education, divorce, and growing inequality is documented with more precision in this paper from the University of Maryland. The result is a striking one-to-one-to-one correspondence among the three variables: education, divorce, socioeconomic success. More educated people marry later but divorce far less and have more stable and successful careers and lives. Less educated people marry earlier, divorce much more often (if they marry at all), and tend - irrespective of early success - to sink with respect to their age-peers as they get older.

A study like this illustrates the importance of asking the right questions when it comes to inequality. Too much attention is focused on distractions like CEO pay - the class of people in question is too small to make for a broad social trend. The CEO pay question is important in a different context, that of corporate governance: are they really worth it? Why are so many mediocre or bad CEOs paid so much? Is bad corporate governance actually being rewarded? As for the larger wealth explosion in American society, the right question is not, why are so many doing so well, but, why are so many doing so badly, or not as well as they could?

Some of the factors in rising inequality (illegal immigration, decline of American manufacturing) are halves of problems whose other halves are found in other countries; political cooperation has not kept pace with economic integration. Globalization is also distorted by the overvalued dollar and the world's need for America to act as a big importer and consumer (see here). The rest of the world - or at least Asia - imports and consumes too little. The dollar has been overvalued for more than three decades, while Japan and China still pursue outdated policies of oversaving and suppressing local consumption.

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