Inequality: how it may foment instability of many varieties

To heal the grievous rift exposed during recent violent demonstrations in Bangkok, Thailand must address the country’s social inequality, according to a leading Thai, Finance Minister Korn Chatikavanij.

In an interview with Tim Johnston of the Financial Times of London, Korn said: “There have been far too much focus through various governments…on short-term relief measures as opposed to measures that genuinely address the issue of equal access to opportunity in the long term.”

Although governmental efforts to create jobs through fiscal stimulus are important, “they cannot be expected to create job opportunities of the kind that people aspire to in the long term,” Korn said, adding that a widespread view among the people is that access to opportunities and resources is “not fair and transparent.”

Apparently Johnson shares that view. In an opinion column published June 28, he wrote:

“While the protesters’ main demand was the resignation of the government, that discontent was rooted in the belief that the country’s traditional aristocratic and bureaucratic elites have used their power to usurp political and economic rights by manipulating parliament and the courts.”

That discontent is not limited to Thailand. Nor are its roots.

Another columnist, Paul Krugman, a Nobel prizewinner in economics, is also exploring the societal repercussions of inequality. He does so in a paper, “Inequality and crises: coincidence or causation?” that he presented in Luxembourg to the Luxembourg Income Study, an on-going project that collects and analyzes income and expenditure data of nearly 40 countries.

As of this writing, Krugman has made available only a series of statistical data slides and a few related notes of his presentation. In his opening note, he explains:

“Pre-2008: When I would talk to lay audiences about inequality, I would mention that we were reaching levels not seen since 1929, and that would inevitably lead to questions about whether we would soon have another Depression. No, I’d say – there really isn’t a clear reason why high inequality should lead to macroeconomic crisis.

“And then…” Data captured in a series of charts follow, as well as this note, among others:

“Sharp rightward shift in politics in U.S. and to lesser extent UK circa 1980. Reflected in polarization, and also in policies, including financial deregulation. Also, strong correlation between political shifts and inequality.”

Among the economists he quotes is Robert Frank, author of “Falling Behind: How Rising Inequality Harms the Middle Class.” He puts Frank among those with “Modern Ideas (on the basic issue): over-consumption (and over-indebtedness), not under-consumption,” as in this quote:

“The wealthy are spending more now simply because they have more money. But their spending has led others to spend more as well, including middle-income families. If the real incomes of middle-class families have grown only slightly, how have they financed this additional consumption? In part by working longer hours, but mainly by saving less and borrowing more.”

In his final slide, he draws two-way causal lines between politics and inequality, but he qualifies the link between inequality and fragility with a question mark.

Meanwhile, in his June 27 New York Times column, Krugman wrote: “We are now, I fear, in the early stages of a third depression….The cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will…be immense.”
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