Friday, January 13, 2017

Friday Morning Links

Assorted content to end your week.

- Per Molander examines new research on the sources of inequality which concludes that massive gaps in wealth and income inevitably arise purely out of chance rather than any individual merit:
Differences in income or assets that are based on differences in capabilities or effort are widely considered to be legitimate, but it is easy to verify that all observed differences cannot be explained in this way. In its 2016 report on the global distribution of wealth, Oxfam International reported that the richest 62 persons in the world own as much as the poorer half of the world’s population, about 3.5 billion people. Clearly, one person cannot be 100 million times as productive as another healthy and reasonably well-educated person. After all, a day and night comprises only 24 hours for all of us, rich or poor.

In a seminal paper on the drivers of inequality, Robert and Ricardo Fernholz have analysed the long-term distribution of wealth in an abstract growing market economy. They assume that the economy generates a surplus which is invested in a financial market. Even assuming that all individuals in this society are identical as far as capabilities, efforts, preferences, and initial assets are concerned, the distribution of assets will become increasingly skewed over time. In the long run, one household will own all the assets. The explanation for this is simple: small variations in return on assets will be magnified over time, because those who are lucky can afford to take somewhat higher risks and will be rewarded with even higher returns, and so on.

Simple as this mechanism may be, it has far-reaching consequences. Even in an imagined world of perfect equals, inequality will develop as a result of our innate tendency towards risk aversion – wealthy individuals can afford to take risks, whereas the less wealthy have to be more cautious. Equality is inherently unstable; even the slightest perturbation of a perfectly egalitarian equilibrium will cause it to degrade into a highly unequal society, where only the self-interest of the richer strata will set the limits.
In real societies, individuals differ in both capabilities and efforts. But, because of the self-reinforcing effect of differences, the inequalities that we observe will be completely out of proportion with differences in effort or capabilities. Inequality is largely a market failure. This is what makes the case for redistribution.
- Meanwhile, Seth Klein, Iglika Ivanova and Andrew Leyland highlight the desperate need for a poverty reduction strategy in British Columbia.

- Lola Butcher discusses how a housing first strategy can more than pay for itself by reducing burdens on the health care system and other social programs. And Marc Lee points out that tax incentives and subsidies for landlords figure to be far less effective than direct investment in affordable housing.

- Timothy Sawa and Lisa Ellenwood report on the massive amounts of money wasted on high-priced prescription drugs. And to her credit, Jane Philpott is at least examining how to reduce the cost of inflated drug prices - though it remains to be seen when that will lead to actual policy changes.

- Finally, the CCPA's submission to the SaskForward consultation process examines the futility of austerity.

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