Why the Rest of the World Gains from U.S. Inequalities

Innovation is deemed crucial to sustained economic growth and welfare improvement. One may subsequently pose, as I do, that innovations require some sort of inequality before they can blossom. This does not mean that some people need to be kept poor so that others can innovate; it means that those individuals who have the potential to significantly improve things for society should be enabled (or left free) to act on that potential.

One of my favourite writers (and speakers), Milton Friedmanexplains that experimentation, which is closely related to innovation, can bring tomorrow’s laggards above today’s mean. I’ve drawn the picture below to illustrate what he means (or at least how I understood he meant it):

Bringing tomorrow's laggards above today's mean

Bringing tomorrow’s laggards above today’s mean

Thus, if we accept that today some inequities exist, which means that some are poorer than others, tomorrow the poorest (the “laggards”, on the left end of the graph) may be better off than the average today. The crucial insight is that inequalities are relative. Even though some may be better off relatively, everyone is better off absolutely.

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The True Winner of the London 2012 Summer Olympics

Last summer in London I experienced the 2012 Summer Olympics. Many were preoccupied with the ‘total medal count’, which counts the number of golden, silver, bronze, and total medals per country (pick that category in which your country is performing best). Of course, the total medal count is not a ‘fair competition’. Some countries have a larger population, which gives them a bigger pool of athletes to fish from. Other countries are richer, which gives them more resources to facilitate the searching and training of potential medal-winners. I wanted to put the achievements of countries into perspective, and more specifically, to be able to say things like “given its population size and wealth, [insert country of interest] performed well during London 2012” with a bit more confidence. As for my motivation: indeed, I come from a small country,  whereas my girlfriend comes from the U.S. – last summer I heard “The Star-Spangled Banner” way more often than “Het Wilhelmus“. Continue reading