National Post (National Edition)
PANDEMIC INEQUALITY ANGST.
The COVID pandemic we're all obsessed with isn't our only pandemic these days. Inequality anxiety is also pandemic, in the sense of being talked and written about everywhere. If you google “inequality” and “laid bare,” you get 20 million hits. It's a cliché of the real pandemic that it has revealed the true extent of inequality in Canada and around the world.
No it hasn't! People have been tracking inequality for a long time. It has been laid bare, in exquisite digital detail, for a good three decades now. Reducing it has been the motivation of lots of innovative social policy, mainly revolving around child benefits and income supplements for working parents, with major reforms dating from finance minister Don Mazankowski in the early 1990s. And such policies have achieved their declared goals of big reductions in poverty rates among families with children, especially single-parent families.
The obvious hardship the current 100-year pandemic is causing many people proves only that pandemics cause hardship. It says precisely nothing about the more usual functioning of our society and economy.
The word “pandemic” not only includes the word “panic,” it also induces it. TD Economics has a new report out that suggests, citing IMF research, that pandemic-generated increases in inequality may even lead to social unrest. So: better do something about it.
But we have been doing lots about it, “we” in the sense of Canada but also “we” in the sense of most of the world. As is now well known — or should be — for the first quarters of the pandemic Canadian governments replaced more personal income than was lost as a result of the economic
INEQUALITY IS TRICKY. IF CHINA GROWS FASTER THAN OTHER COUNTRIES, IS THAT REALLY A BAD THING?
contraction. Lots of emergency programs weren't very targeted but it will be shocking, after all the data are in, if it turns out they didn't end up moving lots of resources from the middle and top of the income distribution to the bottom. As is certainly well known, roughly half of Americans who received special pandemic unemployment benefits saw their take-home “pay” increase as a result. People who worry that hardship will cause social unrest need to say something about all that has been done and is being done under the current social system to alleviate hardship.
Princeton's Angus Deaton, winner of the 2015 Nobel Prize in Economics, has a new working paper out that concludes, even without considering all the remedial policies, that the pandemic has actually reduced global inequality. A main reason is that, so far at least, COVID has been a rich-country disease that has caused the biggest reductions in rich-country, not poor-country GDPs. Anyone doing research with international comparisons has to be careful, of course: some countries' data is higher-quality than others' and, quality aside, different countries have different practices about which deaths get counted as COVID-caused and which don't.
But using the data we have, Deaton finds that the bigger health and economic hits to rich countries have compressed the international distribution of income. So maybe (my idea, not necessarily his) we could scale back a little on the inequality angst.
But if you like your angst and prefer to cling to it, you will be more enthusiastic about another of Deaton's conclusions, which is that the international distribution of income has widened as a result of COVID. Wait, isn't that exactly the opposite of what I just said? Yes, it is. But it's true, too. In the first calculation of inequality, Deaton weights all countries equally and just looks at what has happened to average incomes across countries. They've gotten closer together. But if instead you weight countries by their populations and assume everyone in a country makes the average income in that country, then worldwide inequality has actually increased.
And it's all China's fault. Not because that's where the virus crossed over from bats or a lab to humans but because China is no longer a poor country. When its income grows faster than elsewhere — which it did all last year — that now pulls up the top half of the world income distribution rather than the bottom half, which it did for three or four decades after economic reforms began there in 1979.
As Deaton puts it, one way of looking at the pandemic is that it “increased global inequality because it pulled 1.4 billion (richer) Chinese further ahead of 1.4 billion (poorer) Indians.” Of the world's 7.8 billion people, 4.4 billion are now poorer than the 1.4 billion Chinese. “In global terms,” Deaton writes, “China is not a poor country, and as it grows faster than other countries, it will make the world more unequal.”
Inequality is tricky. If China grows faster than other countries, is that really a bad thing? It's a big, wide world. Not all countries will grow at the same rate.
As always, what we should focus on is poverty, not inequality. The most important bottom line on the pandemic is that it seems likely to push 88 to 115 million people back into extreme poverty. Rising poverty is a problem for real people. Rising inequality is often just a mind-teaser for statisticians.