If you have negative feelings about globalization, here’s something positive you can do about it: Make a microloan to a poor person in an economically disadvantaged nation. This way, you’re not taking away anybody’s job in America, and you’re not exploiting poor people overseas. A banker I met at a conference a couple of days ago, turned me on to Kiva.org, a non-profit clearing-house that links needy people who have a business plan with folks who can help them out. I made my loan to Luka Lua, a seamstress in Samoa.
Harry Potter and the Mystery of Inequality
J.K. Rowling is the first author in the history of the world to earn a billion dollars... Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but could earn no more in a night than, say, what 50 people might pay for an evening’s entertainment. Shakespeare did a little better. The Globe theatre could hold 3,000 and, unlike Homer, Shakespeare didn’t have to be at the theater to earn. Shakespeare’s words were leveraged.
Tolkien’s words were leveraged further. Tolkien could sell to hundreds of thousands, even millions, of buyers in a year—more than have ever seen a Shakespeare play in 400 years—by selling books. And books were cheaper to produce than actors, which meant that Tolkien could earn a greater share of the revenues than did Shakespeare.
Rowling has the leverage of the book, but also the movie, the video game and the toy. And globalization, both economic and cultural, means that Rowling’s words, images and products are translated, transmitted and transported everywhere.
Rowling’s success brings with it inequality. The average writer’s income hasn’t gone up much in the past 30 years, but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires.
The top pulls away from the median. The same forces that have generated greater inequality in writing—the leveraging of intellect, the declining importance of physical labour in the production of value, cultural and economic globalization—are at work throughout the economy. Thus, if you really want to understand inequality today, you must first understand Harry Potter.
Who Gains from Trade?
Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information. Is Tom richer or poorer than Jerry to begin with, and by how much? What are their respective needs and capabilities? And what exactly is the nature of the shock that created this redistribution of income? It would be one thing if Tom got richer (and made Jerry poorer) through actions that we would consider unethical or immoral; it would be another if this was the result of Tom’s hard work and Jerry’s laziness. In other words, most of us would care about the manner in which the distributional change occurred...
The fact that the shock created a net gain of $1 is not enough to conclude that it is a change for the better.
Yet, when we teach comparative advantage and explain the gains from trade, we typically overlook this important conclusion. We expect our students to focus on the net gain triangles and disregard the rectangles of redistribution.