On Swaminomic’s Post on Inequality

September 12th, 2011 | Categories: Uncategorized | Tags:

This is a reponse to Swaminomic’s post, where he talks about economic inequality in Indian states (link). I will briefly present his views first and then present some flaws in his argument by providing some facts.

He suggests that India should not be worrying about economic inequality as much as worrying about the overall growth because actions to promote overall growth will benefit a state more than just targeting inequality. He argues that according to Gini Coefficient (link), which measures economic inequality in a region, Haryana, Kerala, Maharashtra, Tamil Nadu, Punjab and Gujarat are the most unequal states, but the same set of states are are more prosperous than the rest of the country. Thus, he concludes that inequality is not a good measure to assess well-being of Indian states. He implies that the Gini coefficient is meaningless because overall growth brings more people into a prosperous state and skews the wealth distribution. And also, because of presence of rich folks in Gurgaon, a fairly secure landlord in Haryana is counted as poor in the Gini Coefficient. The wiki article on the Gini Coeffieicnt (link) discusses the weaknesses in the measure. Swaminomic’s post says that some of the weaknesses are applicable in India’s case.

Against the harsh reality of farmer suicides, I am led to believe that the weakness do not play a role. This presentation (link) and this wiki article (link) indicate that Haryana, Kerala, Maharashtra and Punjab see some of the highest cases farmer suicides in the country. The claim that the inequality measure falsely indicates a fairly-rich person as a poor because the presence of richer folks is untrue in these cases. Inequality and poverty are very real in this case. Clearly, spending effort on the overall health has not benefited the very poor. Inequality needs as much attention as the overall economic health. A disguised trickle-down-theory (tried, tested and failed) argument will not convince me.

I do realise that the farmer’s suicide is an incomplete indicator. I am willing to look at other indicators, if any of you can provide them. Given an agriculture-based rural economy, farmers forms a major chunk of the population. So I think it would be hard to find indicators that support the contrary. The post says that GDP is an incomplete indicator, but it uses GDP to make arguments against Gini coefficient as an indicator (I assume. If not, then what?). There is a structural flaw in the argument, too.

  1. Rahul
    September 12th, 2011 at 23:41
    Reply | Quote | #1

    I do not think he was using GDP or overall growth to argue against Gini as an indicator. He is arguing for equality in opportunity, and what I reterm as an ability to reverse inequalities based on ability. He looks at elections as indicators to whether majority were happy with the policies or not. He shows places that are more unequal but they may be prosperous. And he shows places that have been equal but lands of either lacking opportunities or lands of unequal opportunities, hence very unequal. He speaks in favour of migration which has been the opportunity for these lands in other areas again judging peoples mood being in favour of it using election results. Here I feel he is mistaken. I do not think he is favouring a trickle down theory. He feels availability and equality of opportunity are important indicators of equality which Gini seeks to measure. Gini is a measure of inequality in outcome which he says is bound to be there because of differing abilities. He favours a measure of equality in opportunity.
    As for farmer suicides, I think that presentation itself does a lot of justice to the subject. The failed experiments with GM crops, unfair competition with US and UK which subsidise farming, inadequate loans (an inequality in opportunity), and high interest money lenders. The worst affected is the cotton belt and that has very little to do with state policies. Mostly much to do with miserable failure of agri policies which were thought to be successful and failure to implement agricultural and financial sector reforms before opening markets and affecting prices downward.
    I feel the two subjects are not related because he is looking at performances of state governments and policies by looking at state wise data of GDP and Gini coeff and the farmer suicides are because of other factors for which it appears that largely the central government is responsible.

  2. Coolshankin
    September 13th, 2011 at 00:35
    Reply | Quote | #2

    @Rahul
    I am not sure how you analysed his argument, but I felt his main point was that the Gini coefficient was a meaningless indicator. I thought that was not true and presented examples to show that. And, yeah, I agree that his comparisons are not fair for the reasons you have stated.

  3. Sha
    September 13th, 2011 at 11:00
    Reply | Quote | #3

    Entitlement programs have their own downsides. NREGA is one such. It is the Central government’s scheme to address directly the problem of income inequality. Opponents have correctly argued that NREGA has led to inflation in rural areas. We had a ‘income equality’ socialist agenda for so long, and we saw how spectacularly it failed. The argument is not for a trickle down system. While the trickle-down theory may be wrong for the US, one cannot say the same about India. The problems in the two countries are entirely different, as are the merits of different solutions. You are confusing the American GOP arguments with what Swaminomics, Modi, etc. are trying to say. In the US, it is already extremely easy to do business- something that has led it to its predominant position in the world economy. In India it is still very hard to do business. What TN, Gujarat, etc. are doing is encouraging investment. This is as far from ‘trickle-down’ as possible. India has a long way to go before there is a necessity to discuss ‘trickle-down’

    The situations in India and the US are very different. Take any argument- education, economy, healthcare, etc. This analogy holds- India is like an emaciated malnourished man who’s just recovering from near-death. The US is like a fit, well-fed guy who’s just sprained an ankle. The debate in the US is aimed at curing the sprained ankle, while in India’s case, it is still about getting the sick guy to sit up. Massive entitlement spending is what got us to the pitiable condition of the late 1980s.

    I am skeptical about the farmer suicide spiel. I even heard some nutter say that pesticides should be banned because farmers use them to commit suicide. That presentation you linked to- it is by a religious mutt for the flying spaghetti monster’s sake. They have decided to do some charity for farmers, making it impossible for the presentation to be objective. They are only justifying their charity. Well, even assuming the facts in that presentation are correct, how will entitlement or a thrust towards income equality help?

  4. Coolshankin
    September 13th, 2011 at 13:40
    Reply | Quote | #4

    @Sha
    My view is that you cannot exclusively deal with one of the other. Of course, entitlement programs have failed India before, but so has the economic liberalisation. It is just that it has not failed us, the middle class, i.e., less than 5% of the population. After 20 years, if only 5% of the population is well-off, we have to rethink our approach. 77% of India lives on less than Rs 20 a day ( http://en.wikipedia.org/wiki/Poverty_in_India ). I think that the middle class in India is out of touch with the rest.

    Also, we all know that the pre-90s effort to eradcate poverty was just a charade. Even this liberalisation was carried out only after it was thurt upon us. To this day, it is half hearted. We need more of liberalisation to develop the nation, and we also need some entitelment programs to provide relief until the the situation improves.

    Here’s my view of NREGA and inflation: I have a number of article by economists that NREGA has led to the inflation in India in last few year. I believe them. Let’s review what NREGA does. It provides Rs 120 for 100 days in a year. That Rs 12000 per person per year for back-breaking labour. Thats Rs 33/person/day. Given an average family of husband of wife with two children, it is still Rs 33/person/day (before corruption take a part of this share away). By what measure is that a generous entitlement? When the labourers refuse to work in farms for a lower rate, prices rise (in the cities and in the villages), and the middle class cries fowl. It is as if the labourers are expected to work for the lower rates (less than minimum wage) that landlords used to offer them so that the 5% middle class can reap all the benefits. It is just that that the exploitation of the helpless poor has stopped. Also, nobody can do the back-breaking labour of digging roads beyond 40. Their life expectency is very less too. I remember people crying fowl when George Bush said that the food prices have risen because of demand in the developing countries who are eating more now. It is the exact same thing here.

    I dont care where the facts come from. From a mutt or an economist, facts remain facts. And farmer suicides are very real. The middle-class media in India does not talk about them because the lower class, who are affected by it, does not own TVs to watch them. And thos who do raise their voice about it (Arundhati Roy, for instance, though I dont care much about her for other reasons), are immedietly branded as anti-development. Inequality is very real, and there are many ways to deal with them other then entitlements. Stonger labour laws and unions, for instance, can change things. Read http://www.guernicamag.com/features/3027/on_change_in_india_siddhartha_deb_9_1_11/ when you find the time. It gives a good reason why we need stong labour laws and unions. Of course, unions should not become too powerful as in the socialist coutries, but their complete absense also makes a disaster.

  5. Rahul
    September 15th, 2011 at 05:05
    Reply | Quote | #5

    SAA is talking about Gini as an inefficient indicator for measuring inequality because it omits certain things he considers important in an equal society. He differentiates GDP as an inefficient indicator for prosperity or well being. He is not saying that the states with high Gini are actually very equal nor that poverty is a small problem nor that farmer suicides itself are not a problem. He is making a rather small point that Gini is an inefficient indicator of inequality and hence he hasn’t had to make a very compelling argument to support it. Perhaps Swami Aiyar might readily agree to your points. I do not think he stands for the things you seek to oppose or opposes the points you have to make. Most conclusions in his article are very simplistic inferences which have many more aspects to it and hence may be wrong. His central point is a small one and is shown easily.
    As for your opposition to liberalisation and support to stronger labour laws and unions, I think it merits a dedicated post. Will try to read up on what you have posted in the last comment but hope you will share your learnings on the subject.

  6. Coolshankin
    September 15th, 2011 at 10:52
    Reply | Quote | #6

    @Rahul
    I do not oppose liberlisation. I think there should be more of that in India. I only said that inequality cannot be ignored. I disagree with SAA when he says that we need not concentrate on inequality. Gini coefficient has disadvantages that are well known. They are on wiki.