Weekend Reads from India: Turkey, Inequality, and the Kuznets Curve

It is difficult to overlook the recent attempted coup in Turkey. Although Turkey is no stranger to coups, their recurrence, despite the country’s significant economic progress, is striking.

Among the many hurdles in Turkey’s economic transition: its persistently high income inequality score. The nation ranks third worst in income inequality among all OECD countries. Unequal wealth distribution may not have a direct relationship to Turkey’s current challenges, but the concentration of wealth and persistent disadvantage among certain sections of society, over time, can only result in discontent and instability.

Other notable OECD countries with high income inequality scores include the United States, ranked fourth, and the United Kingdom, ranked sixth, according to their Gini coefficients. Some see in the recent Brexit vote and the political volatility in the United States an expression of inequality-driven discontent.

What countries have the lowest income inequality? Denmark and Norway rank at or near the bottom. It may not be a coincidence then that Denmark was rated the happiest country in the world by the United Nations (UN) and Norway came in fourth.

Economic inequality has enhanced significance for low- to middle-income countries like India. In the developed world, inequality is not so easy to discern. It is cushioned by advanced economies and social safety nets and often finds its most vivid expression in books and charts — until it emerges in robust demands for change. But inequality has a much more visible presence in low-income countries. Often these nations have large portions of their populations living hand to mouth. Inequality in these countries tends to be a more multidimensional problem. As Jean Drèze and Amartya Sen demonstrate in An Uncertain Glory — India and Its Contradictions, mutual reinforcement of different inequalities nurtures and creates disparities in a society.

Economists have been studying inequality for over two centuries. David Ricardo’s work, in particular, is instructive. Ricardo, in the context of his simple, agriculture-driven, early 19th-century economy, considered the imposition of an increasing land rent tax to prevent monopoly and inequality. Nobel laureate Simon Kuznets, working in the mid-20th century, hypothesized that income inequality grew at first but then decreased as an economy proceeded through the stages of development, resulting in an inverted “U”-shaped Kuznets curve. Kuznets’s work provides a framework for modeling inequality. Evidence on the relevance of the Kuznets curve, however, has been mixed. Thomas Piketty, offered a critique in his Capital in the Twenty-First Century.

Income inequality is not easily discernible in a highly developed and vibrant economy like that of the United States. But how inequality expresses itself and corrects — often suddenly and unexpectedly — deserves attention.

Below is a list of online resources that I came across in the last several weeks. Happy reading and have a good weekend.

Wisdom on the Markets

• Robert J. Shiller: “The Global Economy’s Hesitation Blues” (Project Syndicate)
• Paul Krugman: “Bull Market Blues” (The New York Times)
• The size of the global economy, as measured in burgers (Economist)
• David Einhorn: “Get Ready for a ‘Fresh Course of Jelly Donuts’ from the Fed” (Yahoo! Finance)
• “Investors Favour EM Bonds over Europe” (Financial Times)
• Alan Greenspan is nervous and sees stagflation ahead. (Bloomberg)

Investing

• “Nintendo Hit after Playing Down Pokemon Go Effect” (Financial Times)
• Aswath Damodaran: An updated picture of country risk (Musings on Markets)
• “Pension Schemes Stay Loyal to Hedge Funds” (Financial Times)
• “Do Institutional Managers Outperform Mutual Funds?” (The Reformed Broker)
• “Mind the Gap in Tech Reporting Numbers” (Financial Times)

Globalization and Income Inequality

• “Causes and Consequences of Income Inequality: A Global Perspective” (IMF)
• “Income Polarization in the United States” (IMF)
• “Can Globalization Still Deliver?” (IMF)
• “The Globalisation Disconnect” (The Financial Express)
• “Inequality” (OECD)
• “On the Principles of Political Economy and Taxation” (Library of Economics and Liberty)
• “Sunita Narain: Brexit Is Not Only about EU” (Business Standard)

Lighter Reading

• “Why Sanskrit Is Called a Divine Language” (Speaking Tree)
• India census: more temples than schools. (LiveMint)
• “Boris Johnson: Just Don’t Say That When We Get Off the Flight” (Financial Times)
• “There Is a Tax for Being Different” (Financial Times)
• “Photos: NASA’s Juno Mission to Jupiter” (Space.com)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockphoto.com/Christian Mueller