What do you think?
Rate this book
Inequality and Instability: A Study of the World Economy Just Before the Great Crisis
Inequality is a charged topic. Measures of income inequality rose in the USA in the 1990s to levels not seen since 1929 and gave rise to a suspicion, not for the first time, of a link between radical inequality and financial instability with a resulting crisis under capitalism. Professional macroeconomists have generally taken little interest in inequality because, within the parameters of traditional economic theory, the economy will stabilize itself at full employment. In addition, enlightened economists could enact stabilizing measures to manage any imbalances. The dominant voices among academic economists were unable to interpret the causal forces at work during both the Great Depression and the recent global financial crisis.
In Inequality and Instability, James K. Galbraith argues that since there has been no serious work done on the macroeconomic effects of inequality, new sources of evidence are required. Galbraith offers for the first time a vast expansion of the capacity to calculate measures of inequality both at lower and higher levels of aggregation. Instead of measuring inequality as traditionally done, by country, Galbraith insists that to understand real differences that have real effects, inequality must be examined through both smaller and larger administrative units, like sub-national levels within and between states and provinces, multinational continental economies, and the world. He points out that inequality could be captured by measures across administrative boundaries to capture data on more specific groups to which people belong. For example, in China, economic inequality reflects the difference in average income levels between city and countryside, or between coastal regions and the interior, and a simple ratio averages would be an indicator of trends in inequality over the country as a whole. In a comprehensive presentation of this new method of using data, Inequality and Instability offers an unequaled look at the US economy and various global economies that was not accessible to us before. This provides a more sophisticated and a more accurate picture of inequality around the world, and how inequality is one of the most basic sources of economic instability.
In Inequality and Instability, James K. Galbraith argues that since there has been no serious work done on the macroeconomic effects of inequality, new sources of evidence are required. Galbraith offers for the first time a vast expansion of the capacity to calculate measures of inequality both at lower and higher levels of aggregation. Instead of measuring inequality as traditionally done, by country, Galbraith insists that to understand real differences that have real effects, inequality must be examined through both smaller and larger administrative units, like sub-national levels within and between states and provinces, multinational continental economies, and the world. He points out that inequality could be captured by measures across administrative boundaries to capture data on more specific groups to which people belong. For example, in China, economic inequality reflects the difference in average income levels between city and countryside, or between coastal regions and the interior, and a simple ratio averages would be an indicator of trends in inequality over the country as a whole. In a comprehensive presentation of this new method of using data, Inequality and Instability offers an unequaled look at the US economy and various global economies that was not accessible to us before. This provides a more sophisticated and a more accurate picture of inequality around the world, and how inequality is one of the most basic sources of economic instability.
336 pages, Hardcover
First published February 29, 2012
15 people are currently reading
298 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 8 of 8 reviews
September 13, 2015
Sometimes, when I have finished a book and decide to write down what I think of it, my thoughts are fairly fully developed already. Other times, like this one, I have completed the book but still don't know for sure what my opinion is. So, this review is not so much an expression of an opinion, as the coalescing of one. Apologies in advance if it comes across as an inchoate mess.
It's certainly not that the book, subtitled "A Study of the World Economy Just Before the Great Crisis", doesn't provoke enough to cause one to form an opinion. The front cover shows a house of cards, which is a not-so-subtle comment on the modern economy. It's also not for lack of a substantive point. The author asserts in this book, if I may condense several hundred pages into a paragraph, that:
1) economic inequality is measurable, across most countries and most of the last half century or more
2) economic inequality rises and falls for reasons that are, if not exactly immune to national characteristics, then at least highly correlated across countries with very different government and economic policies
3) economic inequality tends to rise immediately before financial crises, and this correlation is so strong as to suggest that economic inequality is at least partly the cause
This book will never be a best-seller, because Galbraith is unwilling to ask his audience to just take it on faith that inequality is measurable. He tells us exactly how, and how not, one can measure it. How, for example, can one determine how economic inequality has risen in mainland China since the mid-20th century, when during most of that time, most of the population was rural and their income unrecorded? Galbraith spends a good portion of the book examining existing sources of data, dissecting them and discussing their flaws, and then laying out a great deal of statistical analysis to show how the many separate sources can be put together to get a reliable answer. Interesting stuff, if you like that kind of thing, but not too many people like that kind of thing (I do).
Thus, we can take it as given that Galbraith's book will not be a modern day "Uncle Tom's Cabin", changing the status quo by exposing it. The question at hand for a reader is, if his analysis of the status quo is nonetheless correct, what does it tell us about where we are at and where we are likely to go next?
One point that Galbraith is somewhat at odds with himself on, is the extent to which international trade contributes to economic inequality. On the one hand, he asserts that financial factors, in particular the income of the most wealthy from financial sources (i.e. from moving money around rather than moving things around) are the primary driver of economic inequality. On the other, his analysis of European unemployment is based on pointing to the fact that while many nations have (relative to the U.S.) relatively low economic inequality, since the labor market is now EU-wide there is now actually greater inequality in Europe than in the U.S. Well, if the presence of relatively low-wage labor in Poland and Hungary is driving stubbornly high unemployment in France, then why would labor in Mexico not impact the economic leverage of labor in the U.S. and Canada? I am left with the impression that Galbraith is willing to use the first argument to defend the social welfare state in Europe, but unwilling to seem to be agreeing with right-wing opinions in the United States regarding labor competition from Mexico.
Galbraith is very good at showing that inequality is not just a consequence of national culture, or even national government. He uses China and Cuba to show that broad trends of inequality hit even these nations, whose policies are not only very different from each other but also quite different from western Europe and North America. If the U.S., Cuba, and China had broadly similar trends of increasing income inequality in the last half century, then it is unlikely to be the case that voting for a different party in the next election will change things, unless they are contemplating policy changes that loom very large indeed.
In the end, though, what I found slightly unsatisfying was that Galbraith doesn't deliver on the link between inequality and instability. I don't necessarily doubt it. I even think it sounds interesting and plausible. But, we have a good number of financial crises in different parts of the world in the last half century, and it should be possible to test that theory more empirically. Perhaps it is the case that when some people have far more money than others, they will tend to loan too much money to those others, at terms those others can neither refuse nor afford, with eventual bad consequences for all. It makes sense. But a great many things "make sense" which turn out not to be so, and I felt unsatisfied that Galbraith had demonstrated it, or even really tried to. Since that is presumably the reason for the "Instability" in "Inequality and Instability", it should have received more analysis.
But, having finished this book, if the author should come out with another to address this second part, I would buy it. This one made me think, a lot, about deep and hard topics, and anything which succeeds in getting one to do that is a book worth reading.
It's certainly not that the book, subtitled "A Study of the World Economy Just Before the Great Crisis", doesn't provoke enough to cause one to form an opinion. The front cover shows a house of cards, which is a not-so-subtle comment on the modern economy. It's also not for lack of a substantive point. The author asserts in this book, if I may condense several hundred pages into a paragraph, that:
1) economic inequality is measurable, across most countries and most of the last half century or more
2) economic inequality rises and falls for reasons that are, if not exactly immune to national characteristics, then at least highly correlated across countries with very different government and economic policies
3) economic inequality tends to rise immediately before financial crises, and this correlation is so strong as to suggest that economic inequality is at least partly the cause
This book will never be a best-seller, because Galbraith is unwilling to ask his audience to just take it on faith that inequality is measurable. He tells us exactly how, and how not, one can measure it. How, for example, can one determine how economic inequality has risen in mainland China since the mid-20th century, when during most of that time, most of the population was rural and their income unrecorded? Galbraith spends a good portion of the book examining existing sources of data, dissecting them and discussing their flaws, and then laying out a great deal of statistical analysis to show how the many separate sources can be put together to get a reliable answer. Interesting stuff, if you like that kind of thing, but not too many people like that kind of thing (I do).
Thus, we can take it as given that Galbraith's book will not be a modern day "Uncle Tom's Cabin", changing the status quo by exposing it. The question at hand for a reader is, if his analysis of the status quo is nonetheless correct, what does it tell us about where we are at and where we are likely to go next?
One point that Galbraith is somewhat at odds with himself on, is the extent to which international trade contributes to economic inequality. On the one hand, he asserts that financial factors, in particular the income of the most wealthy from financial sources (i.e. from moving money around rather than moving things around) are the primary driver of economic inequality. On the other, his analysis of European unemployment is based on pointing to the fact that while many nations have (relative to the U.S.) relatively low economic inequality, since the labor market is now EU-wide there is now actually greater inequality in Europe than in the U.S. Well, if the presence of relatively low-wage labor in Poland and Hungary is driving stubbornly high unemployment in France, then why would labor in Mexico not impact the economic leverage of labor in the U.S. and Canada? I am left with the impression that Galbraith is willing to use the first argument to defend the social welfare state in Europe, but unwilling to seem to be agreeing with right-wing opinions in the United States regarding labor competition from Mexico.
Galbraith is very good at showing that inequality is not just a consequence of national culture, or even national government. He uses China and Cuba to show that broad trends of inequality hit even these nations, whose policies are not only very different from each other but also quite different from western Europe and North America. If the U.S., Cuba, and China had broadly similar trends of increasing income inequality in the last half century, then it is unlikely to be the case that voting for a different party in the next election will change things, unless they are contemplating policy changes that loom very large indeed.
In the end, though, what I found slightly unsatisfying was that Galbraith doesn't deliver on the link between inequality and instability. I don't necessarily doubt it. I even think it sounds interesting and plausible. But, we have a good number of financial crises in different parts of the world in the last half century, and it should be possible to test that theory more empirically. Perhaps it is the case that when some people have far more money than others, they will tend to loan too much money to those others, at terms those others can neither refuse nor afford, with eventual bad consequences for all. It makes sense. But a great many things "make sense" which turn out not to be so, and I felt unsatisfied that Galbraith had demonstrated it, or even really tried to. Since that is presumably the reason for the "Instability" in "Inequality and Instability", it should have received more analysis.
But, having finished this book, if the author should come out with another to address this second part, I would buy it. This one made me think, a lot, about deep and hard topics, and anything which succeeds in getting one to do that is a book worth reading.
March 18, 2020
me reading this right now, during the goddamn covid-19 is hilarious. HILARIOUS. anyway, the gini co-efficient. fascinating. why does no one tell me about this. the graphs, i definitely skimmed those towards the end, they're so hard to decipher and god forbade me from numbers lest i take my abilities and rage against the fuck. but inequality? in this economy? the only bitch. it's so large? it's huge? and i can only imagine, with this book being published so long ago, how bezos and all those goddamn billionares denying workers healthcare are going to deal. they opened this can of worms, i'll shove it back up their asses. can't wait to vote.
November 16, 2017
If you like books with tables of regression coefficients and appendices of data, this is the book for you. The author has been examining both Gini and Theil coefficients of inequality in multiple countries and continuously since 1990. I believe you could summarize the conclusions as instability begets inequality. The instability can be produced by success, as in the dot.com boom in California. But yes, as I read in the newspaper today, inequality is increasing in the USA.
Graphics could use some work. There are a few typos.
Graphics could use some work. There are a few typos.
Read
March 26, 2021a spectacular waste of my time
August 5, 2012
This is an excellent, excellent book that, admittedly, spends a lot of time on methodological issues, but which uses them to illuminate such interesting findings that it is worth reading thoroughly. To provide just a sampling, intra-US state class heterogeneity correlates with liberalism, while class homogeneity with conservatism, so a solidly poor state is likely to vote "against their economic interests" for Republicans. Islamic countries are second only to communist ones in equality, which is extremely interesting given the way the Arab Spring played out in countries like Egypt an Tunisia (note the anger against politically connected people getting rich). In the US, despite rapily rising inequality, wage disparities have actually remained steady, which means that all of the ineuality is fueled by financial markets an the tech bubbles.
Fascinating stuff!
Fascinating stuff!
December 23, 2013
Very dense, esoteric and with plenty of unanswered questions and potholes in the overall argument presented - Galbraith may have bitten off more than he can chew, which he admits but nonetheless . . . Misleadingly advertised as an "easy" read but certainly not the case for those unversed in economic theory, statistics, etc. Would only recommend to those studying economics; would only suggest to those less well-versed in economics with major reservations and only certain chapters, which leaves a large portion of the text untapped. A classic example of thick, dry, esoteric economic scholarship either boring everyone who reads to the extent of total disinterest or barring them from ever even getting past the first chapter. Galbraith is a wonderful orator, however - I would suggest his online lectures where he discusses this text strongly.
September 18, 2015
Pedantic and self-referential, this book acts as a workable monument to Economics, a discipline undone in 2008. Ever holding countless variables "constant" - so as to confirm some already held assumption - the entire field will need to undergo a full revision or else become a withered branch of psychology.
The mathematical models, once so granitic in their proofs of truth, now look nervous and arbitrary - as if translating your gut feeling into Esperanto would make it a scientific law.
Unfortunately, by the time any of these translations get published, anymore, all the variables an economist freezes to make his point have thawed, become active, and possibly succumbed to turbulence.
Not a worthwhile exercise (though the same author's Predator State certainly is).
The mathematical models, once so granitic in their proofs of truth, now look nervous and arbitrary - as if translating your gut feeling into Esperanto would make it a scientific law.
Unfortunately, by the time any of these translations get published, anymore, all the variables an economist freezes to make his point have thawed, become active, and possibly succumbed to turbulence.
Not a worthwhile exercise (though the same author's Predator State certainly is).
Want to read
July 21, 2016KOBOBOOKS
Interview with author on naked capitalism
Interview with author on naked capitalism
Displaying 1 - 8 of 8 reviews