How does democracy affect inequality?

by on February 1, 2014 at 3:04 pm in Uncategorized | Permalink

Acemoglu and Robinson have a good post on this and some related issues, excerpt:

…there is a much more limited effect of democracy on inequality. Democracy just doesn’t seem to affect inequality much. Though this might reflect the poorer quality of inequality data, there is likely more to this lack of correlation between democracy and inequality. In fact, we do find heterogeneous effects of democracy on inequality consistent with the theories mentioned above, which would not have been possible if the poor quality of inequality data made it hard to find any empirical relationship.

Overall, our results suggest that democracy does represent a real shift in political power away from elites and has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected.

The pointer is from Samir Varma.  Here is an earlier post on democracy and inequality, broadly consistent with the claims of Acemoglu and Robinson.

Alexei Sadeski February 1, 2014 at 3:45 pm

Why would anyone think that democracy would decrease inequality?

Seems a bizarre notion.

Surely the least democratic nations today are also the least unequal, yes?

Marie February 1, 2014 at 5:29 pm

Oh, no.
It’s just the unequal groups are different sizes.

Tarrou February 1, 2014 at 5:38 pm

If by this you mean that non-democratic countries tend to have a lot less resources to distribute, equally or unequally, then yes. I’d be interested if there is a connection with the size of the economy. China and Russia are the only two really large economies that are largely undemocratic, and they both have a lot of inequality. Inequality may be more a function of how much value there is sloshing about. In Somalia, the guy with enough cash to pay his gunmen and fend off bandits is rich…..and far less rich compared to baseline than a rich person in the US. But he may have influence and power greatly in excess of what a rich person here would have.

Alexei Sadeski February 1, 2014 at 5:54 pm

>If by this you mean that non-democratic countries tend to have a lot less resources to distribute, equally or unequally, then yes. – See more at: http://marginalrevolution.com/marginalrevolution/2014/02/how-does-democracy-affect-inequality.html#comments

Definitely not what I mean!

chuck martel February 2, 2014 at 10:20 pm

Once again Somalia, because it’s governed by tribal chiefs the western media refer to as “warlords” rather than a disconnected, arbitrary, coercive nation/state, is the reference point for everything bad.

dearieme February 1, 2014 at 4:27 pm

In a democracy the rich buy themselves protection from the looting proclivities of the mob by paying off the politicians.

Marie February 1, 2014 at 5:31 pm

Yup.
Straight outa Belloc. Except they also pay off the mob.

Sam February 1, 2014 at 4:31 pm

I guess the intuition is that democracy means populism which shrinks the gap between rich and poor. But to the extent that the sample of democracies correlates with better government and institutions, democracies also mean economic growth, which may mean an increasing gap between rich and poor. Does that help make sense of the data? If the economy is growing, people care less about inequality. If the economy is stalled, the issue of how to divide the pie up comes to the fore. It therefore seems to me that inequality oriented politics and policy would become more and more likely in a democracy the longer growth is stalled.

blume February 1, 2014 at 4:42 pm

So progressives Acemoglu/Robinson are “puzzled” that wide economic “inequality” persists in an established democracy.

They had somehow assumed that redistribution of wealth in a society was an automatic prime feature of democracy, as average citizens eagerly voted to redistribute (steal) assets from the wealthier classes.

Their theory and understanding of democracy could not possibly be wrong, so they postulate there must be some problem in economic data collection or maybe those sneaky awful wealthy people have cleverly “captured” power in society despite the normal utopia of democracy.

Acemoglu/Robinson find all this “intriguing”.
These guys are pretentious and clueless.

david February 1, 2014 at 6:19 pm

They’re not assuming it, their entire paper is directed to criticizing that idea.

The idea that majoritarian democracy=populism really is a standard feature of public choice theory. It forms the core of Buchanan/Tullock, for instance.

Marie February 1, 2014 at 5:32 pm

So, economists don’t read Hayak at all? Because he kind of covers this. I’m totally out of the loop, is he discredited or just ignored?

david February 1, 2014 at 6:15 pm

Hayek deservedly went into the dustbin the first time a graduate student sketched a plausible model where democracy and inequality behave differently. When that happens, then econometrics trumps the political philosophy; data is the only way to distinguish between models.

It’s the difference between studying (say) evolution by reading Darwin, vs by reading John Maynard Smith. Darwin was not wrong, but he is no longer a good guide to the ideas as they stand, on the questions that contemporary thinkers find most interesting.

Marie February 1, 2014 at 7:21 pm

I see. Thanks for explaining that to me, sincerely.

Do tell me that most educated people, though, recognize how easily manipulated to the end of a political philosophy economics data is, particularly in the quantity it seems to be being generated these days.

david February 1, 2014 at 11:25 pm

On the contrary, attacking the validity of reported data (without a very good reason, like contradiction with other data) tends to immediately discredit the speaker.

TMC February 2, 2014 at 9:49 am

“immediately discredit the speaker”

Or launches a academic career.
Or launches a political career.

Marie February 2, 2014 at 11:20 am

And this is seen as only a good thing?

It seems to me to that we’ve widely recognized for centuries that numbers can be manipulated to confirm arguments already formed and to convince others not already convinced, by selecting data carefully and by grifting people into conclusions that seem supported but aren’t.

Certainly you can’t be telling me that if someone makes the argument that there are 2 cars in my driveway and therefore I must be a crony capitalist the only criticism that can be made of that argument is a recount of the cars?

Brian Donohue February 3, 2014 at 6:45 am

Odd analogy. So… are you saying that Hayek was also not wrong? That the data speak clearly in the realm of economics? That Darwin goes in the dustbin too?

Suspiciously glib.

The Anti-Gnostic February 1, 2014 at 7:18 pm

Liberty, equality or diversity. Choose one.

Marie February 2, 2014 at 9:04 pm

Can I pick two?

The Anti-Gnostic February 3, 2014 at 8:07 pm

I asked the same question. After giving it some thought, I don’t think so.

leftistconservative February 1, 2014 at 10:08 pm

for all the supposed deep thinking done by academic bloggers, I have never seen an analysis of the quality of democracy offered by the american system of government as compared to the parliamentarian system of government used by…oh, every single other western nation. That is right–every single other western nation (canada, australia, UK, germany, sweden, norway, switz, austria et al) has a parliamentarian system of govt. By that I mean the power of the govt is put in the hands of the lower house, and the lower house can override the upper house, and the prime minister operates at the behest and will of the lower house. There are a couple of partial exception to the rule that every other western nation has a parliamentarian system, but in general all other western nations put the power in the hands of the lower house, where the districts are quite small.

American academics seem remarkably incurious about the differences in democratic systems between america and our cultural cousins.

It’s all monkey see, monkey do with academia.

david February 1, 2014 at 11:37 pm

On the contrary, the curious fact that separated-powers presidential systems have almost always failed in the Americas except for one startling exception has attracted repeated comment from economists. Acemoglu and Robinson have themselves written whole papers on the topic:

http://scholar.harvard.edu/files/jrobinson/files/presidentialism13.pdf

and written publicly about it for lay audiences:

http://whynationsfail.com/blog/2013/6/11/whither-turkish-presidentialism.html

leftistconservative February 2, 2014 at 7:58 am

wow….that one single mention just blows all my theories out of the water.

Yeah….

Roy February 2, 2014 at 10:18 am

We have an elected upper house, that seperates us from a lot, but not all, of parliamentary systems.

GiT February 2, 2014 at 10:23 am

No, differences between varieties of representative democracy is a pretty commonly studied thing in comparative politics. Try not to pass your own ignorance off as knowledge.

chuck martel February 2, 2014 at 10:24 pm

The British electoral college seems pretty successful.

bryan willman February 1, 2014 at 11:33 pm

A Conjecture – that “elites” in general become elites by having some special property that gives them an advantage in society – this might range from skill at knee-capping to being the only effective Doctors to being the only people who can make your computer work.

Groups holding such powers will essentially always find a way to extract some kind of “rent” from society – if not in money then in esteem, laxity of other rules, or the like.

The larger a group is, the more difficult this is – and so for example carpenters have no such leverage.

As for “systems” – remember that you must compare the US to more or less the EU for the comparison to make sense. And at the scale of the EU (say), it’s not actually a parliamentary system, but looks rather more like the US.

Steve Sailer February 1, 2014 at 11:59 pm

The rise of diversity worship over the last half century has turned out to be very, very good for economic elites.

Nathan W February 2, 2014 at 1:50 am

This is not very surprising if considered in the context of the significant difficulties of poor people finding time and money to create organizational capacity to have their interests represented nearly as well as the interests of the rich are. This coordination issue is fairly easy to understand and goes back at least as far as Mancur Olsen;s “Logic of Collective Action”.

Meanwhile, even highly authoritarian governments acknowledge that provision of education and health services to the poor are beneficial for development prospects.

chuck martel February 2, 2014 at 10:28 pm
Steve Sailer February 2, 2014 at 2:54 am

If you are interested in a big picture thinker who is a lot smarter than Acemoglu, check out Peter Turchin. I can’t promise you that Turchin is right about his grand models of how history works, but when reading Turchin I don’t roll my eyes every page the way I do when trying to read Acemoglu’s Dan Brown-level theorizing.

SW February 2, 2014 at 7:16 am

Dumbocracy steals income from producers and gives it to pure public parasites.

Nathan W February 3, 2014 at 2:03 am

Let me guess, the producers are the working class poor and the parasites are companies who benefit from subsidies and questionable tax preferences?

BrettG February 2, 2014 at 8:00 am

Isn’t it the other way around? Methodology is confusing in this because even IV doesn’t work.

Carlos Scartascini February 4, 2014 at 5:56 pm

We tackle the same issue than Ac-Rob by looking at the effect of unequal representation on redistribution. In our framework, long term inequality affects the distribution of political power (elites keep a disproportionate share of political representation), and hence they are able to insulate themselves (albeit imperfectly) against redistribution. Here is a summary blog post about it: http://vox.lacea.org/?q=reducing-inequality-taxation

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