The low productivity of investment bankers

Megan McArdle confirms what I always suspected:

The investment banking associates I observed seemed to spend most of their time on basically clerical tasks, tabulating data and proofreading PowerPoints.

Inequality and Northeast China

This National Geographic story on Northeast China (full story only in print edition, unfortunately) was compelling. I liked the map best.
"The bus is starting to roll down the rutted dirt road in Dongfa village, carrying the young worker and his wife away from this ghost town near the Russian border. ... Twenty-six years ago, his parents named him Wang Tieren, or Iron Man Wang. It was a tribute to the communist icon whose selfless toil symbolized the industrial muscle of China's Northeast, a region whose state-run factories and furnaces fueled the communist dreams of the People's Republic. The new Iron Man on the bus—silent, gaunt, a look of worry wrinkling his freckled brow—embodies the same region but in a challenging new era: Even as other parts of China flourish in the mad rush toward a market economy, once proud Manchuria (as the area is known abroad) has fallen on hard times; it, like Iron Man Wang himself, is desperately searching for salvation."

As an unfair comparison, here is the abstract from "Income Inequality During China’s Economic Transition" by Dwayne Benjamin, Loren Brandt, John Giles, and Sangui Wang (2005):
"This paper provides an overview of the evolution of income inequality in China from 1987 to 2002, employing three series of data sets. Our focus is on both urban and rural inequality, as well as the urban-rural gap, with the objective of summarizing several “first-order” empirical patterns concerning the trajectory of inequality through the reform period. We document significant increases of inequality within China’s urban and rural populations. In rural areas, increased inequality is primarily related to the dis-equalizing role of non-agricultural self-employment income and slow growth in agricultural income from the mid-1990s onward. Poverty persists, and tied in part to slow growth in agricultural commodity prices. In urban areas, the declining role of subsidies and entitlements, the increase in wage inequality and the layoffs during restructuring, have fueled the growth in inequality within urban areas. Poverty levels, however, are very low. We find that spatial (regional) dimensions of inequality are significant, but are much less important than commonly believed for both the urban and rural populations, and for differences between urban and rural areas. Accounting for urban-rural reclassification, which otherwise exaggerates the rising urban-rural gap, we find a relatively stable ratio of urban to rural incomes. This hides some geographical variation, however: The urban-rural gap is increasing more rapidly in interior provinces, where SOE’s had a more dominant role in economic activity in urban areas, than in coastal provinces where the non-state sector was more important earlier in the reform period."

What kind of inequality should we be concerned about?

There has been some discussion on the blogosphere on an NYT op-ed by Cox and Alm on consumption versus income inequality. Good points were made by Lane Kenworthy with some discussion by Andrew Gelman and Mark Thoma.

Consumption is constrained by income so if consumption inequality is lower than income inequality seems to imply that the constraint at the lower end is as binding as we would like to believe. If we were to transfer all of the top quntile income to the bottom quintile, the bottom quintile might consume only just as much as the top quintile leading to an equalization in consumption inequality. The article would like us to believe that this difference in consumption inequality is not all that much.

But what about the income less consumption i.e. savings? The rich are able to save more and hence would probably be able to consume more in the future than the poor when both are no longer working.

Perhaps the answer to the question in the post is that we should be concerned with neither income nor consumption but the present value of lifetime income and consumption (including bequests).

Inequality doesn't matter

In a review of Paul Krugman's book Conscience of a Liberal, Herb Gintis says:
... no one cares about inequality. People care about injustice, unfairness, poverty, sexual predators, family values, gay marriage, terrorism, and many other problems of everyday life. People don't care about Gini distributions and other abstractions.
If this is true then there is a lot of irrelevant research on income inequality. Or perhaps,
1) Inequality is correlated with a sense of injustice. When does inequality proxy for injustice or to put it simply, how unequal do income distributions have to get before there is a sense of injustice. Or does inequality as a result of being a robber baron (e.g. corruption) become a proxy for injustice as in some countries.
People hated the Robber Barons because they were robbers and barons, not because they were rich. Oprah Winfrey and Bill Gates do not send the Pinkerton men out to protect their ill-gotten gains; nor to the other super-rich.
2) The statement at the beginning of the blog would then also point to why some results show that inequality is not always correlated with crime and other social problems.
3) What about inequality and financial deepening? There are models that show that inequality is a necessary component of growth in so far as the rich save and invest and hence redirect their wealth toward growth as a whole.