Consequences of uneven growth
Inequality within US and negative aspects of globalisation are popularly cited as the backend drivers for the emergence of Trump. Post Trump’s election, these may seem obvious but I am increasingly coming to believe that there were signs all over much before Trump entered the scene. We just couldn’t pick it up.
For instance, consider this discussion between Piketty, Stiglitz and Krugman in early 2015.
Sitglitz: One of the problems is focusing on the wrong problems. In US, the median income is lower than it was 25 years ago. Median income of full time worker is lower than what it was 40 years ago.
Krugman: Things are bad. If this continues, people may think that closing the border with Mexico is the solution.
These predictions turned out to be true, few months after they made these remarks.
Not just Sitglitz and Krugman, people like Dani Rodrik have long been warning about this. These arguments were dismissed by the globalisation optimists.
Finally, Trump ended up happening.
One reinforcing lesson from this is that if economic situation turns bad, it may take unimagined turns.
Prof. Debraj Ray has good papers on the effects of uneven growth on conflict. His slightly adjusted version of Hirschman’s tunnel parable is a good framework to think about this. In Prof. Ray’s words:
Prof. Ray further points to the key insight of Hirschman’s parable
Unfulfilled expectations due to uneven growth is the source of trouble that can manifest in several forms. In this particular context, Debraj Ray has studied the effects of uneven growth on conflict. In context of India, he studied Hindu-Muslim conflict. His work suggests that
In case of the US, it took the form of Trump! Thomas Piketty also alludes to this when he says that inequality can result in “blame the other” form, which can manifest itself in aggressive nationalism, hatred against immigrants and so on.
The deteriorating economic situation in India should hence be of more concern that what it actually is. The consequences of both lack of growth and uneven growth can take unforeseen turns.