I show you the money
A reader asked me not to write about “useless topics” such as summer book recommendations, the relationship between democracy and growth and the economics of weed or love- and “show him the money” instead. As your friendly neighborhood economist, I am happy to oblige.
But if you are expecting me to tell you where the lira-dollar exchange rate is headed, you’ll be utterly disappointed. While economic fundamentals warrant a weaker lira in the medium-term, as I explained in my June 1 column, it is impossible to forecast currencies, and, more generally, asset prices, in the short run.
I could instead offer more general advice like getting a top-notch education or choosing a profitable profession, but those would not be of much use to many of you who have already made those decisions. Besides, those are probably not your best bets to becoming rich anyway. But it turns out that there is a much safer way of making a decent living: Residing in a rich country.
Branko Milanovic from the University of Maryland notes in his recent paper, “Global Inequality of Opportunity: How Much of Our Income Is Determined by Where We Live?”, that the richest in India reach only the level of the lower middle class in the U.S., where the poorest are at the level of the median income in China. You would argue that many goods are cheaper in poor countries, but Milanovic takes that into account by using purchasing power parity-adjusted per capita incomes.
He then estimates, using data from the World Income Distribution database for 123 countries, the effect of country and parental circumstances on one’s income. The latter is also important, given the significance attributed to the decline in income mobility by French economist Thomas Piketty in his bestseller “Capital in the Twenty-First Century.”
Country of citizenship and parental income class explain 80 percent of the variability in global income position, with the former accounting for 50-60 percent. So Cecil Rhodes, of Rhodes Scholarship and Rhodesia fame, was right when he famously stated: “Remember that you are an Englishman, and have consequently won first prize in the lottery of life.”
Of course, you cannot choose your country of birth, but you can select your country of residence. Milanovic’s results suggest that you should emigrate to a rich country if you live in a poor one. It is actually a bit more complicated than that. He goes on to show that emigrants who expect to be in lower income classes in the receiving country should pick egalitarian societies such as Sweden, whereas those who expect to be in higher income groups should move to unequal ones like the U.S.
That’s actually what we observe. In his paper, “Migration and Inequality: What Do We Know?”, Rafael Muñoz de Bustillo Llorente shows that among those who emigrate to the U.S. and more egalitarian Spain, the share of people from higher income classes is higher in the former. Interestingly, the share of lower income groups is higher in the U.S. as well, but it could be that nearby Spanish-speaking, warm U.S. is simply more feasible and desirable than far-away, cold Scandinavia for Central and South Americans.
This column won’t make you rich overnight, but if you are, like me, really worried about where Turkey is headed, it at least offers you a guideline on an exit strategy. In the meantime, if you hear of any economist positions in London, please let me know.