income inequality

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pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

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autonomous vehicles, blue-collar work, Bonfire of the Vanities, Branko Milanovic, call centre, collective bargaining, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, Erik Brynjolfsson, feminist movement, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, income inequality, industrial robot, invisible hand, job automation, Joseph Schumpeter, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, performance metric, positional goods, post-industrial society, postindustrial economy, purchasing power parity, refrigerator car, rent control, Richard Feynman, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

We already know from census data that in 2010 income share for the bottom 40 percent fell and that the poverty rate climbed to its highest point in nearly two decades.7 In addition to having an unusually high level of income inequality, the United States has seen income inequality increase at a much faster rate than most other countries. Among the twenty-four OECD countries for which Gini-coefficient change can be measured from the mid-1980s to the mid-aughts, only Finland, Portugal, and New Zealand experienced a faster growth rate in income inequality. Of these, only Portugal ended up with a Gini rating worse than the United States’. Another important point of comparison is that some OECD countries saw income inequality decline during this period. France, Greece, Ireland, Spain, and Turkey all saw their Gini ratings go down (though the OECD report’s data for Ireland and Spain didn’t extend beyond 2000).

Now we live in an age of growing income inequality. How do we measure it? What accounted for the change? Why has it continued for so long? What does it mean for the future of democracy and civil society? I’ll begin my inquiry with an account of how income inequality first came to be measured in the United States during the early part of the twentieth century. Next I’ll relate what scholars, politicians, and others made of that inequality as it dissipated from the 1930s through most of the 1970s and then reversed course to grow with a vengeance. In chapter 2 I’ll set aside the question of income inequality to consider why Americans believe their country has more upward mobility relative to other nations than it actually does. In chapter 3 I’ll dismiss some plausible causes of income inequality that turn out to have no relevance at all, and examine how living standards have changed for the middle class.

That proves it is not woven into the laws of economics that an advanced industrial democracy must, during the present epoch, see its income-inequality level fall, or even stay the same. Some of these countries are becoming more economically egalitarian, not less, just as the United States did for much of the twentieth century.8 Many changes in the global economy are making incomes less equal in many countries outside the United States, but the income-inequality trend of the past three decades has been unusually fierce here in the world’s richest nation. Americans usually invoke the term “American exceptionalism” to describe what it is that makes our country so much more blessed than all others. But American exceptionalism can also describe ingrained aspects of our country’s economy, or government, or character, that put us at a disadvantage on the world stage. Income inequality is one of the more notable ways that the United States differs, in ways we can only regret, even from nations that resemble us more than they do not.


pages: 309 words: 86,909

The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson; Kate Pickett

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Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, impulse control, income inequality, knowledge economy, labor-force participation, land reform, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, offshore financial centre, phenotype, Plutocrats, plutocrats, profit maximization, profit motive, Ralph Waldo Emerson, statistical model, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, upwardly mobile, World Values Survey

Lubotsky, ‘Mortality, inequality and race in American cities and states’, Social Science and Medicine (2003) 56 (6): 1139–53. 311. D. K. McLaughlin and C. S. Stokes, ‘Income inequality and mortality in US counties: does minority racial concentration matter?’ American Journal of Public Health (2002) 92 (1): 99–104. 312. R. Ram, ‘Income inequality, poverty, and population health: evidence from recent data for the United States’, Social Science and Medicine (2005) 61 (12): 2568–76. 313. S. V. Subramanian and I. Kawachi, ‘The association between state income inequality and worse health is not confounded by race’, International Journal of Epidemiology (2003) 32 (6): 1022–8. 314. R. Ram, ‘Further examination of the cross-country association between income inequality and population health’, Social Science and Medicine (2006) 62 (3): 779–91. 315. J. Banks, M. Marmot, Z.

Olausson, ‘Social class differences in infant mortality in Sweden: comparison with England and Wales’, British Medical Journal (1992) 305 (6855): 687–91. 319. S. V. Subramanian and I. Kawachi, ‘Whose health is affected by income inequality? A multilevel interaction analysis of contemporaneous and lagged effects of state income inequality on individual self-rated health in the United States’, Health and Place (2006) 12 (2): 141–56. 320. M. Wolfson, G. Kaplan, J. Lynch, N. Ross and E. Backlund, ‘Relation between income inequality and mortality: empirical demonstration’, British Medical Journal (1999) 319 (7215): 953–5. 321. S. J. Babones, ‘Income inequality and population health: correlation and causality’, Social Science and Medicine (2008) 66 (7): 1614–26. 322. C. A. Shively and T. B. Clarkson, ‘Social status and coronary artery atherosclerosis in female monkeys’, Arteriosclerosis and Thrombosis (1994) 14 (5): 721–6. 323.

Among our set of rich developed countries, WHO surveys have been completed in nine: Belgium, France, Germany, Italy, Japan, Netherlands, New Zealand, Spain and the USA.49–50 Although not strictly comparable, very similar national surveys give estimates of the proportion of the adult population with mental illness in another three countries – Australia,51 Canada52 and the UK.44 INCOME INEQUALITY AND MENTAL ILLNESS In Figure 5.1 we use these surveys to show the association in rich countries between income inequality and the proportion of adults who had been mentally ill in the twelve months prior to being interviewed. This is a strong relationship: a much higher percentage of the population suffer from mental illness in more unequal countries. Such a close relationship cannot be due to chance, indeed the countries line up almost perfectly, with only Italy standing out as having lower levels of mental illness than we might expect, based on its level of income inequality. Figure 5.1 More people suffer from mental illnesses in more unequal countries. Just as we saw with levels of trust in the previous chapter, there are big differences in the proportion of people with mental illness (from 8 per cent to 26 per cent) between countries.


pages: 221 words: 55,901

The Globalization of Inequality by François Bourguignon

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Berlin Wall, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Credit Default Swap, deglobalization, deindustrialization, Doha Development Round, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, financial intermediation, gender pay gap, Gini coefficient, income inequality, income per capita, labor-force participation, minimum wage unemployment, offshore financial centre, open economy, purchasing power parity, race to the bottom, Robert Gordon, Simon Kuznets, structural adjustment programs, The Spirit Level, too big to fail, very high income, Washington Consensus

The goal of this book is to illuminate the relationship between globalization and inequality by carefully distinguishing between global and national inequality, paying close attention to the causes of the two prevailing trends and ­examining policies that could potentially bring together equality, greater economic efficiency, and globalization. In the present day, the question of income inequality has returned to the spotlight for economists, social science researchers, and the political world. During the last few years, rising inequality in certain countries, notably the United States, has been the subject of or inspiration for several major books—among which it would be difficult to overstate the importance of two recent books by Joseph Stiglitz and Thomas Piketty, the success of which is a clear sign of the mounting public interest in the issue of inequality.2 While few books address global income inequality directly, with the exception of Branko Milanovic’s Worlds Apart,3 many have analyzed inequalities in development between 2  Joseph Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future (New York: Norton, 2012); Thomas Piketty, Capital in the Twenty-­First Century (Cambridge, MA: Harvard University Press, 2013). 3  Branko Milanovic, Worlds Apart, Measuring International and Global Inequality (Princeton, NJ: Princeton University Press, 2005).

Conversely, we must also recognize that, given the heterogeneity mentioned above, we should be cautious about estimating the average well-­being of a national population using data on income or consumption taken Know about Global Income Inequality?” Journal of Economic Literature 46, no. 1 (2008): 57–94; and “The Global Distribution of Income” in Anthony B. Atkinson and François Bourguignon, Handbook of Income Distribution, volume 2 (Amsterdam: Elsevier, forthcoming). For the GDP per capita approach, see Xavier Sala-­i-­Martin, “The World Distribution of Income: Falling Poverty and . . . Convergence, Period,” Quarterly Journal of Economics 121, no. 2 (December 2006): 351–97; and for its critique, see Branko Milanovic, “The Ricardian Vice: Why Sala-­i-­Martin’s Calculations of World Income Inequality Are Wrong” (Washington, DC: World Bank, November 2002). 5  Joseph E. Stiglitz, Amartya Sen, and Jean-­Paul Fitoussi (with a preface by Nicolas Sarkozy), Mismeasuring Our Lives: Why GDP Doesn’t Add Up (New York: New Press, 2010).

It first focuses on several dimensions of income and wealth inequality and then moves to non-­monetary aspects of economic inequality which, at the national level, may be equally important in 48 Chapter 2 the public perception of changes in the social fairness or unfairness of the economy they live in. The Rise in National Income Inequality It would be difficult to begin a discussion of national inequality with any country other than the United States, given how spectacular the rise in inequalities has been in that country. Figure 2, which extends Thomas Piketty and Emmanuel Saez’s estimates, illustrates this quite well.1 By 2008, just before the recent crisis, the level of income inequality, as measured by the share of the top 10% tax units in total household market income, had returned to levels that had not been seen in a century. The Gini coefficient of gross income per person shows a similar evolution.


pages: 165 words: 45,129

The Economics of Inequality by Thomas Piketty, Arthur Goldhammer

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affirmative action, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, conceptual framework, deindustrialization, Gini coefficient, income inequality, low skilled workers, means of production, moral hazard, purchasing power parity, Simon Kuznets, The Bell Curve by Richard Herrnstein and Charles Murray, very high income, working-age population

{THREE} Inequality of Labor Income Although it is often thought that capital income is very unequally distributed while labor income is not, the fact is that the lion’s share of income inequality today (and probably for a long time in the past) is due to labor income inequality. For instance, it is the increase in labor income inequality that is responsible for the reversal of the Kuznets curve that has taken place since the 1970s: in the United States, the gap between the top and bottom 10 percent of the income distribution has increased by nearly 50 percent. In order to understand inequality as it presently exists and redistribution as it might exist in the future, we must therefore give up the idea that labor incomes are relatively equal and that inequality exists primarily between capital and labor. Instead, we need to analyze the reasons for labor income inequality. The point of such analysis is to determine what kinds of redistributive instruments might combat it.

See also Taxes Flat tax, on capital, 64–65 France: attitudes toward inequality, 99; average and marginal rates of redistribution, 102, 102f; capital and labor shares of value added, 41t; effective minimum wage, 110–111; Generalized Social Contribution, 34, 38; household income sources, 6t; income inequality, 12–15, 12t, 24–25; income inequality (1870–1994), 16–17, 16t; income inequality, historical evolution of, 18–19, 22; minimum wage, 91; percentage of obligatory taxes, 101; profit share in, 49–55, 50t; social charges, 46–48; taxes receipts as percent of GDP, 44; unions in, 91–92; wage inequality, 8–11, 11t, 72–73 Freeman, Richard, 87–88 Friedman, Milton, 1, 3, 112 Generalized Social Contribution (CSG), in France, 34, 38 Geographic mobility, wage inequality and human capital, 96 Germany: employment, 24, 25; income inequality, 14; percentage of obligatory taxes, 101; profit share, 53; unions, 91–92; wage inequality, 10, 91, 99 Gini coefficient, 10 Globalization: market integration, 59–60; wage inequality, 73–74 Goolsbee, Austen, 107 Grameen Bank, 63 Grenelle Accords (1968), 49 Gross operating surplus (GOS), 42 Guaranteed basic income, 3, 23, 104, 112–113 Hamermesh, Daniel, 49 Health insurance: adverse selection and, 115; justifications for compulsory, 115–117; as percentage of social charges in 1966 France, 103 Herrnstein, Richard, 82, 87 Hidden underemployment, 25 Household size, income and, 12, 14, 22 Human capital: elasticity of supply of, 78–79, 82–83, 87, 107; measuring types of productivity and, 98; unequal distribution of, 58–60; wage inequality and, 88–89, 92–99 Human capital, structural causes of inequality, 78–79; affirmative action versus fiscal transfers, 86–88; discrimination in labor market and, 85–86; efficiency and, 79–81; inefficient social integration and, 83–84; role of family and education expenses, 81–83 Human capital theory, 66–68; globalization and wage inequality, 73–74; historical inequalities and, 68–69; rise of wage inequality since 1970, 70–71; skill-biased technological change and, 71–73, 76–77, 92; supply and demand and, 69–70 Incentives: basic income and, 113; credit markets and, 60, 62, 114; effects of redistribution on, 105–110; of households to save and invest, 35; human capital and investments, 78–88, 90, 93; of owners to accumulate capital and invest, 28–29 Income: distribution by deciles and centiles, 5–8, 6t; household size and, 12; inequality of, 12–16, 12t, 15t; inequality of, historical evolution, 17–25, 19f, 21t; left-right debate about inequality of, 1–3; types and distribution of, 5–8, 6t.

See Price system Marx, Karl, 26, 30, 39; proletarianization thesis of, 17–18 Maximin principle, of Rawls, 2, 35, 106 McGovern, George, 112 Means of production, collectivizing of, 39, 62, 63–64 Minimum wage: EITC and, 109; health insurance and, 103; monopsony power of employers, 96; raising of, and effect on level of employment, 95–96; redistribution and, 75, 94; unions and, 91; in US and France, 50, 110–111, 117; wage distribution and, 8 Monopoly power, of unions, 89, 94 Monopsony power, of employers, 94–96, 113–114, 121 Moral hazard, credit markets and, 60–61 Murray, Charles, 82, 87 Negative income tax, 1, 3, 112–113 Nonwage compensation, 6t, 8, 12, 13. See also Self-employment compensation Norway: historical evolution of inequality, 22; income inequality, 14; wage inequality, 10 OECD countries: evolution of shares of profits and wages, 49–53, 50t; historical evolution of inequality, 21; income inequality, 14–15, 15t; wage inequality, 10–11, 11t Panel Study of Income Dynamics (PSID), 83 Pareto efficiency, 2–3, 57, 79 Part-time work, income inequality and, 25 Pay-as-you-go (PAYGO) pension systems, 117–118 Payroll taxes. See Social charges Pension plans: private, 118; public, 115–119 Phelps, Edmund, 85 Poverty traps, human capital and, 108, 110, 113 P ratios: income inequality, 12–14, 12t, 15t, 16–17, 23–25, 76–77; inequality’s historical evolution, 20–23, 21t; minimum wage, 91; P defined, 7; sources of household income and, 6t; wage inequality, 8–11, 77 Price system: allocative role of, 30–33, 37–40, 100; elasticity of substitution and, 32–40; housing and educational outcomes, 84; role in capital-labor share of total income, 27–30, 32; social justice and, 106 Primary distribution, 28 Prison population, underemployment and, 24 Private sector jobs, unemployment and fiscal redistribution, 111–112 Profit share: constancy of, 41t, 45–46; historical and political time and, 49–53; in US and UK, 53–55 Progressive estate tax, 19, 64 Progressive income tax, 19, 48, 64, 102–103, 106 Public investment banks, as possible intervention in credit market, 62–63 Public-sector jobs: pensions and, 115–119; unemployment and fiscal redistribution, 111–112; wages, 10 Purchasing power, of workers: changes in twentieth century, 45, 50–51, 68–69, 91, 96, 111; inequality in time and space, 16–17, 16t; redistribution of, 120–121 Pure redistribution, 32, 55, 67; absence of redistribution between workers, 102–104; average and marginal rates of redistribution, 100–102, 102f; Earned Income Tax Credit, in US, 108–109; fiscal redistribution to reduce unemployment and, 109–112; fundamental purposes of, 105–106; high taxes and revenue, 106–108; negative income tax and basic income, 112–113; Pareto efficiency and, 2–3; U-shaped curve of marginal rates, 104–105, 109 Rawls, John, 2, 35, 106 Redistributive policy, left-right conflict about, 1–3.

The Haves and the Have-Nots by Branko Milanovic

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Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Plutocrats, plutocrats, purchasing power parity, Simon Kuznets, very high income, Washington Consensus

Distribution and Development: A New Look at the Developing World. Cambridge: MIT Press, 2001. [An excellent review of income inequality and income mobility in developing countries.] Gasparini, Leonardo, Guillermo Cruces, Leopoldo Tornarolli, and Mariana Marchionni. “A Turning Point? Recent Developments on Inequality in Latin America and the Caribbean.” Economia (2010). Available also at http://cedias.econo.unlp.edu.ar/eng/working=papers.php. [Reviews inequality and polarization in Latin America and the Caribbean over the past thirty years.] Milanovic, Branko. Income, Inequality, and Poverty During the Transition from Planned to Market Economy. Washington, DC: World Bank, 1998. [The effects of transition on income inequality in postcommunist countries.] Organization for Economic Cooperation and Development. Growing Unequal?

The industrial sector also sees more differentiation in incomes between individual workers than is the case among farmers simply because tasks required by modern industry are more diversified. Therefore, income inequality increases both because of the growing gap in average earnings between industry and agriculture and because of rising inequality among industrial workers. Finally, in even more advanced societies, the state begins to play a redistributive role (see Vignette 1.7), education becomes more widespread, and inequality goes down (see Vignettes 1.1 and 1.2). Thus was formulated the famous “Kuznets’ hypothesis” of an inverted U curve charted by income inequality in the course of economic development: Inequality must first increase before it goes down. The idea, however, was not entirely novel. It was expressed some 120 years earlier by French social scientist and politician Alexis de Tocqueville and is worth quoting in full:If one looks closely at what has happened to the world since the beginning of society, it is easy to see that equality is prevalent only at the historical poles of civilization.

The underlying cause of the breakup has to be sought in this overlap of income and religion or income and ethnicity. When we speak of regional income differences in the USSR and Yugoslavia, we need to explain that it does not contradict Vignette 1.5, where I argued that the overall income inequality under communism was low. The former refers to differences in mean incomes between the constituent republics, the latter to low differences in interpersonal incomes. It is striking that such overall low interpersonal inequality coexisted with large differences in mean incomes between the republics. This implies that within each republic interpersonal income inequality must have been extremely small. Why? Because total inequality between individuals in a country, call it A, can be decomposed into two parts: (B) interregional inequality, that is, inequality due to the differences in mean regional incomes, and (C) interpersonal inequality within each region (see Essay I).


pages: 237 words: 72,716

The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality by Roland Berger, David Grusky, Tobias Raffel, Geoffrey Samuels, Chris Wimer

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Branko Milanovic, Celtic Tiger, collective bargaining, corporate governance, corporate social responsibility, double entry bookkeeping, equal pay for equal work, fear of failure, financial innovation, full employment, Gini coefficient, hiring and firing, illegal immigration, income inequality, invisible hand, labour market flexibility, labour mobility, Long Term Capital Management, microcredit, offshore financial centre, principal–agent problem, profit maximization, rent-seeking, shareholder value, Silicon Valley, Silicon Valley startup, time value of money, very high income

The Gini coefficient, a commonly used indicator of inequality, has been applied in Figure 1,3 but much the same conclusions would be reached with other measures. 0.50 0.45 0.40 0.35 0.30 0.20 Denmark Sweden Luxembourg Austria Czech Republic Slovakia Finland Belgium Netherlands Switzerland Norway Iceland France Hungary Germany Australia OECD-30 Korea Canada Spain Japan Greece Ireland New Zeeland Great Britain Italy Poland USA Portugal Turkey Mexico 0.25 Figure 1: Gini coefficients of income inequality in OECD countries, mid-2000s (Source: OECD income distribution questionnaire) What about trends in income inequality? In the same report, the OECD observed that income inequality rose at a “moderate but significant” pace, with the data suggesting an average increase across countries of approximately two Gini points in the last 20 years (see Figure 2). Likewise, data from the Luxembourg Income Study,4 perhaps the best comparative resource on income and inequality in rich countries, show that most countries have experienced at least a modest rise in income inequality at some 3 The Gini coefficient for income measures the dispersion or spread of income across a society. It equals one if a single person holds all of a society’s income and equals zero if everyone holds exactly the same amount of income. 4 The Luxembourg Income Study is a cross-national data archive including income and wealth microdata from a large number of countries at multiple points in time.

7 point since the 1980s, although there are of course important differences across countries in the timing and extent of such change.5 Mid-1980s to Mid-1990s Mid-1990s to Mid-2000s Cumulative change Mid-1980s to Mid-2000s -0.08 -0.04 0.00 0.04 0.08 -0.08 -0.04 0.00 0.04 0.08 -0.08 -0.04 0.00 0.04 0.08 Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Luxembourg Mexico Netherlands New Zeeland Norway Portugal Spain Sweden Turkey Great Britain USA OECD-24 OECD-22 Figure 2: Trends in income inequality: Point changes in the Gini coefficient over different time periods (Source: Computations from OECD income distribution questionnaire) These overall inequality trends cannot tell us whether certain sectors of the income distribution account for most of the changes when inequality rises or falls. We can better understand why income inequality has risen in cer- 5 Brandolini, A., and T.M. Smeeding, “Patterns of Economic Inequality in Western Democracies: Some Facts on Levels and Trends,” Political Science and Politics (January 2006), pp. 21-26. According to Brandolini and Smeeding, the U.S. and the U.K. have experienced the largest and most sustained increases in income inequality, while France experienced virtually no increase.

., The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality, DOI 10.1007/978-3-642-15804-9_15, © Springer-Verlag Berlin Heidelberg 2010 155 156 T. Raffel and G. Samuels pean countries.1 By and large, favorable economies and easy credit muted calls for any political response. Indeed, no major political parties on either side of the Atlantic based election campaigns on income disparities and several countries even legislated declines in top marginal income tax rates. During good times the public remains relatively complacent about income inequalities, a view that is shared across the political aisles. However, “when people have to fear job losses or major salary reductions,” as Josef Ackermann, Chairman of Deutsche Bank observes, income inequality is judged less dispassionately. The interviewees did not predict how the financial crisis may affect national politics, but some commented on public opinion.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

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Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, low skilled workers, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

The heightened gravitational pull of the emerging world may be reducing income inequality between nations, but it is also increasing income inequality within nations. Over the last forty years, for example, income inequality in the US has risen dramatically.2 The rise of the emerging nations thus creates a whole new set of challenges which, all too often, are either swept under the carpet by the supporters of globalization or, instead, distorted to suit the varying interests of xenophobes, nationalists and the anti-big business lobby.3 Globalization has undoubtedly led to higher global incomes but, at the same time, individual nations are struggling to cope with some of its other effects: greater economic instability, heightened income inequality and financial market turmoil. It is, of course, a comforting thought that the rest of the world is embracing the spirit of industrial innovation established in the late eighteenth and early nineteenth centuries in a newly enlightened Europe and a newly independent United States.

Moreover, as economies have become more ‘flexible’ (or, put another way, the probability of losing your job in any given year has gone up), credit markets have expanded to provide protection against transitory income shocks, in line with the predictions of Milton Friedman’s Permanent Income Hypothesis.19 Evidence in the US, for example, suggests that consumption inequality is lower than income inequality (if, in any given year, more people lose their jobs, face temporarily reduced hours or discover their bonuses have been slashed, there will be an increase in income inequality, but if credit markets allow people to carry on spending until a new job is found or the bonus improves, consumption inequality will rise by less). These arguments assume that income losses are only temporary and that people are therefore able to ‘bounce back’ from temporary setbacks. The growth in incomes of the rich and the increases in the prices of staples as emerging economies catch up with the developed world suggest, however, that income inequality is increasing not just because the volatility of income is increasing through a person’s lifetime but, also, because we are in the midst of some major secular trends that, so far, have either been ignored by policymakers or have proved difficult to control.

This, in turn, increases their purchasing power over goods and services priced in foreign currency. It’s one reason why global commodity prices have tended to rise since the late 1990s. As people become richer, their command over global resources tends to rise. In the emerging world, however, not all people get richer at the same pace. As I shall explain in more detail in Chapter 6, levels of income inequality are remarkably high. China, for example, has a level of income inequality similar to that of the US, an ironic result given the countries’ differing political systems. In an attempt to deliver social cohesion in the light of rising commodity prices, many fast-growing emerging markets choose to subsidize the prices of staples such as food and energy. This effectively raises consumption over and above the market clearing level.

When the Money Runs Out: The End of Western Affluence by Stephen D. King

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Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

As such, stagnation is in danger of becoming a trait hard-­wired into our collective consciousness. THE FIRST SCHISM: INCOME INEQUALITY Countries with high levels of trust among their citizens tend also to be countries that enjoy high living standards. Intriguingly, countries with high levels of trust tend also to be countries with low levels of income inequality. Within the OECD, Norway, Sweden, Denmark, Finland and Switzerland all have high levels of trust, high living standards and low levels of income inequality. At the opposite end of the spectrum, Turkey, Mexico and Portugal have low levels of trust, low living standards and high levels of income inequality. It would seem to follow, then, that reducing income inequality should raise levels of trust and, at the very least, make societies a bit happier. 158 4099.indd 158 29/03/13 2:23 PM Three Schisms Plenty of people have been happy to make the argument.

As we’ve seen, many of the world’s richest nations – measured through per capita income – had low levels of income inequality. Some of the world’s poorest nations, meanwhile, had very high levels of income inequality. In some cases, their ruling elites had established de facto kleptocracies. Sierra Leone and the Central African Republic are two obvious examples. Yet for each example, there is a counterexample. Hong Kong – a wealthy, dynamic and fast-­growing economy – has one of the highest levels of income inequality in the world. Brazil and China – paragons of economic success at the beginning of the twenty-­first century – are not far behind.10 In itself, a high level of income inequality appears to be a constraint neither on economic growth nor, indeed, on average living standards. Another way to demonstrate this is to split the US up into its constituent states.

Another way to demonstrate this is to split the US up into its constituent states. Across the US, there are huge variations in income inequality yet there is no obvious correlation with living standards. The richest state – if it can be called a state – is the District of Columbia, with post-­tax per capita incomes in 2011 of almost $64,000. It is also the most unequal state (or district) with regard to income distribution. Second richest is Connecticut, which also happens to be the second most unequal state. Mississippi has the fifth highest level of income inequality across all US states yet is the poorest state. Utah has the lowest level of income inequality yet is the fifth poorest state. Across the US as a whole, there is no obvious link between average living standards and levels of income inequality.11 163 4099.indd 163 29/03/13 2:23 PM When the Money Runs Out A moment’s thought shows why.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

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accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, very high income, We are the 99%

Income inequality in Anglo-Saxon countries, 1910–2010 Figure 9.3. Income inequality in Continental Europe and Japan, 1910–2010 Figure 9.4. Income inequality in Northern and Southern Europe, 1910–2010 Figure 9.5. The top decile income share in Anglo-Saxon countries, 1910–2010 Figure 9.6. The top decile income share in Continental Europe and Japan, 1910–2010 Figure 9.7. The top decile income share in Europe and the United States, 1900–2010 Figure 9.8. Income inequality in Europe versus the United States, 1900–2010 Figure 9.9. Income inequality in emerging countries, 1910–2010 Figure 10.1. Wealth inequality in France, 1810–2010 Figure 10.2. Wealth inequality in Paris versus France, 1810–2010 Figure 10.3. Wealth inequality in Britain, 1810–2010 Figure 10.4. Wealth inequality in Sweden, 1810–2010 Figure 10.5. Wealth inequality in the United States, 1810–2010 Figure 10.6.

Since 1980 the share of the upper centile in national income has risen significantly in the United States, Great Britain, Canada, and Australia (see Figure 9.2). Unfortunately, we do not have separate series for wage inequality and total income inequality for all countries as we do for France and the United States. But in most cases we do have data concerning the composition of income in relation to total income, from which we can infer that in all of these countries the explosion of top incomes explains most (generally at least two-thirds) of the increase in the top centile’s share of national income; the rest is explained by robust income from capital. In all the English-speaking countries, the primary reason for increased income inequality in recent decades is the rise of the supermanager in both the financial and nonfinancial sectors. FIGURE 9.2. Income inequality in Anglo-Saxon countries, 1910–2010 The share of top percentile in total income rose since the 1970s in all Anglo-Saxon countries, but with different magnitudes.

The capital share in national income in France, 1900–2010 Figure 8.1. Income inequality in France, 1910–2010 Figure 8.2. The fall of rentiers in France, 1910–2010 Figure 8.3. The composition of top incomes in France in 1932 Figure 8.4. The composition of top incomes in France in 2005 Figure 8.5. Income inequality in the United States, 1910–2010 Figure 8.6. Decomposition of the top decile, United States, 1910–2010 Figure 8.7. High incomes and high wages in the United States, 1910–2010 Figure 8.8. The transformation of the top 1 percent in the United States Figure 8.9. The composition of top incomes in the United States in 1929 Figure 8.10. The composition of top incomes in the United States, 2007 Figure 9.1. Minimum wage in France and the United States, 1950–2013 Figure 9.2. Income inequality in Anglo-Saxon countries, 1910–2010 Figure 9.3.


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Unhealthy societies: the afflictions of inequality by Richard G. Wilkinson

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attribution theory, clean water, correlation coefficient, experimental subject, full employment, fundamental attribution error, Gini coefficient, income inequality, income per capita, Indoor air pollution, invisible hand, land reform, means of production, purchasing power parity, rising living standards, upwardly mobile

To find that the opposite is the case is important; it suggests that there is a genuinely social effect of income inequality among poorer as well as richer countries for which we must seek a unified understanding. We saw in chapter 3 that during the epidemiological transition health ceases to be so affected by the absolute standard of living. I argued (elsewhere) that there was a transition from health being affected by absolute standards to it being affected by relative standards (Wilkinson 1994a). However, it would be more accurate to say that it is affected by relative standards both before and after the transition, but becomes less affected by absolute standards after the epidemiological transition. We shall look at the likely mechanisms by which reduced income inequality improves health in chapters 8, 9 and 10. Perhaps the most striking example of the way narrowing income differences can improve health—or rather life expectancy—comes from Japan.

Among the OECD countries only New Zealand saw a faster Income distribution and health 95 Figure 5.9: Widening income differences: distribution of disposable income adjusted for household size, UK Note: The Gini coefficient measures the degree of income inequality—not just between rich and poor, but across the whole population. The larger the coefficient, the greater the inequality. If everyone had the same income, the coefficient would be 0%. If all income went to one person and everyone else went without, the coefficient would be 100%. Source: Central Statistical Office, Economic Trends 475:129. 1993. Acknowledgement to A.B.Atkinson widening of income differences (Hills 1994). Where economists used to discuss the mysterious long-term stability of income distribution, in the later 1980s the gap between rich and poor widened sufficiently rapidly to make it worth looking for an impact on annual mortality figures. 96 Health inequalities within societies Most of the growth of income inequality took place among people of working age and their children.

It also includes the apparent paradox of the close relationship between income and health within developed countries and the lack of any such relationship between developed countries. Providing strong confirmation of the relative income interpretation of this paradox is the relationship between income inequality and average life expectancy which has been shown to exist in both rich and poor countries. This has now been demonstrated crosssectionally and on data dealing with changes over time, and the relationship cannot be plausibly attributed to some intervening variable. There is also evidence that the scale of income differences in developed countries is related to the scale of health inequalities within them. This appears to be true in cross-country comparisons as well as within countries over time. The implication is that income inequalities influence national mortality rates primarily by determining the strength of the impact of relative deprivation on health.


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The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

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Keeping the Promise of Human Capital Alive To what extent are income inequalities in the earnings of those with a college education explained by the outstanding performance of a few in a global auction for skills? Gary Becker, awarded a Nobel Prize for his work on human capital, has highlighted what he sees as the “upside of income inequality,” arguing that the earning gap has widened “because the demand for educated and other skilled persons is growing.”27 These inequalities, he argues, reflect the new realities of a global economy that offer exceptional rewards to those with scarce skills, knowledge, and talent at the same time as penalizing those with poor marketable skills or mediocre records of performance. In The Winner-Takes-All Society, Frank and Cook are less sanguine about widening income inequalities in America, as they 122 The Global Auction believe them to be unjust and a cause of economic inefficiency.

The importance of national context in shaping the global auction for American workers is shown in cross-national studies of income inequalities. If wage inequalities are a reflection of the returns to human capital in the global market, we would expect to find a similar pattern in all high-cost countries. But countries including Sweden, Japan, and France have maintained much lower levels of income inequalities at the same time that America and Britain experienced a headlong rush to inequality. Of course, it is possible that these differences reflect a time lag, and other countries will witness a similar increase in wage inequalities in the future. Germany offers initial support for this view, given a significant increase in income inequalities since the turn of the century.32 124 The Global Auction Nonetheless, national differences remain in the way labor markets are organized and incomes distributed.

Although this process began with the renaissance of neoliberalism under Reagan and Thatcher, it has accelerated under the austerity measures introduced after the 2008 financial crisis. This is an issue to which we will return in the final chapter, but there is another argument popular with American economists embracing the view that income inequalities are a result of changes in technologies. Is There a Hi-Tech Elephant in the Room? The idea that income inequalities are explained by the introduction of new technologies rather than global trade is intuitively attractive. It asserts that as new technologies are introduced into the workplace, some jobs are automated while more skilled workers are required to exploit the productive potential of new technologies. Widening income inequalities reflect the growing disparity in productivity achieved by high- as opposed to low-skill employees. “It seems undeniable,” suggests Paul Krugman, a Nobel Prize winner, “that the increase in the skill premium in the advanced world is primarily the result of skillbiased technological change.”35 Other luminaries like Lawrence Summers reaffirmed this view, claiming that “most of the observed increases in income inequality in the American economy are due to new technology rather than increased trade,” although he does recognize the threat of the global auction.36 The idea that new technologies usually demand higher levels of skill has led economists to present education and technology as a race in which the supply of educated workers needs to keep up with technology-led demand; otherwise, a shortage of skilled workers will lead to a polarization of incomes.37 A major study by Claudia Goldin and Lawrence Katz documents how the supply of educated workers kept pace with demand for much of the twentieth century, which they called the century of human capital.


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The Great Escape: Health, Wealth, and the Origins of Inequality by Angus Deaton

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If each person in each country had the average income of the whole country, Figure 5 would show that the living standards of all the people in the world have drawn closer together, although there has been no narrowing of the average living standards of countries. Of course, it is not at all true that everyone shares the same income in each country; not only is there income inequality within countries but, as we shall see in Chapter 6, income inequality is widening in many (but not all) countries. Once within-country income inequality is taken into account, what is happening to income inequality over all the citizens of the world is much less clear, though a good case can be made that it is decreasing. The rapid growth of China and India has not only enabled hundreds of millions of the world’s citizens to make the Great Escape but made the world a more equal place. If we care about people, rather than countries, the optimistic picture in Figure 5, not the pessimistic picture in Figure 4, is the correct one.

Expanding inequality within countries, if it is severe enough, could offset the giant countries’ march to the middle, and cosmopolitan income inequality could be widening. Chapter 5 documented the recent growth in American inequality. Although the United States is only one country, some of the factors that were important there—new technologies and globalization—must show up elsewhere, or at least in other rich countries. Among the poor countries, there is also evidence that not everyone has benefited from the new opportunities that globalization has brought. While I do not believe that there is any statement about income inequality that is true in every country of the world—except that it is difficult to measure—it is clear that the general trend has been toward higher income inequality, especially in recent years. The United States is exceptional, both in its level of inequality and in the size of the recent explosion, particularly at the top, but it is certainly not the only country where income inequality is currently increasing.

Economists have a strong attachment to something called the Pareto principle, which we first met in the Introduction: If some people are made better off and no one is made worse off, the world is a better place. Envy should not be counted. This maxim if often cited as a reason to focus on poverty and not to worry about what is happening at the top. In the words of Martin Feldstein, a Harvard economist, “income inequality is not a problem in need of remedy.”29 There is a lot to be said for the Pareto principle, but, as we shall see, it does not imply that rising income inequality is not a problem. But to get there, we need to know more about why the top incomes have risen so rapidly in recent years, and what the consequences were. One story is that the top is not so different from the rest of the distribution, only more so. New technologies have provided new opportunities for the more educated and more creative and, in extreme cases, have provided extraordinary fortunes to the most highly educated and the most creative, or at least to the luckiest members of that group.


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Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

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3D printing, balance sheet recession, banking crisis, Bernie Sanders, Bretton Woods, business climate, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Steve Jobs, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, trickle-down economics, universal basic income, very high income

In particular, IMF researchers have shown that growth spells tend to be shorter when income inequality is high. This result holds also when other determinants of growth duration (like external shocks, property rights and macroeconomic conditions) are taken into account: on average, a 10-percentile decrease in inequality increases the expected length of a growth spell by one half.43 The picture does not change if one focuses on medium-term average growth rates instead of growth duration. Recent empirical research released by the OECD shows that income inequality has a negative and statistically significant effect on medium-term growth. It estimates that in countries like the US, the UK and Italy, overall economic growth would have been six to nine percentage points higher in the past two decades had income inequality not risen.44 There are different channels through which inequality harms the economy.45 First, inequality leads to weak aggregate demand.

Schumpeter, Joseph Second World War Senior, Nassau Serco share prices shareholder value short-termism and investments empirical evidence of investors’ discount rates policy implications value of future cash-flows single European market smart phones social care Solyndra Spain austerity debt problems GDP investment activity private debt unemployment stagnation economic secular state investment banks funding for green projects renewable energy investments Stirling, Andy stock market values Szczurek, Mateusz T taxation avoidance and evasion energy and materials favourable rates income tax rates inequality policy preferential treatment reform revenues short-term gains tax breaks technological revolutions consumer demand diffusion green direction green growth history recessions telecommunications Tesla Motors Thatcher, Margaret top earners Australia Canada United Kingdom United States trade unions Transatlantic Trade and Investment Partnership (TTIP) transparency Treaty on Stability, Coordination and Governance Turkey income inequality U unemployment Europe global southern Europe United Kingdom United States young people universal basic income United Kingdom GDP income inequality inequality investment labour productivity growth private debt public deficit Public Finance Initiative (PFI) recessions and recovery research and development sectoral financial balances support for banks top earners unemployment wages United States average real wage index business models emergency loans to banks energy policies GDP income inequality investment Japanese competition labour productivity growth National Commission on Fiscal Responsibility and Reform poverty private debt public deficit research and development sectoral financial balances Small Business Innovation Research (SBIR) programme top earners trickle-down strategy unemployment wages wealth US legislation Recovery and Reinvestment Act (ARRA) Taxpayer Relief Act 2012 V Veblen, Thorstein venture capital venture capitalism Volcker, Paul Von Hayek, Friedrich W wages and labour productivity average real wage index higher-skilled workers legal minimum lower-skilled workers United Kingdom wealth creation welfare payments welfare state western capitalism collapse failures Wolf, Martin Woodford, Michael world economy Cambridge Alphametrics Model (CAM) Y Yellen, Janet youth unemployment

The wage share is adjusted to take account of self-employment. ‘Advanced economies’ includes all high-income OECD countries, with the exception of South Korea. 21 ILO, Global Wage Report 2012/13, Geneva, International Labour Organisation, 2013. 22 OECD, World Economic Outlook: Spillovers and Cycles in the Global Economy, Paris, OECD Publishing, 2007, Figure 5.15. 23 OECD, Income Inequality: The Gap between Rich and Poor, Paris, OECD Publishing, 2015. 24 T. Piketty and E. Saez, ‘Income inequality in the United States, 1913–1998’, Quarterly Journal of Economics, vol. 118, no. 1, 2003, pp. 1–39, Tables A3 and A6—Updated version downloaded from http://eml.berkeley.edu/~saez/. Figures are in real 2013 dollars and include capital gains (accessed 12 April 2016). 25 OECD, OECD Employment Outlook 2012, Paris, OECD Publishing, 2012, http://dx.doi.org/10.1787/empl_outlook-2012-en (accessed 12 April 2016).


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Creating Unequal Futures?: Rethinking Poverty, Inequality and Disadvantage by Ruth Fincher, Peter Saunders

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barriers to entry, ending welfare as we know it, financial independence, full employment, Gini coefficient, income inequality, income per capita, labour market flexibility, labour mobility, low skilled workers, low-wage service sector, marginal employment, minimum wage unemployment, New Urbanism, open economy, pink-collar, positional goods, purchasing power parity, shareholder value, The Bell Curve by Richard Herrnstein and Charles Murray, urban planning, urban renewal, very high income, women in the workforce, working poor, working-age population

Indeed, if a fully comprehensive framework for measuring income inequality were used, I argue that Australia is likely to remain among the group of developed countries with relatively lower income inequality, although probably not as equal as the Scandinavian countries. In reaching this conclusion, I emphasise the consistent finding that Australia continues to have a relatively compressed earnings distribution, that the Australian taxation system has had one of the most progressive structures of all OECD countries, and that the social security system is probably the most progressive of all OECD countries.1 Moreover, different comparative studies continue to show differing trends. For example, recent OECD research (OECD 1998a; Oxley et al. 1997) finds that income inequality and poverty increased in Australia between the middle of the 1970s and the 1980s, but fell between the 1980s and the 1990s.

For example, the United Nations Human Development Report 1993 showed that among the twenty industrialised countries for which figures were available for the period 1985–89, the income share of the lowest 40 per cent of households was smallest in Australia, and the ratio of the incomes of the highest 20 per cent to those of the lowest 20 per cent was greatest.9 When the Human Development Index (HDI) is adjusted for this relatively unequal distribution, Australia’s HDI rank drops from seventh to eleventh among the industrial countries, one of the largest falls recorded. The Economist (November 5–11, 1994, pp. 19–23) cited similar figures, giving the United States, Australia, New Zealand and Switzerland the highest level of income inequality among thirteen countries, and Sweden and Japan the lowest inequality. Table 2.2 presents the results of a survey by Atkinson (1994), which shows income inequality in seventeen OECD countries in the late 1980s. The level of income inequality, as measured by the Gini coefficient, was highest in the United States, with Australia being ranked as the sixth most unequal of these countries, with a Gini coefficient 15 per cent higher than the mean. As emphasised by Atkinson (1994), however, these rankings are based on individual studies from each country and the figures may therefore not be comparable across countries.

x PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 x Figures and tables FIGURES AND TABLES FIGURES 4.1 Percentage of births attributable to women aged 15–19 4.2 Labour force participation of mothers by age of youngest child 4.3 Apparent retention rates to year 12 4.4 Young people at work, in education, and on the margins, 1996 6.1 Residential turnover rate, Kelsey, Cairns, Australia, 1991–96 6.2 Unemployment rate, Kelsey, Cairns, Australia, 1996 6.3 Cairns, demarcated by statistical subdivisions, 1996 6.4 Total population, Cairns, 1981–96 6.5 Concentration of public housing by postcode, Cairns, 1996 7.1 Employment levels, 1978–98 7.2 Relative changes in salaries and wages, 1984 to 1998 7.3 Incidence of low-paid male workers within industries, 1981 and 1993 7.4 Incidence of low-paid female workers within industries, 1981 and 1993 108 109 113 119 165 167 169 170 174 197 201 202 203 xi PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 xi CREATING UNEQUAL FUTURES? TABLES 2.1 Relationship between poverty and social exclusion 2.2 Income inequality in OECD countries, late 1980s 2.3 Income inequality in countries in LIS database, mid-1980s 2.4 Comparison of estimates of poverty in Australia from LIS studies 2.5 Alternative estimates of relative low income in developed economies in the early 1990s 3.1 Articles on poverty and welfare in international news: 1 July–30 September 1998 3.2 Articles on poverty and welfare in domestic news: 1 July–30 September, 1998 4.1 Child poverty rates: relative poverty line 4.2 Child poverty rates: ‘real poverty line’ 4.3 Children aged 0–4 years and 5–14 years to 2006 4.4 Living circumstances of children, 1992 and 1996 4.5 Labour force status of parents with children aged under 15 years 4.6 Access and participation indicators for low socioeconomic status group, 1991–95, age group 15–24 4.7 18- to 19-year-old school leavers engaged in marginalising and non-marginalising activities, May 1996 4.8 Characteristics of 19-year-olds in 1994 and 1995 who have been consistently engaged in marginalising activities from age 16 years 5.1 Head count measures of poverty as measured by the per cent of households and income units with income below various percentages of the Australian median income, 1994–95 5.2 Multi-dimensional nature of indigenous poverty, 1994 5.3 Factors potentially correlated with poverty among indigenous households, 1994 6.1 Five-yearly population growth rate, Cairns, Kelsey, Australia, 1981–86 6.2 Dwelling structure, Cairns, Kelsey, Australia, 1996 6.3 Housing tenure, Cairns, Kelsey, Australia, 1996 6.4 Age profile, Kelsey, Cairns, Australia, 1996 6.5 Total weekly household income, Cairns, Kelsey and Australia, 1996 52 58 59 60 62 79 81 103 104 105 106 110 113 118 120 145 147 150 164 165 166 166 167 xii PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 xii FIGURES AND TABLES 7.1 Comparison between static and dynamic accounts of the labour market, Australia, mid-1990s 7.2 Proportion of dual wage-earning households by wage levels, Australia 1988–89 7.3 Occupation of spouse for various categories of wage-earning household reference persons, Australia 1988–89 7.4 Occupational composition of households 7.5 Access to training for salesworkers, labourers and plant and machine operators, Australia 1993 7.6 Overview of low-wage firms in Australia, 1995–96 7.7 Characteristics of low-wage firms in Australia, 1995–96 205 210 211 212 218 218 219 xiii PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 xiii Abbreviations ABBREVIATIONS ABC ABR ABS ACA ACIRRT ACOSS ACTU ADAM AFR ALP ATSIC AWIRS AWOTE BBC BCA BFS CDC CDEP CNN DEETYA EITC ESCAP FNQ GDP Australian Broadcasting Commission Aboriginals Benefit Reserve Australian Bureau of Statistics ‘A Current Affair’ Australian Centre for Industrial Relations Research and Training Australian Council of Social Service Australian Council of Trade Unions Agreements Database and Monitor Australian Financial Review Australian Labor Party Aboriginal and Torres Strait Islander Commission Australian Workplace Industrial Relations Survey Average Weekly Ordinary Time Earnings British Broadcasting Corporation Business Council of Australia Business Funding Scheme Commercial Development Corporation Community Development Employment Projects Cable News Network Department of Employment, Education, Training and Youth Affairs earned income tax credit Economic and Social Commission for Asia and the Pacific Far North Queensland Gross Domestic Product xiv PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 xiv ABBREVIATIONS HDI HDIPC IBIP ILC IMF LIS MIRE NATSIS OECD PPPs PR RMI SMH UN UNICEF Human Development Index Household Disposable Income Per Capita Indigenous Business Incentives Program Indigenous Land Corporation International Monetary Fund Luxembourg Income Study Mission Recherche National Aboriginal and Torres Strait Islander Survey Organisation for Economic Co-operation and Development Purchasing Power Parties public relations Revenu minimum d’insertion Sydney Morning Herald United Nations United Nations International Children’s Emergency Fund xv PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 xv This page intentionally left blank PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\PRELIMS p: (02) 6232 5991 f: (02) 6232 6232 36 DAGLISH STREET CURTIN ACT 2605 xvi 1 The complex contexts of Australian inequality Ruth Fincher and Peter Saunders CREATING UNEQUAL FUTURES THE COMPLEX CONTEXTS OF AUSTRALIAN INEQUALITY The eminent economist and commentator, John Kenneth Galbraith, recently identified persistent inequality in the distribution of income (and urban poverty in particular) as a major piece of ‘unfinished business’ at the end of the twentieth century (Galbraith 1999).


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Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland

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” — It is not just the super-rich who don’t like to talk about rising income inequality. It can be an ideologically uncomfortable conversation for many of the rest of us, too. That’s because even—or perhaps particularly—in the view of its most ardent supporters, global capitalism wasn’t supposed to work quite this way. Until the past few decades, the received wisdom among economists was that income inequality would be fairly low in the preindustrial era—overall wealth and productivity were fairly small, so there wasn’t that much for an elite to capture—then spike during industrialization, as the industrialists and industrial workers outstripped farmers (think of China today). Finally, in fully industrialized or postindustrial societies, income inequality would again decrease as education became more widespread and the state played a bigger, more redistributive role.

But in the late 1970s, things started to change. The income of the middle class started to stagnate and those at the top began to pull away from everyone else. This shift was most pronounced in the United States, but by the twenty-first century, surging income inequality had become a worldwide phenomenon, visible in most of the developed Western economies as well as in the rising emerging markets. — The switch from the America of the Great Compression to the America of the 1 percent is still so recent that our intuitive beliefs about how capitalism works haven’t caught up with the reality. In fact, surging income inequality is such a strong violation of our expectations that most of us don’t realize it is happening. That is what Duke University behavioral economist Dan Ariely discovered in a 2011 experiment with Michael Norton of Harvard Business School.

A 2011 OECD report showed that, over the past three decades, in Sweden, Finland, Germany, Israel, and New Zealand—all countries that have chosen a version of capitalism less red in tooth and claw than the American model—inequality has grown as fast as or faster than in the United States. France, proud, as usual, of its exceptionalism, seemed to be the one major Western outlier, but recent studies have shown that over the past decade it, too, has fallen into line. The 1 percent is outpacing everyone else in the emerging economies as well. Income inequality in communist China is now higher than it is in the United States, and it has also surged in India and Russia. The gap hasn’t grown in the fourth BRIC, Brazil, but that is probably because income inequality was so high there in the first place. Even today, Brazil is the most unequal of the major emerging economies. To get a sense of the money currently sloshing around what we used to call the developing world, consider a conversation I recently had with Naguib Sawiris, an Egyptian telecom billionaire whose empire has expanded from his native country to Italy and Canada.


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The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

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banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business process, call centre, capital controls, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

Then, from the late 1980s, banking failures and financial crises started to re-appear again with the advent of a new era of ‘selfregulation’. 238 Moss then compared his work on the history of US financial regulation and bank failures with the historical evidence on income inequality charted by Piketty and Saez, and shown earlier in figure 1.2. The two data sets showed a near complete correlation.239 Bank failures and the level of income inequality both rose sharply in the 1920s. From the 1930s through to the end of the 1970s, there were virtually no bank failures while income inequality fell. From the early 1980s, the pattern of the 1920s was repeated. Income inequality rose along with the incidence of financial and banking crises. ‘I could hardly believe how tight the fit was—it was a stunning correlation,’ Moss told the New York Times. ‘And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability.’240 Of course, as Moss has accepted, correlation is not the same as causation.

See, for example, I Ortiz and M Cummins, Global Inequality: Beyond the Bottom Billion, UNICEF, 2011, table 12. 43 JB Davies, op. cit. p 9 and 19. There is some evidence about trends in global inequality as measured using individual incomes across countries. One such study has concluded that global inequality has been rising over the last twenty years. See eg, B Milanovic, Global Inequality Recalculated, World Bank, 2010. 44 M. Feldstein, ‘Is Income Inequality Really a Problem?’, in Income Inequality Issues and Policy Options: A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 27-29, 1998. 45 A O’Hear, ‘Equality’, New Statesman, 23 April 2001. 46 R North, Rich Is Beautiful: A Very Personal Defence of Mass Affluence, Social Affairs Unit, 2005. 47 http://www.imf.org/external/np/vc/2011/010411.htm. 2 ‘ZAPPING LABOUR’ Throughout her political career, Margaret Thatcher liked nothing more than to drop the name of Friedrich von Hayek—the leading, post-war, prophet of free-markets and small government.

, New York Times, 14 December, 2010; JP Fitoussi and F Saraceno, Inequality and Macroeconomic Performance, Centre de recherché en economie de sciences Po, 2010; R J Rajan, Faultlines, Princeton University Press, 2010, chapter 1; Holtham, op. cit; ‘Interview with Dr Ravi Batra’, Truthout, 16 March, 2009; R Batra, The Great Depression of 1990, Dell Publishing, 1988; M Kumhof and R Rancière, ‘Inequality, Leverage and Crisis’, IMF Working Paper, WP/10/268, November 2010, p 3. 243 Kumhof and Rancière, op. cit. 244 D Laibson, ‘Did Rising Income Inequality Help to Generate the Recent Financial Crisis?’, The Economist, 29 August, 2010. 245 Glaeser, op. cit. 246 Atkinson and Morelli, op. cit. p 57. 247 JP Fitoussi and F Saraceno, op. cit. 248 M Iacoviello, ‘Household Debt and Income Inequality, 1963-2003’, Journal of Money, Credit and Banking, August, 2008. 249 Kumhof and Rancière, op. cit. p 3. 250 T Cowen, ‘The Inequality That Matters’, The American Interest Online, Jan-Feb, 2011. 251 Moss, Harvard Magazine, op. cit. 252 Ajay Kapur et al, ‘The Global Investigator: Plutonomy: Buying Luxury, Explaining Global Imbalances’, Citigroup Equity Research, October 14, 2005. 253 RN Goodwin, ‘The Selling of Government’, Los Angeles Times, 30 January 1997. 254 J Stiglitz, The Roaring Nineties, Allen Lane, 2003. 255 K Phillips, ‘Too much wealth, too little democracy.’


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Equal Is Unfair: America's Misguided Fight Against Income Inequality by Don Watkins, Yaron Brook

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3D printing, Affordable Care Act / Obamacare, Apple II, barriers to entry, Berlin Wall, Bernie Madoff, blue-collar work, business process, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, collective bargaining, colonial exploitation, corporate governance, correlation does not imply causation, Credit Default Swap, crony capitalism, David Brooks, deskilling, Edward Glaeser, Elon Musk, en.wikipedia.org, financial deregulation, immigration reform, income inequality, indoor plumbing, inventory management, invisible hand, Isaac Newton, Jeff Bezos, Jony Ive, laissez-faire capitalism, Louis Pasteur, low skilled workers, means of production, minimum wage unemployment, Naomi Klein, new economy, obamacare, Peter Singer: altruism, Peter Thiel, profit motive, rent control, Ronald Reagan, Silicon Valley, Skype, statistical model, Steve Jobs, Steve Wozniak, The Spirit Level, too big to fail, trickle-down economics, Uber for X, urban renewal, War on Poverty, women in the workforce, working poor

Highly recommended.” –Peter Boettke, University Professor of Economics and Philosophy, George Mason University “Arguing the unarguable, Watkins and Brook blow the top off established wisdom on the evil of income inequality and the culpability of the 1%. Today’s one-sided debate on income inequality amounts to envy politics, not logic or fact, as these authors demonstrate in their explosive and entertaining book, Equal Is Unfair: America’s Misguided Fight Against Income Inequality. This book shows why the profit motive is noble and shows that government intervention in all areas of our lives—not income inequality—is what’s really threatening the American Dream. A must read for those who desire prosperity for more of the world’s people.” –Mallory Factor, New York Times bestselling author of Shadowbosses and Big Tent, FoxNews contributor and professor at The Citadel, Oxford University and Buckingham University Thank you for buying this St.

What’s the evidence for this narrative? A key element is statistical data compiled by French economist Thomas Piketty. Building on research he conducted with economist Emmanuel Saez beginning in the early 2000s, Piketty uses tax data from the IRS to trace the path of income inequality over the last century. As we can see in Figures 2.1, 2.2, and 2.3, he finds that, after declining during the post–World War II era, income inequality has been rising for the last forty years, driven primarily by the top 1 percent of earners. In addition to income inequality, which refers to differences in the amount of money that people earn on a regular basis, such as their annual salaries, Piketty also found a rising wealth inequality, which refers to differences in people’s net worth.3 For our purposes, the details of these trends aren’t important.

Magness, “5 Remaining Problems for Thomas Piketty in the Wake of the FT Controversy,” Atlas Network, June 16, 2014, http://www.atlasnetwork.org/news/article/5-remaining-problems-for-thomas-piketty-in-the-wake-of-the-ft-controversy (accessed April 12, 2015); and Alan J. Auerbach and Kevin Hassett, “Capital Taxation in the Twenty-First Century,” American Economic Association, January 3, 2015, https://www.aeaweb.org/aea/2015conference/program/retrieve.php?pdfid=421 (accessed April 12, 2015). On problems with Piketty’s data on income inequality, see Phil Gramm and Michael Solon, “How to Distort Income Inequality,” Wall Street Journal, November 11, 2014, http://www.wsj.com/articles/phil-gramm-and-michael-solon-how-to-distort-income-inequality-1415749856 (accessed April 12, 2015); and Alan Cole, “Income Data Is a Poor Measure of Inequality,” Tax Foundation, August 13, 2014, http://taxfoundation.org/article/income-data-poor-measure-inequality (accessed April 12, 2015). 5. See, for instance, David A. Henderson, “Economic Inequality: Facts, Theory and Significance,” National Center for Policy Analysis, June 2008, http://www.ncpa.org/pdfs/st312.pdf (accessed May 20, 2015). 6.


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Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

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3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, autonomous vehicles, banking crisis, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, computer age, debt deflation, deskilling, diversified portfolio, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Fractional reserve banking, Freestyle chess, full employment, Goldman Sachs: Vampire Squid, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Maynard Keynes: technological unemployment, John von Neumann, Khan Academy, knowledge worker, labor-force participation, labour mobility, liquidity trap, low skilled workers, low-wage service sector, Lyft, manufacturing employment, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, performance metric, Peter Thiel, Plutocrats, plutocrats, post scarcity, precision agriculture, price mechanism, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Richard Feynman, Rodney Brooks, secular stagnation, self-driving car, Silicon Valley, Silicon Valley startup, single-payer health, software is eating the world, sovereign wealth fund, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Levy, Steven Pinker, strong AI, Stuxnet, technological singularity, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Coming Technological Singularity, Thomas L Friedman, too big to fail, Tyler Cowen: Great Stagnation, union organizing, Vernor Vinge, very high income, Watson beat the top human players on Jeopardy!, women in the workforce

In an analysis published in September 2013, economist Emmanuel Saez of the University of California, Berkeley, found that an astonishing 95 percent of total income gains during the years 2009 to 2012 were hoovered up by the wealthiest 1 percent.37 Even as the Occupy Wall Street movement has faded from the scene, the evidence shows pretty clearly that income inequality in the United States is not just high—it may well be accelerating. While inequality has been increasing in nearly all industrialized countries, the United States remains a clear outlier. According to the Central Intelligence Agency’s analysis, income inequality in America is roughly on a par with that of the Philippines and significantly exceeds that of Egypt, Yemen, and Tunisia.38 Studies have also found that economic mobility, a measure of the likelihood that the children of the poor will succeed in moving up the income scale, is significantly lower in the United States than in nearly all European nations.

Ostry of the International Monetary Fund studied a variety of advanced and emerging economies and came to the conclusion that income inequality is a vital factor affecting the sustainability of economic growth.21 Berg and Ostry point out that economies rarely see steady growth that continues for decades. Instead, “periods of rapid growth are punctuated by collapses and sometimes stagnation—the hills, valleys, and plateaus of growth.” The thing that sets successful economies apart is the duration of the growth spells. The economists found that higher inequality was strongly correlated with shorter periods of economic growth. Indeed, a 10-percentage-point decrease in inequality was associated with growth spells that lasted 50 percent longer. Writing on the IMF’s blog, the economists warned that extreme income inequality in the United States has clear implications for the country’s future growth prospects: “Some dismiss inequality and focus instead on overall growth—arguing, in effect, that a rising tide lifts all boats.”

Eric, 241–242, 243, 244–245, 246, 247 driverless cars, See autonomous cars drone-based delivery, 190n drug prices, 170–171 Drum, Kevin, 188 Dunning, David, 18–19 dystopian future, automation and predictions of, 31–32, 219–220 Earned Income Tax Credit (EITC), 271, 277 eBay, 16, 76 economic argument for guaranteed income, 264–267 economic growth, 65, 212–215 economic mobility, decrease in, 46–47 economic policy, 57–58, 217–218 Economic Policy Institute, 127, 158 economic recoveries, jobs created during, 49–50 economics, mathematical models and, x, 205–206 economic trends bear market for labor/bull market for corporations, 38–41 declining incomes and underemployment for college graduates, 48–49 effect of information technology on, 58–61 income inequality, 46–48 job creation, jobless recoveries, and long-term unemployment, 43–46 labor force participation, 41–43 polarization and part-time jobs, 49–51 stagnant wages, 34–38 economists on impact of automation, 60 on income inequality, 202–206 economy complexity of, 211–212 defined, 266n effect of climate change on, 282–283 post-scarcity, 247 e-Discovery software, 124 Edison, Thomas, 234 education basic income guarantee and, 263 collaboration with machines and, 121–128 diminishing returns to, 250–253 effect on income, 48–49 nature of unemployment problem and, 249–250 See also higher education educational robots, 7 edX, 132, 133, 137 Egypt, 46 EITC.

Falling Behind: Explaining the Development Gap Between Latin America and the United States by Francis Fukuyama

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Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, crony capitalism, European colonialism, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, income inequality, income per capita, labour market flexibility, land reform, land tenure, Monroe Doctrine, moral hazard, New Urbanism, oil shock, open economy, purchasing power parity, rent-seeking, Ronald Reagan, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, upwardly mobile, Washington Consensus

The Latin American countries are characterized by inequalities in income distribution that are much more extreme than in the United States. Table 4.2 presents information on the magnitude of this second gap, i.e., an indicator of income inequality of several countries as a proportion of the indicator of income inequality in the United States. Table 4.2 indicates the very high inequality in the major Latin American countries and the much lesser inequality that prevails in Japan and South Korea, in both cases also as compared to the United States. Just as the gap in economic growth between Latin America and the United States has been relatively constant over time, so too has income inequality in Latin America as compared to the United States. For example, in 1956–1957, income inequality in Mexico was 136 percent that of the United States, almost identical to what it would be more than 40 years later. In addition, the lack of variation in income distribution can also be observed by comparing each country with its own history.

For example, Mexico’s inequality index (Gini coefficient) was 54.0 in the mid-1950s and 54.6 in 2000.3 According to Werner Baer, the inequality index in Brazil in 1981—the last year of its economic “miracle”—was 57.9; then, as a result of the economic crisis that erupted in 1982–1983, it rose to 59.7, only slightly dropping down to 59.1 in 1998.4 In other words, income distribution, both within countries over time and as compared to the United States, has been relatively steady despite economic crises, changes in macroeconomic models, and the resulting adjustments in economic policy. table 4.2 Income Inequality in Some Countries as a Percentage of Income Inequality in the United States, c. 2000 Argentina Brazil Chile Colombia Japan Mexico South Korea 145 140 141 61 134 77 128 Notes: Measurement by the indicator of income inequality known as the Gini coefficient. United States = 100. Source: Calculations based on data from World Bank, World Development Indicators 2004 ( Washington, DC: World Bank, 2004), table 2.7. 74 The Historical Context Both gaps with the United States originated before the period covered in this chapter, i.e., they appeared long before 1950.

See Latin America, economic growth obstacles to, 125 political instability effects on, 123 poverty reduction through, 283 reforms for, 147 setbacks in, 92 304 Index social inequality effects on, 281 Economic inequality, 115, 118, 124 Economic institutions description of, 166, 174 land access by, 182 in Spanish colonies, 180 Economic policies, 283–284 Ecuador, 108t Education spending, 289 Educational reform, 287–288, 290 Effectiveness, 225 El Salvador, 108t, 185 Elections, 119–120 Electoral democracy, 262–263 Electoral systems description of, 201–203 reform of, 210–211, 285–286 Elite pacts, 144–145 Equilibrium outcome, 183 Ethnic discrimination, 82–83 Europe hierarchical society in, 21 industrial development in, 80 institutions in, 188 European colonization, 162 European settler mortality rates, 176–177 Evolution theories, 24 Exchange rate populism, 261 Exchange rates, 92 Executive turnovers, 121, 123–124 Facundo, 20 Family farms, 116, 117f Federalism, 51, 203–204, 211–212, 216, 285 Federalist Papers, The, 228–230 Ffrench-Davis, Ricardo, 79 Fiscal citizenship, 223–224, 279 Fiscal coercion, 224 Fiscal policies, 284–285 Fiscal regimes, 228–233 Fiscal Responsibility Law of 2000, 205–206 Fiscal systems, 261–262 Formal institutions, 197–199, 214–215, 217 Fox, Vicente, 63–64, 208 France, 21, 24–25 Free Trade Area of the Americas, 283 Fuentes, Carlos, 67 Furtado, Celso, 37 Galíndez, Francisco, 238 Gamboa, Federico, 57 García Calderón, Francisco, 26, 28 García Márquez, Gabriel, 61 Geddes, Barbara, 208, 216 General Santa Anna, 53 Gentry, 188 Geography hypothesis, 166 Germany, 260 Gerschenkron, Alexander, 33 Gil, Anacleto, 236 Gini coefficient, 280 Global competitiveness index, 151 Global Competitiveness Report, The, 151 Gold, 19 Good Neighbor policy, 59, 61 Government indirect taxes and, 229–231 rotation of, 87 Government spending in Argentina, 249t–250t, 251 overview of, 245–246 in United States, 251, 252t–253t, 254, 256, 258 Great Britain Bolívar’s writings about, 16 as political model, 18–19 Great Depression, 31–32, 136 Gross domestic product, per capita from 1870 to 1950, 72–73 from 1973 to 2000, 91 of Argentina, 73, 78, 164t, 256 of Brazil, 73, 77–78, 164 of Chile, 73, 78, 164t of Colombia, 73, 85, 164t of Cuba, 164t labor effects on, 137 of Mexico, 73–74, 77, 164t of Peru, 164t of South Korea, 73–74, 77–78 of Taiwan, 73–74, 77 of Venezuela, 164t Guatemala, 108t, 162, 163f Guevara, Ernesto “Che,” 61 Gutiérrez Eskildsen, Rosario María, 61 Haber, Stephen, 100 Haiti, 31, 87 Hamilton, Alexander, 228–229, 231–232 Hay, John, 55, 60 Henríquez Ureña, Pedro, 56 Hidalgo, Miguel, 50 High-stakes politics, 135–140, 155 Hirschman, Albert, 35–36 Home, Henry, 232 Honduras, 89, 108t Household income distribution, 118 Huerta, Victoriano, 58 Human capital development, 83 Human resources, 84, 95 Huntington, Samuel, 198, 207 Hyperinflation, 139 Import substitution industrialization, 78–79, 146, 273 Income inequality description of, 74, 140 economic elites affected by, 141 poverty secondary to, 149–150 racial or ethnic discrimination as cause of, 82–83 Income tax in Argentina, 236–238 in United States, 235 Independence description of, 100 per capita income levels affected by, 106–110 Indirect taxes in Argentina, 239, 243 description of, 229–231 Industrial economies, 37 Industrialization, 39–40 Inequality development affected by, 115, 118 income. See Income inequality measurement methods, 280–281 methods of reducing, 154–155 social, 150–151, 280–282 Inflation, 92, 138, 139f, 256 Informal institutions, 197–198 Institutional economics, 197 Institutions definition of, 166, 197, 275 development gaps caused by, 275–280 economic, 166, 174 economic inequality and, 115 elements of, 167 in Europe, 188 exclusionary nature of, 100 formal, 197–199, 214–215, 217 importance of, 148, 196–199 inequality, 119 informal, 197–198 Index 305 Institutions (continued) investment incentives created by, 184 in Latin America vs.


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End This Depression Now! by Paul Krugman

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airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, moral hazard, mortgage debt, paradox of thrift, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

., 192–93 deregulation and, 67 polarization of, 89 TARP enacted by, 116 2008 financial crisis blamed on, 64, 65 2012 election and, 226, 227–28 see also House of Representatives, U.S.; Senate, U.S. Congressional Budget Office (CBO): income inequality estimate of, 76–77 real GDP estimates of, 13–14 Conservative Party, U.K., 200 conservatives: anti-government ideology of, 66 anti-Keynesianism of, 93–96, 106–8, 110–11 Big Lie of 2008 financial crisis espoused by, 64–66, 100 free market ideology of, 66 Consumer Financial Protection Bureau, 84 Consumer Price Index (CPI), 156–57, 159, 160 consumer spending, 24, 26, 30, 32, 33, 39, 41, 113, 136 effect of government spending on, 39 household debt and, 45, 47, 126, 146 income inequality and, 83 in 2008 financial crisis, 117 conventional wisdom, lessons of Great Depression ignored in, xi corporations, 30 see also business investment, slump in; executive compensation correlation, causation vs., 83, 198, 232–33, 237 Cowen, Brian, 88 credit booms, 65 credit crunches: of 2008, 41, 110, 113, 117 Great Depression and, 110 credit default swaps, 54, 55 credit expansion, 154 currency, manipulation of, 221 currency, national: devaluation of, 169 disadvantages of, 168–69, 170–71 flexibility of, 169–73, 179 optimum currency area and, 171–72 see also euro Dakotas, high employment in, 37 debt, 4, 34, 131 deregulation and, 50 high levels of, 34, 45, 46, 49–50, 51 self-reinforcing downward spiral in, 46, 48, 49–50 usefulness of, 43 see also deficits; government debt; household debt; private debt “Debt-Deflation Theory of Great Depressions, The” (Fisher), 45 debt relief, 147 defense industry, 236 defense spending, 35, 38–39, 148, 234–35, 235, 236 deficits, 130–49, 151, 202, 238 Alesina/Ardagna study of, 196–99 depressions and, 135–36, 137 exaggerated fear of, 131–32, 212 job creation vs., 131, 143, 149, 206–7, 238 monetary policy and, 135 see also debt deflation, 152, 188 debt and, 45, 49, 163 De Grauwe, Paul, 182–83 deleveraging, 41, 147 paradox of, 45–46, 52 demand, 24–34 in babysitting co-op example, 29–30 inadequate levels of, 25, 29–30, 34, 38, 47, 93, 101–2, 118, 136, 148 spending and, 24–26, 29, 47, 118 unemployment and, 33, 47 see also supply and demand Democracy Corps, 8 Democrats, Democratic Party, 2012 election and, 226, 227–28 Denmark, 184 EEC joined by, 167 depression of 2008–, ix–xii, 209–11 business investment and, 16, 33 debt levels and, 4, 34, 47 democratic values at risk in, 19 economists’ role in, 100–101, 108 education and, 16 in Europe, see Europe, debt crisis in housing sector and, 33, 47 income inequality and, 85, 89–90 inflation rate in, 151–52, 156–57, 159–61, 189, 227 infrastructure investment and, 16–17 lack of demand in, 47 liquidity trap in, 32–34, 38, 51, 136, 155, 163 long-term effects of, 15–17 manufacturing capacity loss in, 16 as morality play, 23, 207, 219 private sector spending and, 33, 47, 211–12 unemployment in, x, 5–12, 24, 110, 117, 119, 210, 212 see also financial crisis of 2008–09; recovery, from depression of 2008– depressions, 27 disproportion between cause and effect in, 22–23, 30–31 government spending and, 135–36, 137, 231 Keynes’s definition of, x Schumpeter on, 204–5 see also Great Depression; recessions deregulation, financial, 54, 56, 67, 85, 114 under Carter, 61 under Clinton, 62 income inequality and, 72–75, 74, 81, 82, 89 under Reagan, 50, 60–61, 62, 67–68 rightward political shift and, 83 supposed benefits of, 69–70, 72–73, 86 derivatives, 98 see also specific financial instruments devaluation, 169, 180–81 disinflation, 159 dot-com bubble, 14, 198 Draghi, Mario, 186 earned-income tax credit, 120 econometrics, 233 economic output, see gross domestic product Economics (Samuelson), 93 economics, economists: academic sociology and, 92, 96, 103 Austrian school of, 151 complacency of, 55 disproportion between cause and effect in, 22–23, 30–31 ignorance of, 106–8 influence of financial elite on, 96 Keynesian, see Keynesian economics laissez-faire, 94, 101 lessons of Great Depression ignored by, xi, 92, 108 liquidationist school of, 204–5 monetarist, 101 as morality play, 23, 207, 219 renewed appreciation of past thinking in, 42 research in, see research, economic Ricardian, 205–6 see also macroeconomics “Economics of Happiness, The” (Bernanke), 5 economy, U.S.: effect of austerity programs on, 51, 213 election outcomes and, 225–26 postwar boom in, 50, 70, 149 size of, 121, 122 supposed structural defects in, 35–36 see also global economy education: austerity policies and, 143, 213–14 depression of 2008– and, 16 income inequality and, 75–76, 89 inequality in, 84 teachers’ salaries in, 72, 76, 148 efficient-markets hypothesis, 97–99, 100, 101, 103–4 Eggertsson, Gauti, 52 Eichengreen, Barry, 236 elections, U.S.: economic growth and, 225–26 of 2012, 226 emergency aid, 119–20, 120, 144, 216 environmental regulation, 221 Essays in Positive Economics (Friedman), 170 euro, 166 benefits of, 168–69, 170–71 creation of, 174 economic flexibility constrained by, 18, 169–73, 179, 184 fixing problems of, 184–87 investor confidence and, 174 liquidity and, 182–84, 185 trade imbalances and, 175, 175 as vulnerable to panics, 182–84, 186 wages and, 174–75 Europe: capital flow in, 169, 174, 180 common currency of, see euro creditor nations of, 46 debtor nations of, 4, 45, 46, 139 democracy and unity in, 184–85 fiscal integration lacking in, 171, 172–73, 176, 179 GDP in, 17 health care in, 18 inflation and, 185, 186 labor mobility lacking in, 171–72, 173, 179 1930s arms race in, 236 social safety nets in, 18 unemployment in, 4, 17, 18, 176, 229, 236 Europe, debt crisis in, x, 4, 40, 45, 46, 138, 140–41, 166–87 austerity programs in, 46, 144, 185, 186, 188, 190 budget deficits and, 177 fiscal irresponsibility as supposed cause of (Big Delusion), 177–79, 187 housing bubbles and, 65, 169, 172, 174, 176 interest rates in, 174, 176, 182–84, 190 liquidity fears and, 182–84 recovery from, 184–87 unequal impact of, 17–18 wages in, 164–65, 169–70, 174–75 European Central Bank, 46, 183 Big Delusion and, 179 inflation and, 161, 180 interest rates and, 190, 202–3 monetary policy of, 180, 185, 186 European Coal and Steel Community, 167 European Economic Community (EEC), 167–68 European Union, 172 exchange rates, fixed vs. flexible, 169–73 executive compensation, 78–79 “outrage constraint” on, 81–82, 83 expansionary austerity, 144, 196–99 expenditure cascades, 84 Fama, Eugene, 69–70, 73, 97, 100, 106 Fannie Mae, 64, 65–66, 100, 172, 220–21 Farrell, Henry, 100, 192 Federal Deposit Insurance Corporation (FDIC), 59, 172 Federal Housing Finance Agency, 221 Federal Reserve, 42, 103 aggressive action needed from, 216–19 creation of, 59 foreign exchange intervention and, 217 inflation and, 161, 217, 219, 227 interest rates and, 33–34, 93, 105, 117, 134, 135, 143, 151, 189–90, 193, 215, 216–17 as lender of last resort, 59 LTCM crisis and, 69 money supply controlled by, 31, 32, 33, 105, 151, 153, 155, 157, 183 recessions and, 105 recovery and, 216–19 in 2008 financial crisis, 104, 106, 116 unconventional asset purchases by, 217 Federal Reserve Bank of Boston, 47–48 Feinberg, Larry, 72 Ferguson, Niall, 135–36, 139, 160 Fianna Fáil, 88 filibusters, 123 financial crisis of 2008–09, ix, x, 40, 41, 69, 72, 99, 104, 111–16 Bernanke on, 3–4 Big Lie of, 64–66, 100, 177 capital ratios and, 59 credit crunch in, 41, 110, 113, 117 deleveraging in, 147 Federal Reserve and, 104, 106 income inequality and, 82, 83 leverage in, 44–46, 63 panics in, 4, 63, 111, 155 real GDP in, 13 see also depression of 2008–; Europe, debt crisis in financial elite: political influence of, 63, 77–78, 85–90 Republican ideology and, 88–89 top 0.01 percent in, 75, 76 top 0.1 percent in, 75, 76, 77, 96 top 1 percent in, 74–75, 74, 76–77, 96 see also income inequality financial industry, see banks, banking industry financial instability hypothesis, 43–44 Financial Times, 95, 100, 203–4 Finland, 184 fiscal integration, 171, 172–73, 176 Fisher, Irving, 22, 42, 44–46, 48, 49, 52, 163 flexibility: currency and, 18, 169–73 paradox of, 52–53 Flip This House (TV show), 112 Florida, 111 food stamps, 120, 144 Ford, John, 56 foreclosures, 45, 127–28 foreign exchange markets, 217 foreign trade, 221 Fox News, 134 Frank, Robert, 84 Freddie Mac, 64, 65–66, 100, 172, 220–21 free trade, 167 Friedman, Milton, 96, 101, 181, 205 on causes of Great Depression, 105–6 Gabriel, Peter, 20 Gagnon, Joseph, 219, 221 Gardiner, Chance (char.), 3 Garn–St.

.: economic growth and, 225–26 of 2012, 226 emergency aid, 119–20, 120, 144, 216 environmental regulation, 221 Essays in Positive Economics (Friedman), 170 euro, 166 benefits of, 168–69, 170–71 creation of, 174 economic flexibility constrained by, 18, 169–73, 179, 184 fixing problems of, 184–87 investor confidence and, 174 liquidity and, 182–84, 185 trade imbalances and, 175, 175 as vulnerable to panics, 182–84, 186 wages and, 174–75 Europe: capital flow in, 169, 174, 180 common currency of, see euro creditor nations of, 46 debtor nations of, 4, 45, 46, 139 democracy and unity in, 184–85 fiscal integration lacking in, 171, 172–73, 176, 179 GDP in, 17 health care in, 18 inflation and, 185, 186 labor mobility lacking in, 171–72, 173, 179 1930s arms race in, 236 social safety nets in, 18 unemployment in, 4, 17, 18, 176, 229, 236 Europe, debt crisis in, x, 4, 40, 45, 46, 138, 140–41, 166–87 austerity programs in, 46, 144, 185, 186, 188, 190 budget deficits and, 177 fiscal irresponsibility as supposed cause of (Big Delusion), 177–79, 187 housing bubbles and, 65, 169, 172, 174, 176 interest rates in, 174, 176, 182–84, 190 liquidity fears and, 182–84 recovery from, 184–87 unequal impact of, 17–18 wages in, 164–65, 169–70, 174–75 European Central Bank, 46, 183 Big Delusion and, 179 inflation and, 161, 180 interest rates and, 190, 202–3 monetary policy of, 180, 185, 186 European Coal and Steel Community, 167 European Economic Community (EEC), 167–68 European Union, 172 exchange rates, fixed vs. flexible, 169–73 executive compensation, 78–79 “outrage constraint” on, 81–82, 83 expansionary austerity, 144, 196–99 expenditure cascades, 84 Fama, Eugene, 69–70, 73, 97, 100, 106 Fannie Mae, 64, 65–66, 100, 172, 220–21 Farrell, Henry, 100, 192 Federal Deposit Insurance Corporation (FDIC), 59, 172 Federal Housing Finance Agency, 221 Federal Reserve, 42, 103 aggressive action needed from, 216–19 creation of, 59 foreign exchange intervention and, 217 inflation and, 161, 217, 219, 227 interest rates and, 33–34, 93, 105, 117, 134, 135, 143, 151, 189–90, 193, 215, 216–17 as lender of last resort, 59 LTCM crisis and, 69 money supply controlled by, 31, 32, 33, 105, 151, 153, 155, 157, 183 recessions and, 105 recovery and, 216–19 in 2008 financial crisis, 104, 106, 116 unconventional asset purchases by, 217 Federal Reserve Bank of Boston, 47–48 Feinberg, Larry, 72 Ferguson, Niall, 135–36, 139, 160 Fianna Fáil, 88 filibusters, 123 financial crisis of 2008–09, ix, x, 40, 41, 69, 72, 99, 104, 111–16 Bernanke on, 3–4 Big Lie of, 64–66, 100, 177 capital ratios and, 59 credit crunch in, 41, 110, 113, 117 deleveraging in, 147 Federal Reserve and, 104, 106 income inequality and, 82, 83 leverage in, 44–46, 63 panics in, 4, 63, 111, 155 real GDP in, 13 see also depression of 2008–; Europe, debt crisis in financial elite: political influence of, 63, 77–78, 85–90 Republican ideology and, 88–89 top 0.01 percent in, 75, 76 top 0.1 percent in, 75, 76, 77, 96 top 1 percent in, 74–75, 74, 76–77, 96 see also income inequality financial industry, see banks, banking industry financial instability hypothesis, 43–44 Financial Times, 95, 100, 203–4 Finland, 184 fiscal integration, 171, 172–73, 176 Fisher, Irving, 22, 42, 44–46, 48, 49, 52, 163 flexibility: currency and, 18, 169–73 paradox of, 52–53 Flip This House (TV show), 112 Florida, 111 food stamps, 120, 144 Ford, John, 56 foreclosures, 45, 127–28 foreign exchange markets, 217 foreign trade, 221 Fox News, 134 Frank, Robert, 84 Freddie Mac, 64, 65–66, 100, 172, 220–21 free trade, 167 Friedman, Milton, 96, 101, 181, 205 on causes of Great Depression, 105–6 Gabriel, Peter, 20 Gagnon, Joseph, 219, 221 Gardiner, Chance (char.), 3 Garn–St.

In fact, for middle-income families, even before the crisis there was only a modest rise in income under deregulation, achieved mainly though longer working hours rather than higher wages. For a small but influential minority, however, the era of financial deregulation and growing debt was indeed a time of extraordinary income growth. And that, surely, is an important reason so few were willing to listen to warnings about the path the economy was taking. To understand the deeper reasons for our current crisis, in short, we need to talk about income inequality and the coming of a second Gilded Age. CHAPTER FIVE THE SECOND GILDED AGE Owning and maintaining a house the size of the Taj Mahal is expensive. Kerry Delrose, director of interior design at Jones Footer Margeotes Partners in Greenwich, helpfully walked me through the cost of decorating a mansion appropriately. “Carpeting is very expensive,” he said, mentioning a $74,000 broadloom carpet he had ordered for a client’s bedroom.


pages: 291 words: 81,703

Average Is Over: Powering America Beyond the Age of the Great Stagnation by Tyler Cowen

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Amazon Mechanical Turk, Black Swan, brain emulation, Brownian motion, Cass Sunstein, choice architecture, complexity theory, computer age, computer vision, cosmological constant, crowdsourcing, dark matter, David Brooks, David Ricardo: comparative advantage, deliberate practice, Drosophila, en.wikipedia.org, endowment effect, epigenetics, Erik Brynjolfsson, eurozone crisis, experimental economics, Flynn Effect, Freestyle chess, full employment, future of work, game design, income inequality, industrial robot, informal economy, Isaac Newton, Khan Academy, labor-force participation, Loebner Prize, low skilled workers, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, microcredit, Narrative Science, Netflix Prize, Nicholas Carr, pattern recognition, Peter Thiel, randomized controlled trial, Ray Kurzweil, reshoring, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, Skype, statistical model, stem cell, Steve Jobs, Turing test, Tyler Cowen: Great Stagnation, upwardly mobile, Yogi Berra

probably won’t sound as compelling as the Occupy Wall Street version. It will become increasingly common to invoke “meritocracy” as a response to income inequality, and whether you call it an explanation, a justification, or an excuse is up to you. Since the self-motivated will find it easier to succeed than ever before, a new tier of people from poor or underprivileged backgrounds will claw their way to the top. The Horatio Alger story will be resurrected, but only for those segments of the population with the appropriate skills and values, namely self-motivation and the ability to complement the new technologies. It’s in India and China that the rise of a new middle and upper class is reflecting this trend most clearly. This framing of income inequality in meritocratic terms will prove self-reinforcing. Worthy individuals will in fact rise from poverty on a regular basis, and that will make it easier to ignore those who are left behind.

Cloud, “Civilian Contractors Playing Key Roles in U.S. Drone Operations,” the Los Angeles Times, December 29, 2011. For some sources on income inequality, see for instance Steven N. Kaplan and Joshua Rauh, “Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?”, The Review of Financial Studies, 2010, 23(3): 1004–1050; Howard Wial, “Where the 1% Live,” Atlantic Cities blog, October 31, 2011; and Chris Forman, Avi Goldfarb, and Shane Greenstein, “The Internet and Local Wages: A Puzzle,” American Economic Review, Febraury 2012, 102(1): 556–75. On executives, managers, and supervisors, see Jon Bakija, Adam Cole, and Bradley T. Heim, “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data,” an unpublished working paper. For the anecdotes about being “acqhired,” see Miguel Helft, “For Buyers of Web Start-Ups, Quest to Corral Young Talent,” The New York Times, May 17, 2011.

., 234 Russia, 20 Rybka (chess program) and computer chess matches, 72 and evaluation of chess play, 203, 224–25 and Freestyle chess, 47 and human collaboration, 135, 168 and human intuition, 114–15 and performance evaluation, 104 power of, 68 and training human chess players, 102, 106–7, 120, 124, 192–93 Santa Cruz, California, 9–10 Scholes, Myron, 203 Schwarzenegger, Arnold, 134 science, engineering, and math majors (STEM), 21, 22, 27 scientific research and bureaucracy, 210 economics, 221–28 and impossible problems, 211–17 increasing complexity of, 205–6 machine science, 217–20 specialization in, 206–11, 219 screening systems, 121 searching skills, 151–55 Second Life, 145 self-awareness programs, 135 self-education, 188–94, 202 self-employment, 59–63 self-scrutiny, 14 self-service, 113, 118 service sector, 22, 62, 169 Shannon, Claude, 68–69 shanty towns, 245–46 Shogun (game), 135 short-run spending hypothesis, 53–54 Shredder (chess program), 78, 81–82, 105 Sicily, 174–75 Simon, Herbert, 75–76 simulation, 200, 210 “singularity” hypothesis, 137–38 Siri, 7, 17, 72, 119, 121, 149 Siu, Henry, 55 sketches, 146, 147 “Skynet,” 134 Skype, 146 “slackers,” 51, 246 smart phones, 92, 152 Smith, Adam, 28–29, 215 Smith, Vaughan, 26 Snow, Peter, 187 social contract and the fiscal crunch, 231–51 and inequality, 229–31 and political trends, 251–59 social interactions, 12–13, 73, 142 social networks, 188, 209–10, 223 social safety net, 231 social sciences, 224, 227 Social Security, 233, 234–35, 237, 247 social unrest, 253–55, 257 South Korea, 8 Southeast Asia, 171 Soviet Union, 168, 189, 252 Spain, 173–74 Spark (chess program), 70–72, 155–56 specialization in the sciences, 206–11, 219 spelling bees, 187–88 Spence, Michael, 176 spending trends, 54 standardization, 126–31 Stanford University, 193 state budgets, 237 stem-cell research, 17 Stephen, Zackary, 78 stock trading, 74 Stockfish (chess program), 68, 70–72, 155–56 string theory, 212–14 structural unemployment, 37, 55 Sunstein, Cass, 105 supermarkets, 118 supply and demand, 234 support service, 169 Sweden, 161 Switzerland, 161 Tang, Hangwi, 89 taxes and tax policy and the fiscal crunch, 232–34, 236 and political trends, 254, 256, 258 progressive taxation, 256–57 “tax incidence,” 234 TCEC Stage 2a (chess tournament), 156 Tea Party Movement, 251, 256 teaching schools, 196 team-orientation, 28, 36, 207 technical support, 111–13 Technique 2011, 140, 142–43 technological progress, 133 The Terminator (1984), 134 Texas, 239, 241, 247 textile mills, 8 Thaler, Richard, 105 Thatcher, Margaret, 235 theory development, 221–22, 223, 225–26 therapy, online, 145 Thoresen, Martin, 155–56 threshold earners, 202 Thrun, Sebastian, 189, 191 time management, 81 Toiletgate, 149–50 Topalov, Vaselin, 149 tourism, 174, 175 transparency in business, 130 Transportation Safety Administration (TSA), 10 Trefler, Daniel, 164 TripAdvisor, 16 Turing, Alan, 68–69, 141, 143–44 Turing test, 83, 139–51 “tutor kings,” 200–201 Twitter, 154 underemployment, 50, 164 unemployment and freelancing, 59–63 gender disparity in, 31 and geographic trends, 172 and the Great Recession, 54–59 and immigration, 163–71 and in-flow rate, 58 and intelligent machines, 45–50 labor force participation rate, 46 recent trends, 50–54 structural, 37 unskilled labor, 19, 56 US Air Force, 20–21 US Congress, 255 US military, 57 US Supreme Court, 238 USA Memory Championships, 152 utopian visions, 136 Vancouver, British Columbia, 241 Venezuela, 171 Vidal, Gore, 257 video games, 185–88 Virginia Tech, 183–84 virtual schools, 181 vision systems (robotic), 116 visual arts, 146, 147 voice recognition, 119 Vonnegut, Kurt, 126, 247–48 wages and the fiscal crunch, 236 and freelancing, 59–60 and gender, 52–53 and geographic trends, 171–73 and immigration, 163–71 impact of intelligent machines, 136 wages (cont.) labor income as share of total income, 39 and outsourcing, 163–71 polarization, 242–43, 252 premiums, 201 stagnation of, 161–63 uneven wage patterns, 248 of young people, 3 See also income inequality Wai, Jonathan, 188 Wall Street, 74 waste reduction, 248 Watson, 7, 12, 17, 157 We Have Met the Enemy (Akst), 202 wealth inequality, 233–34, 243–44, 252–53, 258. See also income inequality web companies, 25, 221 Weinberg, Bruce, 216 welfare benefits, 239 Western Europe, 167 Wikipedia, 7 Williams, Anson, 78, 86, 227 Winship, Scott, 53 workplace environment and capital investments in labor, 36 digital and physical environments, 113–19 effects of automation on, 111–13 and fears of standardization, 126–31 and human intuition, 109 and machine assessment, 119–25 worker evaluations, 120 xenophobia, 175 Yale University, 223 Yates, Frances, 153 Yglesias, Matthew, 240 YouTube, 197 Yudkowsky, Eliezer, 134 ZackS, 78 “zero marginal product” workers, 56–57 zoning issues, 240 Zuckerberg, Mark, 21, 25, 42, 188, 209–10 Zurich, Switzerland, 241 Zynga, 26


pages: 414 words: 119,116

The Health Gap: The Challenge of an Unequal World by Michael Marmot

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active transport: walking or cycling, Affordable Care Act / Obamacare, Atul Gawande, Bonfire of the Vanities, Broken windows theory, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, centre right, clean water, congestion charging, correlation does not imply causation, Doha Development Round, epigenetics, financial independence, future of work, Gini coefficient, Growth in a Time of Debt, illegal immigration, income inequality, Indoor air pollution, Kenneth Rogoff, Kibera, labour market flexibility, lump of labour, Mahatma Gandhi, meta analysis, meta-analysis, microcredit, New Urbanism, obamacare, paradox of thrift, race to the bottom, Rana Plaza, RAND corporation, road to serfdom, Simon Kuznets, Socratic dialogue, structural adjustment programs, the built environment, The Spirit Level, trickle-down economics, urban planning, Washington Consensus, Winter of Discontent, working poor

As one example, a 2014 report from the OECD, the rich country club, shows that income inequality increased in almost all OECD countries – Figure 11.1. The most unequal of the rich countries is Mexico, followed by Turkey and the US.6 For all the reasons reviewed earlier, and reprised by Drèze and Sen (although they think that this Gini measure doesn’t adequately capture the ill-effects on the poor), increases in income inequality will have an adverse effect on living standards, and hence on the health of those lower down the social scale. But won’t redistribution of income harm economic growth? Don’t we hear, time and again, that setting the wealth producers free is good for everyone? The OECD is unequivocal on what the evidence shows: the greater the income inequality, the less the growth. Why? Because if the poor have little money, they can’t buy things.

I have the impression that in Japan they are all on the same team. There is, in Japan, a shared commitment to success. We see it in relatively narrow income inequalities, low rates of poverty, low rates of crime, care for older people – and the longest life expectancy in the world. Richard Wilkinson and Kate Pickett captured public imagination with their book The Spirit Level.27 It contains a simple and powerful idea: inequalities of income damage the health and well-being of all of us, rich, poor, or somewhere in between. I have co-edited books with Richard Wilkinson, and co-written a paper defending his ideas against some of his critics. I agree that social and economic inequalities are bad for health inequalities. There is a ‘but’. The evidence that income inequalities are bad for the health of everyone in society was seen only among richer countries, and that evidence is weaker now than it was.

., here Gandhi, Mahatma, here, here gangs, here, here Gawande, Atul, here GDP, measurement of, here gender equity, move to, here General Motors, here Georgia, here Gershwin, George, here Glasgow, here, here, here, here, here, here, here combating gang violence, here life expectancy, here, here, here mortality rates, here Glass, Norman, here Gleneagles Summit, here Global Burden of Disease, here global warming, see climate change global wealth, increasing, here Gnarr, Jon, here Goldblatt, Peter, here golf, here Gordon, David, here, here, here, here Gornall, Jonathan, here Göteborg, here Great Gatsby Curve, here Greece, here, here financial crisis and austerity, here, here, here, here green space, here grooming, in apes, here, here Guardian, here Guinea-Bissau, here, here Gunbalanya, here, here, here Hacker, Jacob, here, here Haiti earthquake, here Hampshire, Stuart, here, here HAPIEE studies, here ul Haq, Mahbub, here Hayek, Friedrich von, here health advice, here health and safety regulations, here, here health and well-being boards, here health care systems, here health inequities (definition), here heart disease, here, here, here, here, here, here, here abolition of, here and adverse childhood experience, here, here in Australian aboriginals, here and civil servants, here, here, here and exercise, here and high status, here, here and Japanese migrants, here and job strain, here Hertzman, Clyde, here, here Heymann, Jody, here high blood pressure, here, here, here HIV/AIDS, here, here, here, here homicide, here, here, here Hong Kong, here, here HPA axis, here Human Development Index (HDI), here, here, here, here Hungary, here, here, here Hutton, Will, here Huxley, Aldous, here Hyder, Shaina, here Iceland, here, here, here, here, here ideology, here, here income inequalities, here, here, here, here, here, here India, here, here, here, here average BMI, here caste system and education, here child mortality, here, here, here cotton farmers, here distrust of education system, here income inequalities, here life expectancy, here, here, here, here, here literacy, here scavengers, here, here, here, here see also Kerala infant mortality, here inherited wealth, here Institute of Economic Affairs, here intergenerational earnings elasticity, here International Federation of Medical Students’ Associations, here International Labour Office (ILO), here, here, here, here International Monetary Fund (IMF), here, here, here, here, here, here, here, here, here and impact of structural adjustments, here Ireland, here, here, here, here Israel, here Italy, here, here fertility rate, here maternal mortality, here Jakab, Zsuzsana, here Japan, here, here, here, here life expectancy, here, here, here and team commitment, here, here Japanese-Americans, here, here Jordan, here Judt, Tony, here, here, here Kahneman, Danny, here Kalache, Alex, here, here Karasek, Robert, here Kelly, Yvonne, here Kennedy, Robert, here, here, here Kenya, here, here Kerala, here, here Keynes, John Maynard, here Keynesian economics, here, here, here, here Kibera slum, here King’s Fund, here Kivimaki, Mika, here Kokiri Marae, here, here Krueger, Alan, here Krugman, Paul, here, here Kuznets, Simon, here Labonté, Ron, here labour market flexibility, here Lalonde, Christopher, here Laos, here latency effect, here Lativa, here Lee, J.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

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Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population, World Values Survey

Roughly speaking, Gini of 0.35 is the dividing line between relatively equal countries and ones that are not.11 Wealth inequality is much higher than income inequality The data on wealth inequality are much less readily available and less reliable than those on income inequality. But it is clear that wealth inequality is much higher than income inequality in all countries for the main reason that accumulating wealth is much more difficult than earning income. According to the UNCTAD (United Nations Conference on Trade and Development), the wealth Gini coefficient for the fifteen countries studied, including poor countries like India and Indonesia as well as rich countries like the US and Norway, ranged between 0.5 and 0.8.12 The gap between a country’s income inequality and wealth inequality was particularly large for European countries with low income inequality, such as Norway and Germany.13 Income inequality has risen in the majority of countries since the 1980s Since the 1980s, income inequality has risen in the majority of countries.14 The most marked increase was seen in the UK and especially the US, which led the world in pro-rich policies.

During the last three decades, despite the income shares of those at the top rising in most countries, investment and economic growth have slowed down in most of them. Some animals are more equal than others: too much equality is bad too Of course, all of this evidence does not mean that the lower the inequality the better it is. If there is too little income inequality, it can discourage people from working hard or creating new things to earn money, as used to be the case in the socialist countries – most notoriously in the agricultural communes in Mao’s China. What made things worse was that the low degrees of income inequality were often seen as charades. Low income inequality in these countries co-existed with high inequality in other dimensions (e.g., access to higher-quality foreign goods, opportunities to travel abroad), based upon ideological conformity or even personal networks. George Orwell had seen through this in the very early days of socialism, when he coined the slogan, ‘some animals are more equal than others’ in Animal Farm, his satire of the Russian Revolution.

While believing that the nature of modern economic development made the inverted-U curve likely, he emphasized that the actual degree of the decrease in inequality would be strongly affected by the strengths of trade unions and, in particular, of the welfare state. The importance of the welfare state in determining the level of inequality is proven by the fact that, before taxes and transfers through the welfare state, some European countries have income inequality that is as high as that of the US (France, Austria and Belgium) or even higher than that of the US (Germany and Italy). As we shall see below, they are far more equal than the US, after taxes and transfers. Different types of inequality Though it is the most commonly discussed one, income inequality is only one type of economic inequality. We can also talk of economic inequality in terms of distribution of wealth (e.g., ownership of assets, such as real estates or shares) or of human capital (that’s the fancy – and controversial – word for skills that individuals acquire through education and training).


pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

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banking crisis, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, late capitalism, means of production, moral hazard, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, union organizing, winner-take-all economy, Wolfgang Streeck

See debt-financing Finland, 2.1, 3.1, 4.1 ‘flexibilization’, 1.1, 2.1, 3.1, 4.1 Fordism foreign direct investment France, 1.1n59, 2.1; election of 2012, 3.1, 3.2, 4.1n6; under Bretton Woods; employment/unemployment; EU relations, 3.3, 3.4, 3.5, 3.6, 3.7; government bonds; income inequality, 1.3, 2.2n10; inflation; internal diversity; monetary policy; public debt, 1.5, 2.3; strikes; taxation, 2.4, 2.5, 3.10n42; unionization rates; US relations, 4.4n26 Frankfurt School, itr.1 passim, 1.1, 1.2 passim, 1.3 Fritz, Wolfgang Germany, itr.1 (n), 1.1, 2.1n71, 2.2 passim, 3.1n18, 3.2n25, 3.3 passim; Bremen, 3.4; Council of Expert Advisors; debt ceilings; employment/unemployment, 1.2, 3.7n69; EU relations, 3.8n25, 3.9 passim, 3.10, 3.11, 3.12 passim, 4.1, 4.2, 4.3n18, 4.4; as exceptional (relatively immune to crisis), 1.3, 1.4; export industry, 1.5n13, 3.13, 3.14; government bonds; Greek relations, 2.3n83, 3.16n27; homogeneity/nationalism, 4.5, 4.6; income inequality, 1.6, 2.4, 3.17, 3.18; industrial democracy; inflation, 1.7, 1.8, 1.9; Italian relations, 2.5, 3.19n81, 3.20, 3.21; Merkel administration, 2.6n37, 2.7n81, 3.22n27, 3.23n59, 3.24n72, 3.25n76, 3.26, 3.27, 4.8; Neue Lander, 3.28 passim; private debt, 1.10, 1.11, 4.9; public debt, 1.12, 1.13n59, 1.14 passim, 2.8, 2.9, 3.29, 3.30, 4.10; public spending, 3.31, 3.32, 3.33; reunification, 1.15n6, 1.16, 3.34, 3.35, 3.36, 3.37, 4.11; Schröder administration, 2.10, 2.11n37, 3.38; ‘sociology of finance’ (World War I), 2.12; state of emergency legislation; strikes; taxation, 1.18n66, 2.13, 2.14n53, 2.15, 2.16, 2.17n37, 3.40; unionization rates; voter turnout decline, 2.18, 2.19, 2.20; Weizsäcker views, 2.21.

See International Monetary Fund (IMF) imports, 2.1, 3.1, 4.1, 4.2n28 income, 2.1 passim; as class distinguishing, 1.1; EU, 2.2n83, 3.1; Greece, 2.3n83, 2.4n85, 3.2n27; losses, 1.2, 1.3, 2.5, 3.3; negotiated; per capita, 2.6, 3.5, 3.6, 3.7; supplemental; upper-class, 2.7, 2.8n66, 3.8. See also pay income inequality, 2.1 passim, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2 passim, 3.3; comparative figures; United States, 1.2n13, 1.3, 2.6 ‘incomes policy’, 1.1, 1.2, 1.3n59, 4.1 income tax, 2.1, 2.2n37, 2.3, 2.4n53, 2.5n83, 3.1 indignados industry, German, 1.1n13, 3.1, 3.2 inequality, 1.1n47, 1.2, 1.3, 2.1, 2.2 passim, 4.1; EU, 3.1, 3.2, 3.3, 3.4, 4.2; Germany, 3.5 passim; Italy, 3.6 passim, 3.7; United States, 3.8. See also income inequality inflation, itr.1, 1.1, 1.2, 1.3 passim, 1.4, 1.5, 2.1, 4.1; comparative figures; effect on state revenue; EU, 3.1, 4.2; Germany, 1.7, 1.8, 1.9; Sweden, 1.10, 1.11, 1.12; United States, 1.13, 1.14, 1.15, 2.3.

See solidarity, international (foreign relations) interstate federation (proposed), passim investment, 1.1, 1.2, 1.3n16, 2.1n31, 2.2 passim, 2.3, 3.1 ‘investment strikes’ Ireland, 1.1, 2.1, 2.2n67, 2.3n83 irrationality and rationality. See rationality and irrationality Italy, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 4.1n3; under Bretton Woods; Communist Party; ECB subsidization; employment/unemployment; German relations, 2.1, 3.9n81, 3.10, 3.11; government bonds, 3.12, 3.13; income inequality, 1.2, 2.2, 3.14; inflation; internal diversity; private debt; public debt, 1.5, 1.6, 2.3, 3.15, 3.16, 3.17, 4.5n18; regional development, 3.18 passim; strikes, 1.7n63; tax revenue; unionization rates, 1.8. See also Mezzogiorno Japan: employment/unemployment, 1.1; income inequality; inflation; public debt, 1.4, 2.1, 2.2n65; strikes; tax revenue, 2.3, 2.4n31; unionization rates, 1.6 justice. See market justice; social justice Kalecki, Michal, 1.1n40, 1.2 Keynes, John Maynard, 1.1n50, 1.2, 4.1, 4.2 Keynesianism, 1.1, 1.2 passim, 1.3, 2.1, 2.2; Europe, 3.1, 3.2.


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

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accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, diversification, Edward Glaeser, financial innovation, floating exchange rates, full employment, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, market bubble, Martin Wolf, medical malpractice, microcredit, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, school vouchers, short selling, sovereign wealth fund, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

A relatively stagnant minimum wage has certainly allowed the lowest real wages to fall (thereby also ensuring that some people who would otherwise be unemployed do have a job), though only a small percentage of American workers are paid the minimum wage. Finally, the entry of women into the workforce has also affected inequality. Because the well-connected and the highly educated tend to mate more often with each other, “assortative” mating has also helped increase household income inequality. The reasons for growing income inequality are, undoubtedly, a matter of heated debate. To my mind, the evidence is most persuasive that the growing inequality I think the most worrisome, the increasing 90/10 differential, stems primarily from the gap between the demand for the highly educated and their supply. Progressives, no doubt, attribute substantial weight to the antilabor policies followed by Republican governments since Ronald Reagan, whereas conservatives attribute much of the earlier wage compression to anticompetitive policies followed since Franklin Roosevelt.

Census Bureau, “Educational Attainment in the United States: 2008,” www.census.gov/population/www/socdemo/education/cps2008.html, accessed March 5, 2010. 5 Brink Lindsey, “Paul Krugman’s Nostalgianomics: Economic Policies, Social Norms, and Income Inequality,” Cato Institute working paper, Washington, DC, 2009. 6 Author’s calculations based on Goldin and Katz, The Race between Education and Technology, 52. 7 U.S. Census Bureau, “Educational Attainment: People 25 Years Old and Over, by Total Money Earnings in 2008,” www.census.gov/hhes/www/cpstables/032009/perinc/ new03_001.htm, accessed March 5, 2010. 8 See Goldin and Katz, The Race between Education and Technology, 327. 9 Ibid., 249–50. 10 Ibid., 326–28. 11 T. Piketty and E. Saez, “Income Inequality in the United States, 1913–1998,” NBER Working Paper 8467, National Bureau of Economic Research, Cambridge, MA, 2001. 12 Ross Douthat and Reihan Salam, Grand New Party (New York: Doubleday, 2008), 55. 13 See Lindsey, “Paul Krugman’s Nostalgianomics.” 14 See P.

See Home Owner’s Loan Corporation Holmes, Steven home equity loans home ownership: affordable housing mandate government policies to expand rates of tax credits Home Owner’s Loan Corporation (HOLC) Horioka, Charles hospitals Housing and Urban Development Department of (HUD) housing market: boom in bust in credit expansion in demand in effects of low interest rates in government intervention in, historical evolution of oversupply in price increases in tax breaks in, See also mortgages; subprime mortgage market Huang, Yasheng HUD. See Housing and Urban Development, Department of human capital: access to components of definition of improving noncognitive skills training value of, See also education IMF. See International Monetary Fund immigration: effects on income inequality illegal imports: of India of United States See also trade incentives: in bureaucracies effects of unemployment benefits, in financial firms in governments reforms of for risk-taking income inequality: attitudes toward causes of increases in credit expansion and economic benefits of increases in policy responses to political pressure for easy credit and political pressure for economic stimulus and reducing incomes: college premium financial institution compensation of hedge fund managers from investments in Kenya opportunities for increasing of physicians, See also economic growth; poverty; wages India: British rule of central bank of conglomerates in economic growth of economic policies of energy consumption in exchange-rate policies of exports of financial crisis in government intervention in credit markets in health care costs inphysical capital in reforms in trade policies of Indonesia: economic crisis in IMF loans to industrial development: early developers in India late developers in Taiwan inequality.


pages: 283 words: 73,093

Social Democratic America by Lane Kenworthy

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affirmative action, Affordable Care Act / Obamacare, barriers to entry, Celtic Tiger, centre right, clean water, collective bargaining, corporate governance, David Brooks, desegregation, Edward Glaeser, full employment, Gini coefficient, hiring and firing, Home mortgage interest deduction, illegal immigration, income inequality, invisible hand, labor-force participation, manufacturing employment, market bubble, minimum wage unemployment, new economy, postindustrial economy, purchasing power parity, race to the bottom, rent-seeking, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, school choice, shareholder value, sharing economy, Skype, Steve Jobs, too big to fail, Tyler Cowen: Great Stagnation, union organizing, universal basic income, War on Poverty, working poor, zero day

Daron Acemoglu, James Robinson, and Thierry Verdier also contend that there are two varieties of capitalism, but in their view one does tend to perform better than the other.31 They hypothesize the following: • Countries choose between two types of capitalism. “Cutthroat” capitalism provides large financial rewards to successful entrepreneurship. This yields high income inequality, but it stimulates entrepreneurial effort and hence is conducive to innovation. “Cuddly” capitalism features less financial payoff to entrepreneurs and more generous cushions against risk. This yields modest income inequality but less innovation. • Because of the difference in innovation, economic growth is initially faster in cutthroat-capitalism nations. But technological advance spills over from cutthroat nations to cuddly ones, so growth rates then equalize. Over the long term, the level of GDP per capita is higher in cutthroat nations (due to the initial burst), while economic growth rates are similar for both types

But given the large increases in inequality of test scores and college completion between children from low-income families and those from high-income families, it is very likely that the same will be true, and perhaps already is true, for their earnings and incomes when they reach adulthood. Slow Income Growth As a society gets richer, the living standards of its households should rise.55 The poorest needn’t benefit the most; equal rates of improvement may be good enough. We might not even mind if the wealthiest benefit a bit more than others; a little increase in income inequality is hardly catastrophic. But in a good society, those in the middle and at the bottom ought to benefit significantly from economic growth. When the country prospers, everyone should prosper. In the period between World War II and the mid-to-late 1970s, economic growth was good for Americans in the middle and below. Figure 2.5 shows that as GDP per capita increased, so did family income at the fiftieth percentile (the median) and at the twentieth percentile.

Those who lose a job will have a stronger incentive to take another job even if it pays less, and they will have more help in finding one. Individuals unable to function effectively or continuously in the labor market, whether working age or elderly, will have a higher income. No one will have to fear lack of access to medical care, and fewer will face a massive out-of-pocket expense resulting from such care. Expanded provision of public goods and services will enhance economic security and take the edge off rising income inequality for those at the low end of the scale. A steady rise in the EITC will ensure that more of our economic growth reaches households in the middle and below. How much will all this cost? That depends on the structure and generosity of the policies, and it isn’t my aim to offer recommendations at that level of specificity. As a ballpark estimate, I suggest we think in terms of 10 percent of GDP to cover the cost of new programs, the expansion of existing ones, and the rise in the cost of Social Security and Medicare that will come from population aging.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

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affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, invisible hand, John Harrison: Longitude, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, London Interbank Offered Rate, lone genius, low skilled workers, Mark Zuckerberg, market bubble, market fundamentalism, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, obamacare, offshore financial centre, paper trading, patent troll, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, women in the workforce

See their “Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937,” Quarterly Journal of Economics 125, no. 1 (2010): 91–128. To the extent that consumption inequality may have been less than income inequality before the crisis, and that it grew more slowly than did income inequality, it was partly because of unbridled borrowing. With the collapse of the housing market, the ability to consume beyond one’s income has been reduced. This provides an important critique of earlier analyses of consumption inequality, e.g., Dirk Krueger and Fabrizio Perri, “Does Income Inequality Lead to Consumption Inequality? Evidence and Theory,” Review of Economic Studies 73 (January 2006): 163–92. 103. In 1995, Congress requested that a panel of experts from the National Academy of Sciences issue a report investigating revisions to the poverty threshold.

For the top 400 income earners, 60 percent of their income is in the form of capital gains. J. Bakija, A. Cole, and B. T. Hein, “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data.” See also comments by C. Rampell, “The Top 1%: Executives, Doctors and Bankers” New York Times, October 17, 2011, available at http://economix.blogs.nytimes.com/2011/10/17/the-top-1-executives-doctors-and-bankers/; and Laura D’Andrea Tyson, “Tackling Income Inequality,” New York Times, November 18, 2011, available at http://economix.blogs.nytimes.com/2011/11/18/tackling-income-inequality/. 20. See Forbes World’s Billionaires list at http://www.forbes.com/wealth/billionaires /; ranking is from 2011. 21. Slim’s Grupo Carso, France Telecom, and Southwestern Bell paid $1.7 billion in December 1990 to acquire “a controlling 20.4 percent stake in Telmex, which includes 51 percent of the votes in the company.”

Additionally, 11.1 million, or 22.8 percent, of all residential properties with a mortgage in the United States were underwater (had negative equity at the end of the fourth quarter of 2011); see “Negative Equity Report,” Corelogic (Q4, 2011), available at http://www.corelogic.com/about-us/researchtrends/asset_upload_file360_14435.pdf (accessed March 28, 2012). 2. The exact amount varies from year to year. For data on income inequality, I rely heavily on the work of Emmanuel Saez and Thomas Piketty. The important initial work is T. Piketty and E. Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics 118, no. 1 (2003): 1–39. A longer and updated version is published in A. B. Atkinson and T. Piketty, eds., Top Incomes over the Twentieth Century: A Contrast between Continental European and English-Speaking Countries (New York: Oxford University Press, 2007).


pages: 459 words: 123,220

Our Kids: The American Dream in Crisis by Robert D. Putnam

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correlation does not imply causation, deindustrialization, demographic transition, desegregation, ending welfare as we know it, epigenetics, full employment, George Akerlof, helicopter parent, impulse control, income inequality, index card, low skilled workers, manufacturing employment, meta analysis, meta-analysis, mortgage tax deduction, new economy, Occupy movement, Ralph Waldo Emerson, randomized controlled trial, school choice, Socratic dialogue, The Bell Curve by Richard Herrnstein and Charles Murray, the built environment, upwardly mobile, Walter Mischel, white flight, working poor

We have examined the concentric circles of influence—families, schools, and communities—within which today’s youth are growing up, and we have seen how in recent decades the challenges and opportunities facing rich and poor kids have grown more disparate. This up-close-and-personal focus runs the risk that we miss the deeper connection between the opportunity gap and growing income inequality. From Port Clinton to Philadelphia, and from Bend to Atlanta to Orange County, economic disparities among the families have been an important part of each story. In every movement of this composition the deep, throbbing, ominous bass line has been the steady deterioration of the economic circumstances of lower-class families, especially compared to the expanding resources available to upper-class parents. To be sure, the link from income inequality to opportunity inequality is not simple and instantaneous. As our cases illustrate, it took several decades for economic malaise to undermine family structures and community support; it took several decades for gaps in parenting and schooling to develop; and it will take decades more for the full impact of those divergent childhood influences to manifest themselves in adult lives.

The factors for which we have found growing class gaps are precisely the same factors that the economist Raj Chetty and his colleagues have found to be associated with socioeconomic mobility across America today—family stability, residential segregation, school quality, community cohesion, and income inequality. That fact suggests (as this book argues) that those factors are leading indicators of trends in mobility. Chetty himself believes that the early returns from his research show no decline in socioeconomic mobility, but others (including me) are more doubtful that those early results will hold up when the full returns from the younger generation begin to arrive, about a decade from now.1 All sides in this debate agree on one thing, however: as income inequality expands, kids from more privileged backgrounds start and probably finish further and further ahead of their less privileged peers, even if the rate of socioeconomic mobility is unchanged.

Jones, Daniel Cox and Juhem Navarro-Rivera, “Economic Insecurity, Rising Inequality, and Doubts About the Future: Findings from the 2014 American Values Survey,” Public Religion Research Institute (PRRI), Washington, DC, September 23, 2014, at http://publicreligion.org/site/wp-content/uploads/2014/09/AVS-web.pdf. 29. Claudia Goldin and Lawrence F. Katz, “Decreasing (and then Increasing) Inequality in America: A Tale of Two Half-Centuries,” in The Causes and Consequences of Increasing Income Inequality, ed. Finis Welch (Chicago: University of Chicago Press, 2001), 37–82. 30. Massey, Categorically Unequal, 5. 31. This general pattern applies both to personal income and to family income and to income before and after taxes. The growth in income inequality reflected not simply that some people had good years, and others bad years, but the emergence of the stably rich at the top and the stably poor at the bottom. Inequality in wealth was even greater in absolute terms than inequality in income, but the increase in inequality after the great reversal of the 1970s was greater for income than for wealth.

The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

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air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business process, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, labour market flexibility, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, new economy, North Sea oil, oil shock, open economy, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K

T h e consequences of t h a t system are all t o o evident to today's U.S. manufacturers. 398 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. EDUCATION AND INCOME INEQUALITY cent multilateral effort (the Doha round of trade negotiation) to further ease restrictions on international trade, however, have raised political red flags against a further spread of globalization. To a greater or lesser extent, most developed countries have experienced the impact of technology and globalization much as the United States has. Yet, although they confront increasing income concentration, the impact to date appears to be significantly milder than what we are experiencing in the United States. The United States is clearly an outlier among the global trading partners, and that calls for a broader explanation of the causes of U.S. income inequality. Part of the explanation is the more elaborate welfare systems, especially in Europe, that are engaged in far more extensive programs to redistribute income than has been deemed acceptable in the United States.

Real wages of the lesser skilled also rose, in part as a result of effective high school education and the many skills learned during *Ironically, many educators in Singapore marvel at the entrepreneurial skills of American youth. 400 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. EDUCATION AND INCOME INEQUALITY the war. In short, technical proficiencies across all job levels appeared to rise about in line with the needs of our ever-more-complex infrastructure, stabilizing the income distribution in the United States for three decades. While the GI Bill and on-the-job training in the World War II military were not, of course, initially market-driven, they helped to meet the needs of a changing labor market. By 1980, however, a persistent rise in income inequality began to take hold.* High-wage, middle-class factory jobs in the United States have been under pressure from technology and imports since they peaked at nearly twenty million in mid-1979.

T H E U N I V E R S A L S OF E C O N O M I C G R O W T H 249 13. 267 T H E M O D E S OF C A P I T A L I S M PHOTOGRAPHIC INSERT 2 14. THE CHOICES THAT A W A I T C H I N A 294 15. T H E TIGERS A N D THE E L E P H A N T 311 16. RUSSIA'S SHARP ELBOWS 323 17. LATIN AMERICA A N D POPULISM 334 18. CURRENT ACCOUNTS A N D DEBT 346 19. GLOBALIZATION A N D REGULATION 363 20. T H E " C O N U N D R U M " 377 21. 392 EDUCATION A N D INCOME INEQUALITY 22. T H E W O R L D R E T I R E S . B U T C A N I T A F F O R D T O ? 409 23. 423 CORPORATE G O V E R N A N C E 24. T H E L O N G - T E R M E N E R G Y S Q U E E Z E 437 25. 464 THE D E L P H I C FUTURE Acknowledgments 506 A Note on Sources 508 Index 513 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright.


pages: 375 words: 105,067

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

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asset allocation, Bernie Madoff, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, London Whale, Mark Zuckerberg, mortgage debt, oil shock, payday loans, pension reform, Ponzi scheme, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

A big house with a big back yard, twins, maternity leave, those forms you have to fill out every April 15th, two tonsillectomies, a long-overdue vacation, a raise, a higher tax bracket, another bouncing baby, an even bigger house, fluctuating interest rates, an inheritance from a long-lost aunt, grad school, pre-med school, med school, investing your profit sharing, your only daughter’s 300-plate wedding reception, money to start your own business, a new couch because Uncle Marvin forgot where he left his cigar, a summer house on a small lake with large fish, changes in the tax law, lawyers for everything, lots and lots of grandchildren, and a cruise around the world. So get ready. Call Dean Witter. But something else was going on, too. Income inequality, which had shrunk dramatically in the United States during the period following World War II, began to open up again in the inflationary environment of the 1970s. About 60 percent of the gains in income between 1979 and the 2000s went to the top 1 percent of earners. As for the rest of us: median household income, when adjusted for inflation, fell by 7 percent between 1999 and 2010. Household debt began to soar, and by the end of 2010, the income of the median American family had slid back to where it was in 1996.

Imagine what a wonderful world it would be if Suze Orman and the folks at CNBC really could solve all our financial problems! Instead, I simply want to help people realize that, just because they’re not millionaires, doesn’t mean they’re failures. Pound Foolish will tell the story of how we were sold on a dream—a dream that personal finance had almost magical abilities, that it could compensate for stagnant salaries, income inequality, and a society that offered a shorter and thinner safety net with each passing year. The book will tell the tale of how that fantasy was sold to us by people, organizations, and businesses that had a vested monetary interest in selling it to us. Finally, it will tell the story of how we allowed ourselves to be convinced that the personal finance and investment industrial complex would save our collective financial souls—and what comes next, now that it is clear it never could

A quick run through the many, many profiles of her penned over the years shows howlers mixed in with the prescient comments, sometimes in the same piece, proving how hard it is to get this forecasting thing right. In a USA Today interview in 1991, for example, she opines “You can no longer count on your real estate to make you rich,” a statement that was objectively untrue, at least at that time. (Believe me, you only wish you had had the foresight to buy some New York City or San Francisco Bay Area real estate in 1991 and just hold onto it.) But in the same article she exhibits an awareness of income inequality and the increasing precariousness of American life. “You can’t count on your salary going up the way it used to,” she says, adding, “Good health insurance does not exist at a bargain price…someday the tragedy of the uninsured and the underinsured will surely spark a political revolt.” Quinn’s forthrightness continues today. “It’s become a huge business,” she said at the beginning of our interview.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

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accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey

In a world of globalized media and international markets for executive jobs, the creeping social acceptability of huge pay packets for some executives and professions has crossed borders. Does it matter? CONSEQUENCES OF INEQUALITY FOR GROWTH There is some controversy about whether income inequality inhibits economic performance. Poor countries are more unequal than rich ones but it is not clear whether the inequality is a cause or a consequence of their failure to grow. Among the rich countries, there is no obvious relationship between level of income inequality and growth rates. The United States, the most unequal, has experienced the fastest productivity growth in recent decades. There are some reasons to think that in theory greater inequality will boost growth—first because rich people save more than poor people, and thus build a pool of savings that can finance investment and growth; second because inequality is often addressed with progressive income taxes, which have an adverse effect on work effort and so might reduce growth.

But national averages, which look only at inequality between countries are not fully adequate measures given that there is great inequality within many countries—and especially in the rapidly growing countries of Brazil, Russia, India, and China (called the BRICs), which have made such a big difference in the middle parts of the global income distribution.15 Branko Milanovic reports that about two-thirds of global inequality currently is due to differences in income levels between countries, a big shift from the nineteenth-century pattern, when only 15 percent of measured inequality was due to national differences, and 85 percent due to income inequality within countries.16 Another way of assessing inequality suggested by this pattern is to look at what has happened to individual incomes across the world.17 The incomes of the Forbes Rich List have soared massively ahead of those of people living in the poorest African countries whose economies have been shrinking. Equally, given the big increases in income for some people (but not others) in middle-income countries, it makes no sense only to look at the extremes of rich and poor.

The Gini coefficient has two drawbacks: the calculations have not been done for all countries and all time periods of interest; and it is not intuitively easy to understand. So I will discuss here a much simpler measure, the ratio of incomes of the top and bottom tenth in the income distribution. In the rich countries, most of the action has been at the two extremes, so this will not misrepresent the trends in inequality.22 The OECD nations differ from each other a great deal in the extent of income inequality using this measure. Japan and the Scandinavian countries stand out as the most equal. The best-off tenth of households have earnings from work just two or three times those of the worst off. For most other European countries this ratio is in the range of three to four—Austria, Belgium, and Germany are just below the bottom of this, and the United Kingdom, along with Australia, Spain, and Portugal at the top.


pages: 332 words: 89,668

Two Nations, Indivisible: A History of Inequality in America: A History of Inequality in America by Jamie Bronstein

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Affordable Care Act / Obamacare, back-to-the-land, barriers to entry, Bernie Sanders, big-box store, blue-collar work, Branko Milanovic, British Empire, Capital in the Twenty-First Century by Thomas Piketty, clean water, cognitive dissonance, collateralized debt obligation, collective bargaining, Community Supported Agriculture, corporate personhood, crony capitalism, deindustrialization, desegregation, Donald Trump, ending welfare as we know it, Frederick Winslow Taylor, full employment, Gini coefficient, income inequality, interchangeable parts, invisible hand, job automation, John Maynard Keynes: technological unemployment, labor-force participation, land reform, land tenure, low skilled workers, low-wage service sector, minimum wage unemployment, moral hazard, mortgage debt, New Urbanism, non-tariff barriers, obamacare, occupational segregation, Occupy movement, oil shock, Plutocrats, plutocrats, price discrimination, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scientific racism, Simon Kuznets, single-payer health, strikebreaker, too big to fail, trade route, transcontinental railway, Triangle Shirtwaist Factory, trickle-down economics, universal basic income, Upton Sinclair, upwardly mobile, urban renewal, wage slave, War on Poverty, women in the workforce, working poor, Works Progress Administration

Those in the lowest quintile of income earned have an effective tax rate of 27 percent; those in the highest quintile have an effective tax rate of 9 percent.5 Figure I.1 Effective Tax Rate from all Sources (Percent), 2012. (Computed from Bret N. Bogenschneider, “Income Inequality and Regressive Taxation in the United States,” Interdisciplinary Journal of Economics and Business Law vol. 4 no. 3 (2015): 8–28, at 12.) Poor Americans’ chances for economic mobility are lower than those of the poor in many other countries, America’s reputation as a “land of opportunity” to the contrary.6 Why should we care? Social science research reveals that income inequality correlates with a host of social problems: “Higher crime rates, lower life expectancy, less charitable giving, worse school performance, greater incidence of obesity, and slower economic growth.”7 Moreover, a republic depends on the participation of citizens who are independent enough to achieve a certain level of political knowledge and to assert their own opinions.

Erik Sherman, “America Is the Richest, and Most Unequal, Country,” Fortune, September 30, 2015, available online at http://fortune.com/2015/09/30/america-wealth-inequality/, accessed April 2, 2016. 19. Shammas, “A New Look,” 420. 20. Williamson and Lindert, “Three Centuries of American Inequality,” 11, 15, 20. 21. Mark W. Frank, “Inequality and Growth in the United States: Evidence from a New State-Level Panel of Income Inequality Measures,” Economic Inquiry vol. 47 no. 1 (2009): 55–68. 22. Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review vol. 45 no. 1 (1955): 1–30. 23. Milanovic, Haves and Have-Nots, 91. 24. Williamson and Lindert, “Three Centuries of American Inequality,” 56, 59; Jeffrey Williamson and Peter H. Lindert, American Inequality: A Macroeconomic History (New York: Academic Press, 1980), 258. 25. Williamson and Lindert, American Inequality, 8.

Rhetoric and Public Affairs 3, no. 3 (2000): 363–395. Kulikoff, Alan. “Inequality in Boston.” William and Mary Quarterly 28, no. 3 (July 1971): 375–412. Kumhof, Michael, Romain Ranciere, and Pablo Winant. “Inequality, Leverage, and Crises.” American Economic Review 105, no. 3 (2015): 1217–1245. Kuznets, Simon. “Economic Growth and Income Inequality.” American Economic Review 45, no. 1 (1955): 1–30. Kwon, Ray. “Does Radical Partisan Politics Affect National Income Distributions? Congressional Polarization and Income Inequality in the United States, 1913–2008.” Social Science Quarterly 96, no. 1 (2015): 49–64. Levitan, Sar A. “How the Welfare System Promotes Economic Security.” Political Science Quarterly 100, no. 3 (Autumn 1985): 447–459. Levy, Michael. “Liberal Equality and Inherited Wealth.” Political Theory 11, no. 4 (November 1983): 545–564.


pages: 204 words: 67,922

Elsewhere, U.S.A: How We Got From the Company Man, Family Dinners, and the Affluent Society to the Home Office, BlackBerry Moms,and Economic Anxiety by Dalton Conley

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3D printing, call centre, clean water, dematerialisation, demographic transition, Edward Glaeser, extreme commuting, feminist movement, financial independence, Firefox, Frank Levy and Richard Murnane: The New Division of Labor, Home mortgage interest deduction, income inequality, informal economy, Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, labor-force participation, late capitalism, low skilled workers, manufacturing employment, McMansion, mortgage tax deduction, new economy, oil shock, PageRank, Ponzi scheme, positional goods, post-industrial society, Post-materialism, post-materialism, principal–agent problem, recommendation engine, Richard Florida, rolodex, Ronald Reagan, Silicon Valley, Skype, statistical model, The Death and Life of Great American Cities, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, women in the workforce, Yom Kippur War

In fact, it is probably a futile exercise to ask how much tax policy drove the development of computers, how much computers drive income inequality, and how much income inequality drives commuting distances. Better to take a deep breath and unfocus the eyes to try to take in the entire mosaic that makes up the social landscape today. If our new economy was indeed born out of the paradoxes of the last one, then the technological seeds were planted—ironically—back in the halcyon days of the 1950s. I say “ironically” since it is the idealized version of the fifties that forms the backdrop against which we measure the so-called inadequacies of today. Ah, what a time. Liberals pine for those days when income inequality was at its lowest point of the century and the top marginal tax rates exceeded the now unimaginable level of 90 percent.42 And that with a Republican in the White House.

And those median levels are just the proverbial tip of the iceberg. Computers and telecommunications technologies have allowed for private equity managers to make tens of millions of dollars through international arbitrage while sitting in their pajamas in Westport, Connecticut (also known as “Northern Hedg-istan” to financial industry insiders). As much as the left likes to blame Ronald Reagan (and the two Bushes) for the steady rise in income inequality, much of it had to do with computer technology. And then there are the second-order effects of rising inequality on the economy. Paradoxically, the fastest-growing number of jobs in the first decade of the third millennium is projected to be in food preparation and service.38 Computers were supposed to eliminate low-skilled jobs and create high-skilled ones. So, what’s happening here? It’s an indirect effect: the inequality itself creates the low-wage serving jobs.

In 1967, Schwartz reports, when a man was at the bottom of the income hierarchy, the chances that his wife earned at least some money that year were about 65 percent; the wife of a man in the top 10 percent of earners, by contrast, had less than a 40 percent chance of having earned some cash in that year. By 2003, the curve was essentially flat. In total, the changing nature of marriage probably explains about 40 percent of the rise in income inequality41 And that’s not counting the fact that higher-income folks are more likely to be married in the first place. There is potentially a forward-feeding cycle here. As inequality rises, couples are no longer content to rely on one income, or even one “main” earner combined with a part-time secondary worker’s wages. No, increasingly many families feel they need two full-time workers in the labor force to “keep up.”


pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

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accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, capital controls, corporate governance, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, Y2K

"Earnings Mobility and Instability, 1969-1995," Federal Reserve Bank of San Francisco working paper 97-12 <www.fi:bsf org/ econrsrch/workingp/wp97-12.pdf>. (1998). "Income Inequality and Mortality Risk in the United States: Is There a Link?," Federal Reserve Bank of San Francisco Economic Letter, 98-29, October 2 <www.frbsf.org/econrsrch/workingp/wp98-29.pdf>. DarityWilliam A., Jr., and Patrick L. Mason (1998). "Evidence on Discrimination in Employment: Codes of Color, Codes of Gender," Jowrmi/ of Economic Perspectives 12 (Spring), pp. 63-90. Darity, Wilham A., Jr., Patrick L. Mason, and James B. Stewart (1998). "Race, Class, and the Economics of Identity: A Theory of Racism," unpublished paper. De Nardi, Mariacristina, Liqian Ren, and Chao Wei (2000)."Income Inequality and Redistribution in Five Countries, Federal Reserve Bank of Chicago Economic Perspectives, Second Quarter, pp. 2—20 <www.frbchi.org/pubs-speech/publications/periodicals/ep/2000/ 2qepl.pdf>.

Driven by dynamic markets, not stodgy old welfare states, it has reportedly given us the toppling of old hierarchies, the erosion of inherited privileges, and the democratization of wealth. In fact, the distribution of income in the U.S. in the early 2000s is about the most unequal it's ever been—and the same can be said of the distribution of world income. Not, of course, that many people care, or even notice. Back in the 1980s, income inequality used to be a hot political issue. Liberals worried about it, and the idea that the rich were getting richer and the poor getting poorer suffused the popular culture. Conservatives often denied statistical reaUty—a right-wing media critic told me in the late 1980s that we must "live on different planets" if I thought U.S. incomes were polarizing. Maybe—^but I was the one living on earth: in 1980, the richest fifth of Americans had incomes about ten times those of the poorest fifth; a decade later, that multiple had grown to twelve.

Of course, even at its most egalitarian postwar moment, the U.S. remained a polarized society, but it was still widely thought that something had changed to make the new arrangements permanent. In 1955, Simon Kuznets pubHshed his famous "inverted U" theory of capitalist evolution: that income inequaHty rises in the early stages of development and faUs as economies mature. Economists came to believe this as a fact of their After the New Economy .525 .500 .475 .450 .425 .4001-.375 income inequality (Cini index) U.S., 1913-2001 "science," and you still hear it from development specialists at the World Bank and in academia to excuse the vast increase in inequaUty in the Third World over the last fifteen years. Recent U.S. experience suggests that Kuznets s U may have another tail to tell. U.S. income inequaUty has been on an uptrend since the late 1960s. The point is made most clearly by the graph below of the Gini index, the most common measure of inequaUty.


pages: 237 words: 64,411

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence by Jerry Kaplan

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Affordable Care Act / Obamacare, Amazon Web Services, asset allocation, autonomous vehicles, bank run, bitcoin, Brian Krebs, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, combinatorial explosion, computer vision, corporate governance, crowdsourcing, en.wikipedia.org, Erik Brynjolfsson, estate planning, Flash crash, Gini coefficient, Goldman Sachs: Vampire Squid, haute couture, hiring and firing, income inequality, index card, industrial robot, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Loebner Prize, Mark Zuckerberg, mortgage debt, natural language processing, Own Your Own Home, pattern recognition, Satoshi Nakamoto, school choice, Schrödinger's Cat, Second Machine Age, self-driving car, sentiment analysis, Silicon Valley, Silicon Valley startup, Skype, software as a service, The Chicago School, Turing test, Watson beat the top human players on Jeopardy!, winner-take-all economy, women in the workforce, working poor, Works Progress Administration

These developments are likely to usher in a new age of unprecedented prosperity and leisure, but the transition may be protracted and brutal. Without adjustments to our economic system and regulatory policies, we may be in for an extended period of social turmoil. The warning signs are everywhere. The two great scourges of the modern developed world—persistent unemployment and increasing income inequality—plague our society even as our economy continues to grow. If these are left unchecked, we may witness the spectacle of widespread poverty against a backdrop of escalating comfort and wealth. My goal is to give you a personal tour of the breakthroughs fueling this transition and the challenges it poses for society. I will also suggest some free-market solutions that promote progress while reducing government intrusion in our lives.

You won’t be committed in advance to accepting a particular position if someone else makes you a better offer, but at least you have the comfort of knowing that you are acquiring the skills valued by the marketplace. In effect, this scheme introduces a new form of feedback and liquidity into labor markets, enforced through the discipline of the free market. But our greatest societal challenge will be to rein in growing income inequality. I will propose an objective, government-certified measure of corporate ownership, which I will call the public benefit index, or PBI, which can serve as the foundation for a variety of programs to keep society on a more even keel. By scaling corporate taxes based on how many stockholders benefit from a company’s success, we can tilt the scales in favor of broad public participation in an asset-based economy.

The rise in life expectancy is due to many factors but is largely the result of improvements in medical sanitation, the development of vaccines, public efforts to separate water and sewer systems, government initiatives such as the creation of the Centers for Disease Control, and public health education campaigns (smoking cessation, for example). So the time has arrived for us to establish sensible policies to reduce income inequality. Our initial instinct may be to tackle this challenge by first determining its root cause(s) and addressing each in turn, most notably unemployment. But I suspect that would simply embroil us in endless debates, pitting those who blame the poor for their own failure to thrive against those who blame needless government spending and regulatory interference against those who see those same regulations as hopelessly biased toward the rich against those who believe your income is a numerical measure of how pleased God is with you.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

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airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Edward Glaeser, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Washington Consensus, white flight

., 13n Hunting Causes and Using Them: Approaches in Philosophy and Economics (Cartwright), 22n import quotas, 149 incentives, 7, 170, 172, 188–92 income: functional distribution of, 121 military service and, 108 personal distribution of, 121 income inequality, 117, 124–25, 138–44, 147–49 deregulation in, 143 factor endowments theory in, 139–40 Gini coefficient and, 138 globalization in, 139–41, 143 in manufacturing, 141 offshoring in, 141 skill premium in, 138–40, 142 skill upgrading in, 140, 141, 142 technological change in, 141–43 trade in, 139–40 India, 107, 154 Indonesia, 166 industrial organization, 201 industrial revolution, 115 industry: developing economies and policies on, 75–76, 87, 88 government intervention and, 34–35 inflation, 185 in business cycles, 126–27, 130–31, 133, 135, 137 public spending and, 114 infrastructure, 87, 91, 111, 163 Institute for Advanced Study (IAS), xii–xiii, xiv School of Social Science at, xii Institute for International Economics, 159 institutions: development economics and, 98, 161, 202, 205–7 labor productivity and, 123 insurance, banking and, 155 interest rates, 39, 64, 110, 129–30, 156, 161 internal validity, 23–24 International Bank for Reconstruction and Development, 2 see also World Bank international economics, 201–2 International Monetary Fund (IMF), 1n, 2 Washington Consensus and, 160, 165 Internet, big data and, 38 “Interview with Eugene Fama” (Cassidy), 157n investment: business cycles and, 129–30, 136 foreign markets and, 87, 89, 90, 92, 165–67 income inequality and, 141 savings and, 129–30, 165–67 Invisible Hand Theorem, 48–50, 51n, 182, 186 Israel, 103, 188 day care study in, 71, 190–91 Japan: city growth models and, 108 income inequality and, 139 Jenkins, Holman W., Jr., 135n Jevons, William Stanley, 119 Kahneman, Daniel, 203 Kenya, 106–7 Keynes, John Maynard, 1–2, 31, 46, 165 on business cycles, 127–37 on liquidity traps, 130 see also models, Keynesian types of Klemperer, Paul, 36n Klinger, Bailey, 111n Korea, South, 163, 164, 166 Kremer, Michael, 106–7 Krugman, Paul, 136, 148 Kuhn, Thomas, 64n Kupers, Roland, 85 Kydland, Finn E., 101n labor markets, 41, 52, 56, 57, 92, 102, 108, 111, 119, 163 labor productivity, 123–24, 141 labor theory of value, 117–19 Lancaster, Kelvin, 59 Latin America, Washington Consensus and, 159–63, 166 Leamer, Edward, 139 learning, rule-based vs. case-based forms of, 72 Leijonhufvud, Axel, 9–10 Lepenies, Philipp H., 211n leverage, 154 Levitt, Steven, 7 Levy, Santiago, 3–4, 105–6 Lewis, W.

., 177n Schumpeter, Joseph, 31 science, simplicity and, 179 Scott, Joan, xiv Second Fundamental Theorem of Welfare Economics, 47n segregation, tipping points in white flight and, 42 self-interest, 21, 104, 158, 186–88, 190 Shaw, George Bernard, 151 Shiller, Robert, 154, 157, 159 signaling, 69 Simon, Herbert, 203 Singapore, congestion pricing and, 3 single market (partial-equilibrium) analysis, 56, 58, 91 skill-biased technological change (SBTC), 142–43 skill premium, 138–40, 142 skill upgrading, 140, 141, 142 Smith, Adam, xi 48–49, 50, 98, 116, 182, 203 Smith, John Maynard, 35n Smith, Noah, 148 social choice theory, 36 social media, big data and, 38 social sciences: critical review in, 79–80 economics and, xii–xiii, 45, 181–82, 202–7 universal theories and, 116 Sokal, Alan, 79n “Sokal’s Hoax” (Weinberg), 66n South Africa, 24, 86, 91, 111 South Sea bubble, 154 Soviet Union, 98, 151–52 White and, 1n Spain, 207 speculative capital flow, 2 Spence, Michael, 68 stagflation, 130–31 statistical analysis, 7 Steil, Benn, 1n–2n Stiglitz, Joseph, 31, 68 Stockholm, Sweden, congestion pricing and, 3 Stolper, Wolfgang, 58n, 140n Stolper-Samuelson theorem, 58n, 140n stotting, 35n strategic interactions, economic models and, 61–62, 63 string theory, 113 Structure of Scientific Revolutions, The (Kuhn), 64n Subramanian, Arvind, xv subsidies, 4, 34–35, 75, 105, 149, 193, 194 Sugden, Robert, 112, 172n Summers, Larry, 136, 159 sunk costs, 70, 73 Superiority of Economists, The (Fourcade, Ollion, and Algan), 79n, 200n supply and demand, 3, 13–14, 20, 99, 122, 128–30, 132, 136–37, 170 prices and, 14, 119 taxes and, 14 surrogate mothers, 192 Switzerland, 188 Taiwan, 163 Tanzania, 55 tariffs, 149, 161, 162 taxes, taxation, 14, 17, 27–28, 87, 88, 136, 137, 151, 174, 180–81 carbon emissions and, 188–90, 191–92 entrepreneurship and, 74 fiscal stimulus and, 74, 75, 149, 171 negative income and, 171 technology, income inequality and, 141–43 telecommunications, game theory and, 5, 36 Thailand, 166 Thatcher, Margaret, 49 theories: models vs., 113–45 specific events explained by, 138–44 universal validity of, 114 time-inconsistent preferences, 62–63 “Time to Build and Aggregate Fluctuation” (Kydland and Prescott), 101n tipping points, 42 Tirole, Jean, 208–9 trade, 11, 87, 91, 136, 141, 182–83, 194 in business cycles, 127 comparative advantage in, 52–55, 58n, 59, 139, 170 computational models in tracking of, 41 current account deficits and, 153 general-equilibrium effects and, 41, 56–58, 69n, 91, 120 income inequality in, 139–40 liberalization of, 160, 162–63, 165, 169 outsourcing and, 149 public sector size and, 109–10 second-best theory applied in, 58–61, 163–64, 166 2x2 model of, 52–53 trade creation effect, 59 trade diversion effect, 59 trade unions, 124, 143 Transatlantic Trade and Investment Partnership (TTIP), 41 Transforming Traditional Agriculture (Schultz), 75n transportation, congestion pricing and, 2–3 Truman, Harry S., 151 tulip bubble, 154 Turkey, 166 Ulam, Stanislaw, 51 ultimatum game, 104 unemployment, 102 in business cycles, 125–37 classical view of, 126 in Great Recession, 153 wages and, 118, 150 see also employment Unger, Roberto Mangabeira, xi United States: comparative advantage principle and, 59–60, 139 deficit in, 149 educational vouchers in, 24 federal system in, 187 garment industry in, 57–58 Gold Standard in, 127 Great Depression in, 128 Great Recession in, 115, 134–35, 152–59 housing bubble in, 153–54, 156 immigration issue in, 56–57 income inequality in, 117, 124–25, 138–44 labor productivity and wages in, 123–24, 141 national debt in, 153 outsourcing in, 149 trade agreements of, 41 universal validity, 66–67 Uruguay, 86 validity, external vs. internal types of, 23–24 value, theories of, 117–21 Varian, Hal, 20 verbal models, 34 Vickrey, William, 2–3 Vietnam, 57–58 Vietnam War, 108 “Views among Economists: Professional Consensus or Point-Counterpoint?”

“fox” approaches in, 175 ignorant vs. calculating peasant hypotheses in, 75 individual behavior in, 17, 33, 39, 42, 49, 101, 102, 131, 137, 181–82 marginalists and, 119–22 models in, see models outsider views in, 6 pluralism in, 196–208 points of consensus in, 147–52, 194–95 power and responsibility and, 174–75 predictability in, 6, 26–28, 38, 40–41, 85, 104, 105, 108, 115, 132, 133, 139–40, 157, 175, 184–85, 202 progressive modeling in, 63–72 psychology and sociology of, 167–74 self-interest in, 21, 104, 158, 186–88, 190 shocks in, 130–31, 132 social sciences and, xii–xiii, 45, 181–82, 202–7 strengths and weaknesses of, xi supply and demand in, 3, 13–14, 20, 99, 119, 122, 128–30, 136–37, 170 trade-offs in, 193–94 twenty commandments for, 213–15 values in, 186–96 see also markets; models Economics, Education and Unlearning: Economics Education at the University of Manchester (PCES), 197n education: antipoverty programs and, 4, 55, 105–6 field experiments and variable factors in, 24 markets and, 198 models in, 36–37, 173 efficient-markets hypothesis (EMH), 156–58 Einstein, Albert, 80, 81, 113, 179 El Salvador, 86, 92–93 Elster, Jon, 79n emissions quotas, 188–90, 191–92 empirical method, models and, xii, 7, 46, 65, 72–76, 77–78, 137, 173–74, 183, 199–206 employment: in business cycles, 125–37 labor productivity and, 123 minimum wages and, 17–18, 28n, 114, 115, 124, 143, 150, 151 social and cultural considerations in, 181 see also unemployment endogenous growth models, 88 England, comparative advantage principle and, 52–53 entrepreneurs: corruption and, 91 taxation and, 74 Ethiopia, 86, 123 Europe: Great Recession in, 153, 156 income inequality in, 125, 139 trade agreements between U.S. and, 41 European Common Market, 59 European Union (EU), 76 evolution, theory of, 113–14 exchange rates, 2, 100, 149 experiments: economic models compared with, 21–25 field types of, 23–24, 105–8, 173, 202–5 Explaining Social Behavior: More Nuts and Bolts for the Social Sciences (Elster), 79n external validity, 23–24, 112 fables, models and, 18–21 factor endowments theory, 139–40 Fama, Eugene, 157, 159 Fassin, Didier, xiv Federalists, 187 Federal Reserve, U.S., 134–35, 151n, 158 Feenstra, Rob, 141 field experiments, 23–24, 105–8, 173, 202–5 financial costs, 70 financial industry: globalization of, 164–67 in Great Recession, 152–59, 184 financial markets, deregulation and, 143, 155, 158–59, 162 “Fine Is a Price, A” (Gneezy and Rustichini), 71n fines, 71 First Fundamental Theorem of Welfare Economics, 47–51, 54 fiscal policies, 75–76, 87, 88, 147–48, 149, 160–61, 171 Fischer, Stanley, 165–66 forward causation, 115 Foundations of Economic Analysis (Samuelson), 125 Fourcade, Marion, 79n, 200n France, comparative advantage principle and, 59–60 Freakonomics (Levitt and Dubner), 7 Free to Choose, 49 free trade, 11, 54, 141, 169, 170, 182–83, 194 Friedman, Milton: on assumptions in modeling, 25–26 on cigarette taxes, 27–28 on invisible hand theorem, 49 on liquidity and Great Depression, 134 on model complexity, 37 fuel subsidies, 193 functional distribution of income, 121 Galbraith, John Kenneth, 184 Galileo Galilei, 29 Gambetta, Diego, 34 game theory, 5, 14–15, 33, 36, 61–62, 103–4, 133 simultaneous vs. sequential moves in, 68 garment industry, general-equilibrium effects in, 57–58 Gelman, Andrew, 115 general-equilibrium interactions, 41, 56–58, 69n, 91, 120 General Theory of Second Best, 58–61 Germany, comparative advantage principle and, 59–60 Gibbard, Allan, 20 Gilboa, Itzhak, 72, 73 Gini coefficient, 138 globalization, 139–41, 143, 164–67, 184 Gneezy, Uri, 71n Gold Standard, 2, 127 goods and services, economic models and, 12 Gordon, Roger, 151n Grand Theory of Employment, Interest, and Money, The (Keynes), 128 greenback era, 127n Greenspan, Alan, 158, 159 gross domestic product (GDP), 151n labor productivity and, 123 growth diagnostics, 86–93, 90, 97, 110–11 Haldane, Andrew, 197 Hamilton, Alexander, 187 Hanna, Rema, 107 Hanson, Gordon, 141 Harvard University, xi, 111, 136, 149, 197, 198 Hausmann, Ricardo, 111 health care: in antipoverty programs, 4, 105–7 models and, 5, 36–37, 105–7 Heckscher, Eli, 139 Herndon, Thomas, 77 Hicks, John, 128, 133 Hiebert, Stephanie, xv Hirschman, Albert O., 144–45, 195, 210n–11n housing bubble, 153–54, 156 human capital, 87, 88, 92 Humphrey, Thomas M., 13n Hunting Causes and Using Them: Approaches in Philosophy and Economics (Cartwright), 22n import quotas, 149 incentives, 7, 170, 172, 188–92 income: functional distribution of, 121 military service and, 108 personal distribution of, 121 income inequality, 117, 124–25, 138–44, 147–49 deregulation in, 143 factor endowments theory in, 139–40 Gini coefficient and, 138 globalization in, 139–41, 143 in manufacturing, 141 offshoring in, 141 skill premium in, 138–40, 142 skill upgrading in, 140, 141, 142 technological change in, 141–43 trade in, 139–40 India, 107, 154 Indonesia, 166 industrial organization, 201 industrial revolution, 115 industry: developing economies and policies on, 75–76, 87, 88 government intervention and, 34–35 inflation, 185 in business cycles, 126–27, 130–31, 133, 135, 137 public spending and, 114 infrastructure, 87, 91, 111, 163 Institute for Advanced Study (IAS), xii–xiii, xiv School of Social Science at, xii Institute for International Economics, 159 institutions: development economics and, 98, 161, 202, 205–7 labor productivity and, 123 insurance, banking and, 155 interest rates, 39, 64, 110, 129–30, 156, 161 internal validity, 23–24 International Bank for Reconstruction and Development, 2 see also World Bank international economics, 201–2 International Monetary Fund (IMF), 1n, 2 Washington Consensus and, 160, 165 Internet, big data and, 38 “Interview with Eugene Fama” (Cassidy), 157n investment: business cycles and, 129–30, 136 foreign markets and, 87, 89, 90, 92, 165–67 income inequality and, 141 savings and, 129–30, 165–67 Invisible Hand Theorem, 48–50, 51n, 182, 186 Israel, 103, 188 day care study in, 71, 190–91 Japan: city growth models and, 108 income inequality and, 139 Jenkins, Holman W., Jr., 135n Jevons, William Stanley, 119 Kahneman, Daniel, 203 Kenya, 106–7 Keynes, John Maynard, 1–2, 31, 46, 165 on business cycles, 127–37 on liquidity traps, 130 see also models, Keynesian types of Klemperer, Paul, 36n Klinger, Bailey, 111n Korea, South, 163, 164, 166 Kremer, Michael, 106–7 Krugman, Paul, 136, 148 Kuhn, Thomas, 64n Kupers, Roland, 85 Kydland, Finn E., 101n labor markets, 41, 52, 56, 57, 92, 102, 108, 111, 119, 163 labor productivity, 123–24, 141 labor theory of value, 117–19 Lancaster, Kelvin, 59 Latin America, Washington Consensus and, 159–63, 166 Leamer, Edward, 139 learning, rule-based vs. case-based forms of, 72 Leijonhufvud, Axel, 9–10 Lepenies, Philipp H., 211n leverage, 154 Levitt, Steven, 7 Levy, Santiago, 3–4, 105–6 Lewis, W.


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Who Stole the American Dream? by Hedrick Smith

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Affordable Care Act / Obamacare, airline deregulation, anti-communist, asset allocation, banking crisis, Bonfire of the Vanities, British Empire, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, full employment, global supply chain, Gordon Gekko, guest worker program, hiring and firing, housing crisis, Howard Zinn, income inequality, index fund, informal economy, invisible hand, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, laissez-faire capitalism, late fees, Long Term Capital Management, low cost carrier, manufacturing employment, market fundamentalism, Maui Hawaii, mortgage debt, new economy, Occupy movement, Own Your Own Home, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Steve Jobs, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K

., figure 3. 19 $10 million a week David Cay Johnston, “Scary New Wage Data,” October 24, 2010, http://​www.​tax.​com. 20 Half a dozen hedge fund managers “Pay of Hedge Fund Managers Roared Back Last Year,” The New York Times, April 1, 2010. 21 Paulson had already made nearly $4 billion Gregory Zuckerman, “Trader Racks Up a Second Epic Gain,” The Wall Street Journal, January 28, 2011. 22 Translating these astounding numbers Frank, Richistan, 3–12; see chart, 6. 23 Billionaireville Frank, Richistan, 11–12. 24 The Walton family Tony Judt, Ill Fares the Land (New York: Penguin Group, 2010), 14. 25 The super-rich and ultra-rich often compete Frank, Richistan, 8–12. 26 Ever more expensive toys Symonds, “Absolutely Excessive.” 27 When the rich build Robert H. Frank, “Why 2 Paychecks Are Barely Enough,” The New York Times, Sunday Business, January 1, 2012. 28 “Income inequality is real” Abramowitz and Montgomery, “Bush Addresses Income Inequality.” 29 America is now the most unequal Will Hutton, “Log Cabin to White House? Not Any More,” The Observer, April 28, 2002, http://​www.​observer.​co.​uk/​comment/​story/​0,6903,706484,00.​html; Organisation for Economic Co-operation and Development, “Divided We Stand: Why Inequality Keeps Rising,” An Overview of Growing Income Inequalities in OECD Countries: Main Findings, accessed December 6, 2011, http://​www.​oecd.​org/​dataoecd/​40/​12/​49170449.​pdf. 30 “Those at the top” Hacker and Pierson, Winner-Take-All Politics, 34–40. 31 The degree is not what explains that Ibid., 35–38. 32 “The most telling fact” Larry Mishel, interview, July 10, 2010. 33 “The U.S. tax code” David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich—and Cheat Everybody Else (New York: Penguin Group, 2003), 11. 34 As the tax code has been written Thomas L.

Westphal, “Collaboration in the Boardroom: Behavioral and Performance Consequences of CEO-Board Social Ties,” Academy of Management Journal 42, no. 1 (1999): 7–24; update interview, October 13, 2011. 36 “The Lake Wobegon syndrome” Paul Volcker, testimony to Joint Economic Committee, May 14, 2008, http://​www.​gpo.​gov/​fdsys/​pkg/​CHRG-​110shrg44539/​pdf/​CHRG-​110shrg44539.​pdf. 37 “That would imply” Jay Lorsch and Rakesh Khurana, “The Pay Problem,” Harvard Magazine, May–June 2010. 38 CEO pay spirals ever upward Edward S. Woolard, Jr., quoted in Charles Elson, moderator, “What’s Wrong with Executive Compensation?” Harvard Business Review 81, no. 1 (2003): 69–77. 39 Ranked the United States thirty-first Organisation for Economic Co-operation and Development, “An Overview of Growing Income Inequalities in OECD Countries: Main Findings,” in “Divided We Stand: Why Inequality Keeps Rising,” An Overview of Growing Income Inequalities in OECD Countries: Main Findings, accessed December 6, 2011, http://​www.​oecd.​org/​dataoecd/​40/​12/​49170449.​pdf. 40 With rare exceptions, such as Jessica Silver Greenberg and Nelson D. Schwartz, “Citigroup’s Chief Rebuffed on Pay by Shareholders,” The New York Times, April 18, 2012. 41 The number of illegally fired workers Edsall, New Politics of Inequality, 151–54. 42 Increasingly sided with business Jeffrey Rosen, “Supreme Court, Inc.,” The New York Times Magazine, March 16, 2008; Adam Liptak, “Justices Offer Receptive Ear to Business Interests,” The New York Times, December 19, 2010. 43 “Terrors” of the corporate boardroom “The Scariest S.O.B. on Wall Street,” Fortune 4, no. 11 (December 9, 1996). 44 Close-up photo of Price Ibid. 45 “The power of the financial markets” Roach, interview, transcript, Surviving the Bottom Line.

In fact, concentrated wealth works against economic growth. Several recent studies have shown that America’s wealth gap is a drag on today’s economy. Harvard economist Philippe Aghion cites an accumulation of “impressively unambiguous” evidence from multiple economic studies documenting that “greater inequality reduces the rate of growth.” A recent International Monetary Fund study came to a similar conclusion—that a high level of income inequality can be “destructive” to sustained growth and that the best condition for long-term growth is “more equality in the income distribution.” The Unraveling The opposite has happened in America since the late 1970s. The soaring wealth of the super-rich has brought the unraveling of the American Dream for the middle class—the dream of a steady job with decent pay and health benefits, rising living standards, a home of your own, a secure retirement, and the hope that your children would enjoy a better future.


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The Great Surge: The Ascent of the Developing World by Steven Radelet

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Admiral Zheng, agricultural Revolution, Asian financial crisis, bank run, Berlin Wall, Branko Milanovic, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, clean water, colonial rule, demographic dividend, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, Erik Brynjolfsson, European colonialism, F. W. de Klerk, failed state, Francis Fukuyama: the end of history, Gini coefficient, global supply chain, income inequality, income per capita, invention of the steam engine, James Watt: steam engine, John Snow's cholera map, Joseph Schumpeter, land reform, low skilled workers, M-Pesa, megacity, Mikhail Gorbachev, oil shock, out of africa, purchasing power parity, race to the bottom, randomized controlled trial, Robert Gordon, Second Machine Age, secular stagnation, Simon Kuznets, South China Sea, special economic zone, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, women in the workforce, working poor

In most instances, as one well-known research paper by World Bank economists David Dollar and Aart Kraay was entitled, growth is good for the poor.20 INCOME INEQUALITY: KEEPING UP WITH THE JONESES, THE CHANGS, THE GARCIAS, AND THE SISAYS We have seen that average incomes are rising in the majority of developing countries. How widely shared are the benefits from growth? The massive decline in extreme poverty that we saw in chapter 2 gives us a big hint that the benefits from growth are not accruing just to the rich, but this is not the full story. Is income inequality getting worse, better, or remaining about the same? This seemingly straightforward question is tricky to answer because there are several different ways to think about and measure inequality. Income inequality is a relative concept, comparing one person’s (or a group of people’s) income with someone else’s, so the answer depends on which people or groups of people you compare.

It requires a growth-and-development strategy focused on creating economic opportunities for the majority of people (including the poor), coupled with strategic investments in health, education, and infrastructure, and well-designed safety nets. That the dominant trend across developing countries has been little change in inequality will come as a surprise to those who have been following the big debates about growing income inequality in rich countries. Thomas Piketty’s blockbuster Capital in the Twenty-First Century sparked widespread debate on the nature of economic growth and income distribution in the world’s richest countries, especially the United States, France, and the United Kingdom. The debates start with the fact—and it is a well-documented fact—that income inequality improved between the end of World War II and the late 1970s but has worsened in many rich countries since then. In the United States, median household income has barely increased since the late 1970s, while the incomes of the richest 10 percent have risen by one-third.

Economists have produced reams of research on the relationship between economic growth and poverty, and the results are clear: while growth is not the only driver of poverty reduction, there is no force more powerful for reducing extreme poverty than sustained economic growth. Martin Ravallion, now of Georgetown University, has written a great deal on the relationship between growth and poverty, much of it while he was at the World Bank. Time and again, he and others have shown that the faster the economic growth, the faster the poverty reduction. The precise size of the relationship differs by the country, the level of income inequality, the extent of dependence on commodities, and the structure of the economy. This dynamic should make sense: the worse the initial level of income distribution, the weaker the impact of growth on poverty reduction. As a general matter across developing countries over the past several decades, the relationship between growth and poverty reduction is strong. Other researchers have taken a different approach.


pages: 235 words: 62,862

Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-Hour Workweek by Rutger Bregman

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autonomous vehicles, banking crisis, Bartolomé de las Casas, Berlin Wall, Bertrand Russell: In Praise of Idleness, Branko Milanovic, cognitive dissonance, computer age, conceptual framework, credit crunch, David Graeber, Diane Coyle, Erik Brynjolfsson, everywhere but in the productivity statistics, Fall of the Berlin Wall, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Gilder, happiness index / gross national happiness, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, income inequality, invention of gunpowder, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, Kodak vs Instagram, labour market flexibility, labour mobility, low skilled workers, means of production, megacity, meta analysis, meta-analysis, microcredit, minimum wage unemployment, Mont Pelerin Society, Nathan Meyer Rothschild: antibiotics, Occupy movement, offshore financial centre, Peter Thiel, post-industrial society, precariat, RAND corporation, randomized controlled trial, Ray Kurzweil, Ronald Reagan, Second Machine Age, Silicon Valley, Simon Kuznets, Skype, stem cell, Steven Pinker, telemarketer, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tyler Cowen: Great Stagnation, universal basic income, wage slave, War on Poverty, We wanted flying cars, instead we got 140 characters, wikimedia commons, women in the workforce, working poor, World Values Survey

And, crucially, there is also a sizeable share of data to support causality. See: Karen Rowlingson, “Does income inequality cause health and social problems?” (September 2011). http://www.jrf.org.uk/sites/files/jrf/inequality-income-social-problems-full.pdf Inversely, in countries with a more extensive welfare regime, rich and poor tend to be happier and experience less of these social problems. For an in-depth study on this, see: Patrick Flavin, Alexander C. Pacek and Benjamin Radcliff, “Assessing the Impact of the Size and Scope of Government on Human Well-Being,” Social Forces (June 2014). http://sf.oxfordjournals.org/content/92/4/1241 24. Jan-Emmanuel De Neve and Nattavudh Powdthavee, “Income Inequality Makes Whole Countries Less Happy,” Harvard Business Review (January 12, 2016). https://hbr.org/2016/01/income-inequality-makes-whole-countries-less-happy 25.

Branko Milanovic, “Global Income Inequality by the Numbers: in History and Now,” World Bank Policy Research Working Paper. http://heymancenter.org/files/events/milanovic.pdf 26. Richard Kersley, “Global Wealth Reaches New All-Time High,” Credit Suisse. https://publications.credit-suisse.com/tasks/render/file/?fileID=F2425415-DCA7-80B8-EAD989AF9341D47E 27. United Nations Sustainable Development Knowledge Platform, “A New Global Partnership: Eradicate Poverty and Transform Economies Through Sustainable Development” (2013), p. 4. http://www.un.org/sg/management/pdf/HLP_P2015_Report.pdf 28. I made these calculations using the tool on the website www.givingwhatwecan.org, where you see how your wealth compares to the world population. 29. Branko Milanovic, “Global income inequality: the past two centuries and implications for 21st century” (Fall 2011) http://www.cnpds.it/documenti/milanovic.pdf 30. “62 people own same as half world,” Oxfam (January 20, 2014). http://www.oxfam.org.uk/media-centre/press-releases/2016/01/62-people-own-same-as-half-world-says-oxfam-inequality-report-davos-world-economic-forum 31.

The index of social problems (here on the y-axis) includes life expectancy, literacy, child mortality, murder rate, inmate population, teenage pregnancy, depression, social trust, obesity, drug and alcohol abuse, and social mobility vs. immobility. Source: Wilkinson and Pickett “Economic growth has done as much as it can to improve material conditions in the developed countries,” concludes the British researcher Richard Wilkinson. “As you get more and more of anything, each addition […] contributes less and less to your wellbeing.”19 However, the graph changes dramatically if we replace income on the x-axis with income inequality. Suddenly, the picture crystallizes, with the U.S. and Portugal close together in the top right-hand corner. Inequality (here on the x-axis) represents that gap between the richest and the poorest 20% in a given country. Source: Wilkinson and Pickett Whether you look at the incidence of depression, burnout, drug abuse, high dropout rates, obesity, unhappy childhoods, low election turnout, or social and political distrust, the evidence points to the same culprit every time: inequality.20 But hold on.


pages: 76 words: 20,238

The Great Stagnation by Tyler Cowen

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Asian financial crisis, Bernie Madoff, en.wikipedia.org, financial innovation, Flynn Effect, income inequality, indoor plumbing, life extension, liquidity trap, Long Term Capital Management, Mark Zuckerberg, meta analysis, meta-analysis, Peter Thiel, RAND corporation, school choice, Tyler Cowen: Great Stagnation, urban renewal

When I look back at the last decade, I think the following: There are some very wealthy people, but a lot of their incomes are from financial innovations that do not translate to gains for the average American citizen. The slowdown in ideas production mirrors the well-known rise in income inequality. Labor and capital are fairly plentiful in today’s global economy, and so their returns have been somewhat stagnant. Valuable new ideas have become quite scarce, and so the small number of people who hold the rights to new ideas—whether it be the useful Facebook or the more dubious forms of mortgage-backed securities—earned higher relative returns than in earlier periods. The “rise in income inequality” and the “slowdown in ideas production” are two ways of describing the same phenomenon, namely that current innovation is more geared to private goods than to public goods. If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods than to public goods.

The American left has pointed out and indeed stressed measures of stagnant median income, but it usually blames politics, insufficient redistribution, or poor educational opportunities rather than considering the idea of a technological plateau. The American right is more likely to deny the relevance of the slow-growth numbers, but at this point, the combination of slow median income growth, rising income inequality, and a massive financial crisis—the latter accompanied by overoptimism about the financial future—is too strong and too persistent to treat as a mere artifact of statistical mismeasurement. One common criticism of the numbers is that median household income is falling mainly because households are getting smaller. But that’s only a part of the measured effect (for more technical detail, see the endnotes to this chapter).

If one sentence were to sum up the mechanism driving the Great Stagnation, it is this: Recent and current innovation is more geared to private goods than to public goods. That simple observation ties together the three major macroeconomic events of our time: growing income inequality, stagnant median income, and, as we will see in chapter five, the financial crisis. You can argue about the numbers, but again, just look around. I’m forty-eight years old, and the basic material accoutrements of my life (again, the internet aside) haven’t changed much since I was a kid. My grandmother, who was born at the beginning of the twentieth century, could not say the same. That’s not all. The basic problem may be even worse than it appears at first glance. There are some big sectors that are underperforming in the United States right now, and they also are confounding our measurements of national wealth.


pages: 284 words: 85,643

What's the Matter with White People by Joan Walsh

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affirmative action, Affordable Care Act / Obamacare, banking crisis, clean water, collective bargaining, David Brooks, desegregation, Donald Trump, Edward Glaeser, full employment, global village, Golden Gate Park, hiring and firing, impulse control, income inequality, invisible hand, knowledge worker, labor-force participation, new economy, obamacare, Occupy movement, Plutocrats, plutocrats, Ralph Nader, Ronald Reagan, upwardly mobile, urban decay, War on Poverty, We are the 99%, white flight, women in the workforce

Sometimes I think that knowledge itself makes me unusual. I didn’t grow up seeing the American Dream as some modern-day Garden of Eden, from which we’ve now been cast; we built it. That makes me think we can do it again. The fact is, on the eve of the Great Depression, we had historic income inequality (which was matched only in 2007, on the eve of the Wall Street crash), and for a long time people drew the conclusion that such radical economic disparities were dangerous, for everyone. From 1947 through 1973, we had tax policies that flattened income inequality. It was a political decision. The earnings of people at the bottom and in the middle grew faster than those at the top. That progressive tax policy brought in the public resources to pay for the scaffolding of the American Dream that helped my family and created the middle class.

Preface A few days after the Occupy Wall Street movement began to stir in September 2011, I walked the narrow streets of the world’s financial hub in a light rain, looking for a protest still too small to find. During the next few weeks, OWS would change the national conversation. The slogan “We are the 99 percent” did what years of complaint by economists and liberals could not: it focused attention on staggering income inequality and “the top 1 percent” who’d enriched themselves phenomenally during the past thirty years. “I am so scared of this anti–Wall Street effort. I’m frightened to death,” Frank Luntz, the GOP’s master of spin, told a private meeting of Republican governors at the end of 2011. “They’re having an impact on the way Americans think about capitalism.” Suddenly, cable news shows that had been obsessing over the deficit “crisis” and President Obama’s latest poll numbers were explaining how decades of tax cuts and deregulation unraveled the social contract established in the New Deal.

The New Deal wasn’t handed to us; it took decades of fighting, including strikes and civil disobedience, to get government’s and business’s attention. The civil rights movement likewise involved strife and turmoil and jail time for its leaders. I was thrilled to see the new activism. Maybe we were finally realizing we’re all in this together. Maybe. But the old ways take time to be unlearned. Though the Occupy movement transformed the political debate, emblazoning the issue of income inequality high on the national agenda, many of its local satellites fell back into ’60s style infighting—over property destruction and violence, relations with police, and race and gender. Too many Democrats judged the new activism only on the grounds of whether it was good or bad for President Obama and the party’s congressional leadership. Republicans did what Republicans do: they revived the culture wars, crusading, rather unbelievably, against contraception; questioning the work ethic of poor people (even suggesting that poor kids work as school janitors); labeling Spanish a “ghetto language.”


pages: 339 words: 88,732

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson, Andrew McAfee

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, access to a mobile phone, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, American Society of Civil Engineers: Report Card, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, barriers to entry, Baxter: Rethink Robotics, British Empire, business intelligence, business process, call centre, clean water, combinatorial explosion, computer age, computer vision, congestion charging, corporate governance, crowdsourcing, David Ricardo: comparative advantage, employer provided health coverage, en.wikipedia.org, Erik Brynjolfsson, factory automation, falling living standards, Filter Bubble, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, full employment, game design, global village, happiness index / gross national happiness, illegal immigration, immigration reform, income inequality, income per capita, indoor plumbing, industrial robot, informal economy, inventory management, James Watt: steam engine, Jeff Bezos, jimmy wales, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, knowledge worker, Kodak vs Instagram, law of one price, low skilled workers, Lyft, Mahatma Gandhi, manufacturing employment, Mark Zuckerberg, Mars Rover, means of production, Narrative Science, Nate Silver, natural language processing, Network effects, new economy, New Urbanism, Nicholas Carr, Occupy movement, oil shale / tar sands, oil shock, pattern recognition, payday loans, price stability, Productivity paradox, profit maximization, Ralph Nader, Ray Kurzweil, recommendation engine, Report Card for America’s Infrastructure, Robert Gordon, Rodney Brooks, Ronald Reagan, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Simon Kuznets, six sigma, Skype, software patent, sovereign wealth fund, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, supply-chain management, TaskRabbit, technological singularity, telepresence, The Bell Curve by Richard Herrnstein and Charles Murray, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Tyler Cowen: Great Stagnation, Vernor Vinge, Watson beat the top human players on Jeopardy!, winner-take-all economy, Y2K

See Lawrence Mishel, “The Wedges between Productivity and Median Compensation Growth,” Economic Policy Institute, April 26, 2012, http://www.epi.org/publication/ib330-productivity-vs-compensation/. When looking at household income, about 20 percent of the decline reflects the fact that households are somewhat smaller than they were thirty years ago. 15. Data from the Organization for Economic Cooperation and Development (OECD) show that income inequality increased in seventeen of twenty-two nations including Mexico, the United States, Israel, United Kingdom, Italy, Australia, New Zealand, Japan, Canada, Germany, Netherlands, Luxembourg, Finland, Sweden, Czech Republic, Norway, and Denmark. See “An Overview of Growing Income Inequalities in the OECD Countries: Main Findings,” from the OECD, 2011, http://www.oecd.org/social/soc/49499779.pdf. 16. See, for instance, Robert M. Solow, “Technical Change and the Aggregate Production Function,” Review of Economics and Statistics 39, no. 3 (1957): 312–20, doi:10.2307/1926047. 17.

Demographic and Health Surveys Dershowitz, Alan developing world: effect of automation on productivity improvement in technology in Diamond, Peter digitization: beneficial effects of of books bounty created by challenges of competitive effects of constraints in economic consequences of; see also bounty; goods, digital, economics of; spread economic data made available by economic properties of in education executive pay linked to as general purpose technology innovation debate about labor complements to labor market effects of; see also “winner-take-all” markets logarithmic scaling of market domination due to; see also “winner-take-all” markets metrics of network effects in niche services created by physical goods’ improvement and and Pigovian taxes rapid progress in; see also technological progress recombinant innovation and scientific benefits of ubiquity of wealth associated with; see also superstars see also global digital network; second machine age Doerr, John Donner, Jan Hein Dorn, David Double, telepresence provided by Double Robotics Drive (Pink) driving: digitization of see also Google driverless car Dropbox Dyer, Jeffrey Dyson, Freeman Earned Income Tax Credit (EITC) Eastman, George Eastman Kodak economic growth: acceleration of debates concerning effects of employment linked to government role in limitations on recombinant innovation and and tax rates see also gross domestic product (GDP); productivity economic rents economics, common ground in Economics: An Introductory Analysis (Samuelson) Economist Edison, Thomas education college feedback in inequality and teacher salaries and accountability in technology in Einstein, Albert Eisenhower, Dwight electrical power Electronics El-Ouazzane, Remi e-mail empires employment: benefits of of college graduates and entrepreneurship globalization and historical data on productivity decoupled from searching for technological implications for see also labor Encyclopaedia Britannica energy: demand elasticity for falling prices in Engadget engineering entrepreneurship Europe, productivity improvement in European Union exponential growth eyes: digital see also vision, computer-aided Facebook factor price equalization Fairlie, Robert FDA fiber-optic cable Field, Alexander Final Jeopardy! (Baker) FindTheBest.com Finland, income inequality in first machine age, see Industrial Revolution Fischer, Bobby Fitoussi, Jean-Paul Fleck, Susan Flickr floating point operations Forbes Forbes Forbes.com Ford, Henry Foxconn Frank, Robert Fraumeni, Barbara Friedberg, Rachel Friedman, John Friedman, Milton Friendster Fryer, Roland Galbraith, John Kenneth Gallup-Healthways Well-Being Index Gallup organization Gandhi, Mahatma Gates, Bill Gebbia, Joe General Conference on Weights and Measures “General Problem Solver,” general purpose technologies (GPTs) genetic engineering GeoFluent George, Henry Germany, income inequality in Gibson, William Gizmodo Glaser, John global digital network entertainment on information access via innovation fostered by weaknesses of see also Internet; World Wide Web globalization Goldin, Claudia goods, digital: economics of GDP’s omission of reproduction costs of goods, non-rival goods, physical, effect of digitization on Google search terms on Google driverless car Google Translate Gordon, Robert Gou, Terry government, U.S.: GPS satellites maintained by see also economic growth, government role in GPS Graetz, Michael graphics, digital graphs, logarithmic Great Depression Great Recession Great Stagnation, The (Cowen) Greenspan, Alan Greenstein, Shane Greenwood, Jeremy Gregersen, Hal Grimbergen gross domestic product (GDP): alternative metrics to effect of Great Recession on increases in omissions from U.S. growth in see also economic growth; productivity Guo, Terry Hall, David Haltiwanger, John Hanson, Gordon Hanushek, Eric Hayek, Friedrich health, human: improvements in measurements of Health Affairs health care coverage hearing, computer-aided Heim, Bradley Hemingway, Ernest Hendren, Nathaniel Hendy, Barry Hewlett Foundation HireArt Hitchhiker’s Guide to the Galaxy, The (Adams) Hitt, Lorin Holmstrom, Bengt Homo sapiens Honda Hoover, Herbert housing, online data on How College Affects Students (Pascarella and Terenzini) HTML Hu, Jeffrey Hubbard, Elbert Huberman, Bernardo Hulu human development index humanity, social development of Hyatt, Henry IBM iChat IDC ideation, see creativity immigration income: average basic negative taxes on normal distributions in see also wages Industrial Revolution negative consequences of see also Second Industrial Revolution inequality: consequences of education and political see also spread inflation indexes information, control of information and communication technology (ICT) see also global digital network Information Rules (Shapiro and Varian) information technology (IT): demand elasticity in intangible assets associated with productivity correlated with infrastructure technological Innocentive innovation benefits of complementary economic measurement of effect of digitization on entrepreneurship’s role in government support of impact of spread on open; see also crowdsourcing organizational population growth and prizes for productivity linked to recombinant slowing down of unstable competitive effects of see also creativity Instagram Intel intellectual property International Conference on Computer Science and Software Engineering Internet collective projects on comparison sites on consumer surplus created by creation of education on housing data on retailing on sharing economy on time accounting for traffic on user costs of user-generated content on; see also social media see also global digital network; World Wide Web Intuit iOS iPad iPhone iRobot Israel iTunes Jaimovich, Nir Japan, productivity improvement in Jaspers, Karl Jelinek, Frederick Jennings, Ken Jensen, Robert Jeopardy!

But when we look at the data and research, we conclude that none of these are the primary driver of growing inequality. Instead, the main driver is exponential, digital, and combinatorial change in the technology that undergirds our economic system. This conclusion is bolstered by the fact that similar trends are apparent in most advanced countries. For instance, in Sweden, Finland, and Germany, income inequality has actually grown more quickly over the past twenty to thirty years than in the United States.15 Because these countries started with less inequality in their income distributions, they continued to be less unequal than the United States, but the underlying trend is similar worldwide across sometimes markedly different institutions, government policies, and cultures. As we discussed in our earlier book Race Against the Machine, these structural economic changes have created three overlapping pairs of winners and losers.


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Social Class in the 21st Century by Mike Savage

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call centre, Capital in the Twenty-First Century by Thomas Piketty, Clapham omnibus, Corn Laws, deindustrialization, deskilling, Downton Abbey, financial independence, gender pay gap, Gini coefficient, income inequality, Mark Zuckerberg, megacity, New Urbanism, Occupy movement, precariat, psychological pricing, The Spirit Level, unpaid internship, upwardly mobile, very high income, winner-take-all economy, young professional

Yet, despite people’s hesitancies about identifying themselves economically, we will insist on the centrality of such inequalities in shaping people’s lives. The power of income inequalities Income inequalities in Britain are very high, and have been rapidly increasing. In their highly influential book The Spirit Level, Richard Wilkinson and Kate Pickett use the standard metric to measure inequality between countries – the Gini coefficient – in the fifteen states who were members of the European Union prior to its major enlargement in 2004 and also the major industrial English-speaking countries of Australia, Canada and the USA.2 Figure 2.1 gives an indication of the inequalities within nations as they reflect the relative differences between countries in terms of earnings. The UK is a country of high gross income inequalities between households, coming second only to Ireland in the list of eighteen nations.

Individuals working in the City of London earn huge sums of money in terms of both base income and additional bonus payments. At the other end of the economic spectrum, the UK also has an increasingly large number of people working in low-paid, long-hours, service-sector roles.3 There are powerful biases, therefore, in the structure of the UK economy, that tend towards greater income inequality over and above other nation states with more balanced employment frameworks. Figure 2.1 Income Inequality in the EU15 and Major Anglophone Nations in 2008 and 2010 Source: Social Protection and Wellbeing – Social Protection – Income Distribution and Poverty: this data comes from the Office for Economic Cooperation and Development (OECD)’s statistics website, accessed 22 May 2015. (See https://stats.oecd.org/Index.aspx) Are such stark income differences linked to a meritocratic system in which incentives are offered to those who are skilled and energetic enough to take on the most demanding and responsible jobs?

Social Mobility into Elite Occupations’, Sociological Review, 63(2), 2015, 259–89 (which compares the GBCS findings with those from the Labour Force Survey on individual incomes), suggests that similar patterns can be found in both sources. 7. See Thomas Piketty, Capital in the Twenty-first Century (Cambridge, MA: 2014), p. 116, Figure 3.1. 8. Markus Jäntti, Eva Sierminska and Philippe Van Kerm, ‘The Joint Distribution of Income and Wealth’, in Janet C. Gornick and Markus Jäntti (editors), Income Inequality: Economic Disparities and the Middle Class in Affluent Countries (Redwood City, CA: 2013), pp. 312–33. 9. Eva Sierminska, Timothy M. Smeeding and Serge Allegrezza, ‘The Distribution of Assets and Debt’, in Gornick and Jäntti (editors), Income Inequality: Economic Disparities and the Middle Class, pp. 285–311, at p. 294. Note that these figures do not include debts. 10. J. Hills, F. Bastagli, F. Cowell, H. Glennerster, E. Karagiannaki and A. McKnight, Wealth in the UK (Oxford: 2013), p. 20, Figure 2.3. The figures quoted are for marketable wealth at 2005 prices. 11.


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A Brief History of Neoliberalism by David Harvey

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affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, capital controls, centre right, collective bargaining, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

Freedom’s Prospect Notes Bibliography Index Figures and Tables Figures 1.1 The economic crisis of the 1970s: inflation and unemployment in the US and Europe, 1960–1987 1.2 The wealth crash of the 1970s: share of assets held by the top 1% of the US population, 1922–1998 1.3 The restoration of class power: share in national income of the top 0.1% of the population, US, Britain, and France, 1913–1998 1.4 The concentration of wealth and earning power in the US: CEO remuneration in relation to average US salaries, 1970–2003, and wealth shares of the richest families, 1982–2002 1.5 The ‘Volcker shock’: movements in the real rate of interest, US and France, 1960–2001 1.6 The attack on labour: real wages and productivity in the US, 1960–2000 1.7 The tax revolt of the upper class: US tax rates for higher and lower brackets, 1913–2003 1.8 Extracting surpluses from abroad: rates of return on foreign and domestic investments in the US, 1960–2002 1.9 The flow of tribute into the US: profits and capital income from the rest of the world in relation to domestic profits 4.1 Global pattern of foreign direct investments, 2000 4.2 The international debt crisis of 1982–1985 4.3 Employment in the major maquila sectors in Mexico in 2000 4.4 South Korea goes abroad: foreign direct investment, 2000 5.1 The geography of China’s opening to foreign investment in the 1980s 5.2 Increasing income inequality in China: rural and urban, 1985–2000 6.1 Global growth rates, annually and by decade, 1960–2003 6.2 The hegemony of finance capital: net worth and rates of profit for financial and non-financial corporations in the US, 1960–2001 7.1 The deteriorating position of the US in global capital and ownership flows, 1960–2002: inflow and outflow of US investments and change in foreign ownership shares Tables 5.1 Measures of capital inflows: foreign loans, foreign direct investments, and contractual alliances, 1979–2002 5.2 Changing employment structure in China, 1980–2002 Acknowledgements Figures 4.1, 4.3, 4.4 and 5.1 are reproduced by kind permission of the Guilford Press from P.

Freedom’s Prospect Notes Bibliography Index Figures and Tables Figures 1.1 The economic crisis of the 1970s: inflation and unemployment in the US and Europe, 1960–1987 1.2 The wealth crash of the 1970s: share of assets held by the top 1% of the US population, 1922–1998 1.3 The restoration of class power: share in national income of the top 0.1% of the population, US, Britain, and France, 1913–1998 1.4 The concentration of wealth and earning power in the US: CEO remuneration in relation to average US salaries, 1970–2003, and wealth shares of the richest families, 1982–2002 1.5 The ‘Volcker shock’: movements in the real rate of interest, US and France, 1960–2001 1.6 The attack on labour: real wages and productivity in the US, 1960–2000 1.7 The tax revolt of the upper class: US tax rates for higher and lower brackets, 1913–2003 1.8 Extracting surpluses from abroad: rates of return on foreign and domestic investments in the US, 1960–2002 1.9 The flow of tribute into the US: profits and capital income from the rest of the world in relation to domestic profits 4.1 Global pattern of foreign direct investments, 2000 4.2 The international debt crisis of 1982–1985 4.3 Employment in the major maquila sectors in Mexico in 2000 4.4 South Korea goes abroad: foreign direct investment, 2000 5.1 The geography of China’s opening to foreign investment in the 1980s 5.2 Increasing income inequality in China: rural and urban, 1985–2000 6.1 Global growth rates, annually and by decade, 1960–2003 6.2 The hegemony of finance capital: net worth and rates of profit for financial and non-financial corporations in the US, 1960–2001 7.1 The deteriorating position of the US in global capital and ownership flows, 1960–2002: inflow and outflow of US investments and change in foreign ownership shares Tables 5.1 Measures of capital inflows: foreign loans, foreign direct investments, and contractual alliances, 1979–2002 5.2 Changing employment structure in China, 1980–2002 Acknowledgements Figures 4.1, 4.3, 4.4 and 5.1 are reproduced by kind permission of the Guilford Press from P. Dicken, Global Shift: Reshaping the Global Economic Map in the 21st Century. 4th Edition, 2003. Figure 1.3 is reproduced courtesy of MIT Press Journals from Thomas Piketty and Emmanuel Saez, ‘Income Inequality in the United States, 1913–1988,’ The Quarterly Journal of Economics, 118:1 (February, 2003). Figure 5.2 is reproduced courtesy of J. Perloff from Wu, X and Perloff, J, China’s Income Distribution over Time: Reasons for Rising Inequality. CUDARE Working Papers 977. Figure 1.6 is reproduced courtesy of Verso Press from R. Pollin, Contours of Descent, 2003. Figures 1.4, 1.7, 1.8, 1.9 and 7.1 are reproduced by kind permission of Gérard Duménil and are available on the website http://www.cebremap.ens.fr/levy.

The US is not alone in this: the top 1 per cent of income earners in Britain have doubled their share of the national income from 6.5 per cent to 13 per cent since 1982. And when we look further afield we see extraordinary concentrations of wealth and power emerging all over the place. A small and powerful oligarchy arose in Russia after neoliberal ‘shock therapy’ had been administered there in the 1990s. Extraordinary surges in income inequalities and wealth have occurred in China as it has adopted free-market-oriented practices. The wave of privatization in Mexico after 1992 catapulted a few individuals (such as Carlos Slim) almost overnight into Fortune’s list of the world’s wealthiest people. Globally, ‘the countries of Eastern Europe and the CIS have registered some of the largest increases ever… in social inequality. OECD countries also registered big increases in inequality after the 1980s’, while ‘the income gap between the fifth of the world’s people living in the richest countries and the fifth in the poorest was 74 to 1 in 1997, up from 60 to 1 in 1990 and 30 to 1 in 1960’.14 While there are exceptions to this trend (several East and South-East Asian countries have so far contained income inequalities within reasonable bounds, as has France—see Figure 1.3), the evidence strongly suggests that the neoliberal turn is in some way and to some degree associated with the restoration or reconstruction of the power of economic elites.


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How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present by Thomas J. Dilorenzo

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banking crisis, British Empire, collective bargaining, corporate governance, corporate social responsibility, financial deregulation, Fractional reserve banking, Hernando de Soto, income inequality, invisible hand, Joseph Schumpeter, laissez-faire capitalism, means of production, medical malpractice, Menlo Park, minimum wage unemployment, Plutocrats, plutocrats, price stability, profit maximization, profit motive, Ralph Nader, rent control, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, statistical model, The Wealth of Nations by Adam Smith, transcontinental railway, union organizing, Upton Sinclair, working poor, Works Progress Administration

Indeed, America still draws immigrants from all over the globe who want to enjoy the benefits of American capitalism and freedom; many come to America to escape socialist hellholes (which supposedly champion “equality”), whether they be in Cuba, Africa, China, or elsewhere. The anticapitalists rail against income inequality, and there will always be income inequality in a vibrant, capitalist economy. But the same is true of a socialist economy, where wages are often determined by political rather than economic considerations. Indeed, any type of economy will produce income inequality. More important, when listening to the critics of capitalism, one must put American income inequality into proper perspective, as Cox and Alm do so effectively: America isn’t an egalitarian society. It wasn’t designed to be. Socialism, a failed and receding system, sought to impose an artificial equality. Capitalism, a successful and expanding system, doesn’t fight a fundamental fact of human nature—we vary greatly in capabilities, motivation, interests, and preferences.

The countries in the bottom quintile of the Fraser Institute’s economic freedom ranking had an average UN Poverty Index ranking of 36.62—about two and a half times the ranking of the freest countries (14.6).16 TABLE 1.1: ECONOMIC FREEDOM AND INCOME ECONOMIC FREEDOM INDEX (QUINTILES) PER CAPITA INCOME Bottom $3,251 4th $3,803 3rd $7,316 2nd $12,666 1st $22,922 Source: Fraser Institute, Economic Freedom of the World, 2003 Annual Report (Vancouver, B.C.: Fraser Institute, 2003), 11. As these studies clearly convey, capitalism is the best-known source of upward economic mobility. And, despite the oft-repeated claims of anticapitalists, capitalism actually reduces income inequalities within a nation as well. While there will always be inequalities of incomes—this is only natural, for every human being has different aptitudes, priorities, and interests—the economic opportunity in a capitalist economy enables those at the bottom of the economic ladder to ascend to the middle and the top. Over time, income inequalities diminish as more and more people take advantage of job opportunities, work hard, learn skills, educate themselves, save their money, get married and raise families, and start up their own businesses. This is exactly what happens in the United States, as we will see in more detail in Chapter 6.

Nevertheless, the anticapitalist mentality is stuck on a mindless egalitarianism that insists that “equality” must be pursued even though no two people were ever equal in terms of talent, productivity, interests, and so forth. (Making everyone equal under the law is an entirely different matter.) The quixotic pursuit of economic equality is essentially a revolt against human nature. Statistics on “income inequality” can be very misleading, providing a totally inaccurate picture of American capitalism. For example, critics of capitalism are fond of pointing to U.S. Census Bureau data that seem to indicate that “the rich are getting richer and the poor are getting poorer.” From 1967 to 1997, for example, census data show that the share of total national income going to the top 20 percent of income earners in America increased from 43.2 percent to 49.4 percent, whereas the share going to the bottom 20 percent fell from 4.4 percent to 3.6 percent in that period.10 But such statistics are deceiving because they are a snapshot at a single point in time and say nothing about how actual individuals progress over time.


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Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

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accounting loophole / creative accounting, affirmative action, asset allocation, barriers to entry, Bonfire of the Vanities, business climate, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, full employment, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Ralph Nader, Ronald Reagan, shareholder value, Silicon Valley, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

The reasons are obvious: The rich save more of their money than the poor; at the same time, two major groups in society—retirees and young adults—often spend more than they earn, thanks to savings and loans. So we should expect less consumption inequality than income inequality. The issue is whether we see the same basic trends in inequality of consumption that we do in inequality of income, namely, a big increase. Tackling this issue turns out to be extremely difficult, in part because the main source of evidence, the Consumer Expenditure Survey, largely misses the high-income folks who’ve benefited from the winner-take-all economy. Still, it is increasingly clear there is no “consumption paradox.” Consumption inequality is not as great as income inequality, as we’d expect (especially since the evidence fails to capture the big winners at the top). But the two have grown at more or less the same rate over time.26 Here again we find smart analysts ignoring the most notable feature of the winner-take-all economy—that it’s, well, winner-take-all.

It is a trend, moreover, that is not obviously related to either the business cycle or the shifting partisan occupancy of the White House.5 The partisan to-and-fro and economic ebb and flow surely had some part to play. But something else was at work in creating the winner-take-all economy—something that fostered a sharp divide between broadly shared prosperity and winner-take-all. Figure 1: The Richest 1 Percent’s Share of National Income (Including Capital Gains), 1960–2007 Source: Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics, vol. 118, no. 1 (2003): 1–39. Data updated through 2007 available at http://elsa.berkeley.edu/~saez/TabFig2007.xls. Clue #3: Limited Benefits for the Nonrich We come, finally, to the third clue—and perhaps the most puzzling of all. It is so puzzling, and potentially controversial, that we spend much of the rest of this chapter documenting and delving into it.

Maybe “Broadland” is not just an imaginary but an unimaginable country. After all, didn’t the United States grow much more quickly than other rich nations during this period, allowing the rich to get richer even as the rest of Americans moved ahead as well? In particular, didn’t the United States grow a lot faster than Europe, where incomes are generally much more equal and where the massive rise in income inequality seen in the United States did not occur? The answer is no. The American economic engine ran hotter in some years than the European economic engine. But on average, between 1979 and 2006, economic growth per capita was essentially the same in the fifteen core nations of Europe as it was in the United States.8 The United States is richer than these nations, but the gap has been surprisingly stable since the late 1970s.


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Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

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Affordable Care Act / Obamacare, British Empire, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, mortgage debt, new economy, Northern Rock, obamacare, oil shock, Plutocrats, plutocrats, price stability, quantitative easing, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

See Fabrizio Perri and Joe Steinberg, ‘Inequality and redistribution during the great recession’, Federal Reserve Bank of Minneapolis Economic Policy Paper, Minneapolis, MN, 2012, at: www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4819 20. Joseph Stiglitz, The Price of Inequality, Penguin/Allen Lane, London, 2012. 21. In the UK, the rise in income inequality was sharper than in any other comparable country over the last quarter of the twentieth century, irrespective of whether it is measured in proportional or absolute terms. See P. Gottschald and T. Smeeding, ‘Empirical evidence on income inequality in industrial countries’, in A.B. Atkinson and F. Bourguignon (eds), Handbook of Income Distribution, vol. 1, Elsevier, Amsterdam, 2000, pp. 261–307. 22. D. Dorling, ‘Fairness and the changing fortunes of people in Britain’, Journal of the Royal Statistical Society A, 176:1 (2013), pp. 97–128, at: www.dannydorling.org/?

This raised the safety net a touch, which – coupled with shrinking banks and a few tax rises that targeted the rich – duly ensured that the first bout of British pain was fairly shared, as is illustrated by the Institute for Fiscal Studies data that is charted below. During the first year when there was a serious squeeze on family incomes, then – believe it or not – the British rich took much of the pain, and income inequality actually declined. What about the reputedly harsher United States? Well there, too, the immediate response to recession was not in fact to cut benefits in the manner of 1930s Britain, but rather to provide a little relief by easing up the rules. One of the chief reasons why American welfare is less generous than Europe's is the strict time limits on payments, including unemployment compensation, which is typically available for only 26 weeks.

More specifically, among those who had fallen out of work by 2008, there was a 0.6 increase (on a seven-point scale) in support for redistribution, which was almost exactly matched in the opposing direction by a 0.55 decline in support among those who were fully and stably employed over the course of the subsequent two years.31 For a large part of the American population, then, economic anxiety has worked to engender progressive radicalism, in just the same way as it did during the Depression; however, there is another – larger – constituency that has leant the other way, and has responded by becoming more doubtful about Washington playing Robin Hood. The evidence is thus consistent with the idea that, as a society becomes more unequal, different dynamics of opinion kick in – with the logic of the veil of ignorance potentially being discarded in favour of the veil of complacency. The point here is subtle: there is no reason why rising income inequality should in itself undermine the argument for social insurance; it will only do so if the effect is to harden class lines, so that prosperous parts of the electorate believe they will never sink to the point where they would require a state safety net. Why might that happen? First, over time extra income at the higher end allows more people to build a personal safety net in the form of wealth; and with the average value of personal wealth having grown more rapidly than personal incomes for a third of a century, it is no longer just the rich, but also the moderately affluent who enjoy a substantial private cushion.32 Second, the flipside of the Anglo-American problem with social mobility (which we reviewed in Chapter 7) is that the well-to-do can be confident that their offspring will do sufficiently well to avoid falling back on the government.


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The Myth of Meritocracy: Why Working-Class Kids Still Get Working-Class Jobs (Provocations Series) by James Bloodworth

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Berlin Wall, Bernie Sanders, cognitive dissonance, Downton Abbey, gender pay gap, glass ceiling, income inequality, precariat, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, unpaid internship, upwardly mobile, We are the 99%

Family Income Mobility, 1967–2004’, Katherine Bradbury and Jane Katz, Federal Reserve Bank of Boston, 2009, http://bostonfed.org/economic/wp/wp2009/wp0907.htm. 32 ‘The United States: High and Rapidly Rising Inequality’, Lane Kenworthy and Timothy Smeeding, July 2014, https://lanekenworthy.files.wordpress.com/2014/ 07/2014highandrapidlyrisinginequality.pdf. 33 ‘Income Inequality’, Marc Priester and Aaron Mendelson, Inequality.org, http://inequality.org/income-inequality/#sthash.fxNqn4JD.dpuf. 34 ‘Why Elites Fail’, Christopher Hayes, The Nation, 6 June 2012. 35 ‘Decline in professional jobs fuels increase in downward mobility’, Patrick Butler, The Guardian, 6 November 2014. 36 ‘A Family Affair: Intergenerational Social Mobility across OECD Countries’, oecd.org, 2010, http://www.oecd.org/tax/public-finance/chapter%205%20gfg%202010.pdf.

According to this study, in recent times the links between child and parent economic status ‘appear to have strengthened considerably’.26 There have also been sharp drops in cross-generation mobility of economic status between the cohorts. In other words, social mobility has regressed just like the doom-mongers claim. The authors of the report attributed this fall to ‘the increasing relationship between family income and educational attainment’. They also noted that the decline in social mobility had occurred at a time of increasing income inequality. They added that there was greater intergenerational mobility between income groups in more egalitarian societies like Canada and the Nordic countries. In countries with high levels of inequality, such as Britain and the United States, intergenerational mobility was ‘at the lower end of international comparisons’. So who to believe? It isn’t easy to measure social mobility because doing so requires studies that track people over long periods of time.

Educational selection at age eleven is ultimately liable to become a self-fulfilling prophecy. 75 ‘Long live grammars’, Nick Cohen, The Guardian, 31 July 2005. 76 ‘One in four families move house to secure school place – survey’, Richard Adams, The Guardian, 2 September 2015. 77 ‘Fee-paying schools: bargain hunting’, The Good Schools Guide, https://www.goodschoolsguide.co.uk/help-and-advice/choosing-a-school/fee-paying-schools-bargain-hunting. 78 ‘State of the nation 2013’, op. cit. 79 ‘UK schools “most socially segregated”’, Sean Coughlan, bbc.co.uk, 11 September 2012. 80 ‘Unborn babies join queue for school places’, Javier Espinoza, Daily Telegraph, 20 February 2016. 81 Ibid. 82 Social Class in the 21st Century, Professor Mike Savage, op. cit. 83 ‘Cameron steps up grammars attack’, bbc.co.uk, 22 May 2007. 84 ‘New Kent grammar school in Sevenoaks to be approved by Education Secretary Nicky Morgan following Weald of Kent Proposal’, Kent Online, 15 October 2015. 85 ‘“Local schools” drive inequality’, Sean Coughlan, bbc.co.uk, 6 October 2014. 86 ‘Grammar schools do not boost social mobility, report finds’, Sarah Cassidy, The Independent, 16 October 2015. 87 ‘Grammar schools create wider pay gap, research finds’, Richard Adams, The Guardian, 29 May 2014. 88 ‘Grammar schools – Sutton Trust fact sheet’, http://www.suttontrust.com/wp-content/uploads/2015/10/GRAMMAR-SCHOOLS-FACT-SHEET.pdf. 89 ‘5 reasons why a return to grammar schools is a bad idea’, Policy Exchange, 5 December 2014. 90 ‘Entry to grammar schools in England for disadvantaged children’, Jonathan Cribb, Luke Sibieta and Anna Vignoles, Institute for Fiscal Studies, 8 November 2013. 91 ‘Grammar schools – do they really help social mobility?’, Helen Barnard, Joseph Rowntree Foundation, 19 October 2015. 92 ‘Grammar school myths’, Chris Cook, Financial Times, 28 January 2013. 93 Equality, R. H. Tawney, op. cit. 94 The Long Revolution, Raymond Williams, Chatto & Windus, 1st edition (1961). Part VII INCOME INEQUALITY HAS increased rapidly in Britain since the late 1970s. The unstoppable advance of the so-called 1 per cent has been compounded in the public mind by austerity. Why, after all, should ordinary people suffer when a small minority appear to be doing so well? Originating in a 2006 documentary about the growing gap between a wealthy American elite and the rest of society, the term ‘1 per cent’ has spawned an extensive literature on both sides of the Atlantic.


pages: 440 words: 108,137

The Meritocracy Myth by Stephen J. McNamee

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affirmative action, Affordable Care Act / Obamacare, Bernie Madoff, British Empire, collective bargaining, computer age, conceptual framework, corporate governance, deindustrialization, delayed gratification, demographic transition, desegregation, deskilling, equal pay for equal work, estate planning, failed state, fixed income, gender pay gap, Gini coefficient, glass ceiling, helicopter parent, income inequality, informal economy, invisible hand, job automation, joint-stock company, labor-force participation, low-wage service sector, marginal employment, Mark Zuckerberg, mortgage debt, mortgage tax deduction, new economy, New Urbanism, obamacare, occupational segregation, pink-collar, Plutocrats, plutocrats, Ponzi scheme, post-industrial society, prediction markets, profit motive, race to the bottom, random walk, school choice, Scientific racism, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, upwardly mobile, We are the 99%, white flight, young professional

As income increases, so does its level of concentration. The top 10 percent alone accounts for 36 percent, and the top 5 percent alone accounts for 25.9 percent of the total (Congressional Budget Office 2012, 5). Moreover, income has great staying power over time. That is, the same households in the top income group now are very likely to have been in the top income group in previous years (Mishel et al. 2012, 144). Another indication of income inequality is revealed by a comparison of pay for the chief executive officers of major corporations with that of rank-and-file employees. CEO pay as a ratio of average worker pay increased from 18.3 to 1 in 1965 to 231 to 1 in 2011 (Mishel and Sabadish 2012), with much of the compensation package for CEOs coming in the form of stock options. Since CEO compensation is increasingly in the form of stock options, the ratio to worker pay in recent years is sensitive to changes in the market but always substantially higher than in previous decades; it is also substantially higher than the ratio of CEO-to-worker pay in other advanced industrial countries (Kalleberg 2011, 110).

In 2010 the top 1 percent of households held a staggering 61.4 percent of all business equity, 64.4 percent of all financial securities, 38 percent of all trusts, 48.8 percent of all stocks and mutual funds, and 35.5 percent of all nonhome real estate (Wolff 2012, 69). Because of the amount of ownership highly concentrated in this group, the top 1 percent of wealth holders are often referred to as “the ownership class” and are used as a proxy threshold for inclusion in the American “upper class.” In short, the degree of economic inequality in the United States is substantial by any measure. In fact, the United States now has greater income inequality and higher rates of poverty than other industrial countries (Wilkinson and Pickett 2009; Grusky and Krichell-Katz 2012; Mishel et al. 2012; Kerbo 2006; Smeeding, Ericson, and Jantti 2011; Salverda, Nolan, and Smeeding 2009; Sieber 2005). Moreover, the extent of this inequality is increasing. One standard measurement of the extent of inequality is the Gini coefficient, which measures the extent of the discrepancy between the actual distribution of income and a hypothetical situation in which each quintile of the population receives the same percentage of income.

But in the final analysis, although these groups and the general public as a whole win some of the battles, propertied interests continue to win the class wars. As financier Warren Buffett noted in response to those who question the fairness of the system as “class warfare,” “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning” (New York Times 2006). Summary The United States has high levels of both income inequality and wealth inequality. In terms of the distribution of income and wealth, America is clearly not a middle-class society. Income and especially wealth are not evenly distributed, with a relatively small number of well-off families at one end and a small number of poor families much worse off at the other. Instead, the overall picture is one in which the bulk of the available wealth is concentrated in a narrow range at the very top of the system.


pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop, income inequality, invisible hand, labor-force participation, labour mobility, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

When incomes were growing at the same rate for everyone during the early post-WWII decades, the index was almost completely stable. But income inequality began rising sharply after 1970, and since then the toil index has been rising in tandem. For the past ten years, it’s been approximately one hundred hours a month, up from only forty-two hours in 1970. FIGURE 7.1. The toil index. The median real hourly wage for men in the United States is actually lower now than in the 1980s. If middle-income families must now spend more than before to achieve basic goals, how do they manage? Census data reveal clear symptoms of increasing financial distress among these families. Of the one hundred largest US counties, those where income inequality grew most rapidly were also those that experienced the largest increases in three important symptoms of financial distress: divorce rates, long commutes, and bankruptcy filings.3 In developed countries tracked by the Organization for Economic Cooperation and Development, higher inequality is associated with longer work hours, both across countries and over time.4 Standard economic models predict none of these relationships.

That’s true, for example, of reductions in tariff barriers and better communication technologies. Perhaps even more important has been the fact that an increasing share of what makes a product valuable is accounted for by the ideas embedded in it. Ideas don’t weigh anything so are costless to ship. Cook and I argued that these changes help explain both the growing income differences between ostensibly similar individuals and the surge in income inequality that began in the late 1960s. In domain after domain, we wrote, technology has been enabling the most gifted performers to extend their reach. Local accountants were displaced in two waves—first by franchised services like H&R Block and more recently by tax software for the masses. Brick-and-mortar shops have been going out of business at a rapid clip, replaced by Amazon and other online retailers.

It was fine to talk about behaviors that result from context-dependent perceptions of quality, but not at all palatable to speak of behaviors that result from envy or a desire to outdo others. In short, we can embrace the progressive consumption tax without voicing approval of emotions like envy or jealousy. This tax is attractive on purely practical grounds. If we continue on our current course, additional growth in income inequality will produce future expenditure cascades that will dwarf the ones we’ve witnessed so far. Houses will continue to grow larger and wedding costs will continue to rise, causing families to feel pressure to spend money that could be much better devoted to other things. But although I’ve been writing about the attractions of the progressive consumption tax for decades, we seem no closer to adopting one.


pages: 208 words: 67,582

What About Me?: The Struggle for Identity in a Market-Based Society by Paul Verhaeghe

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Berlin Wall, call centre, cognitive dissonance, deskilling, epigenetics, Fall of the Berlin Wall, Francis Fukuyama: the end of history, income inequality, invisible hand, jimmy wales, job satisfaction, knowledge economy, knowledge worker, Louis Pasteur, market fundamentalism, Milgram experiment, new economy, post-industrial society, Richard Feynman, Richard Feynman, Silicon Valley, stem cell, The Spirit Level, ultimatum game, working poor

If we take a somewhat broader view, most academics agree on the five factors that determine our health: early childhood; the fears and cares we experience; the quality of our social relationships; the extent to which we have control over our lives; and, finally, our social status. The worse you score in these areas, the worse your health and the shorter your life expectancy are likely to be. In his first book, The Impact of Inequality: how to make sick societies healthier, Wilkinson scrutinises the various factors involved, rapidly coming to what would be the central theme of his second book — that is, income inequality. A very striking conclusion is that in a country, or even a city, with high income inequality, the quality of social relationships is noticeably diminished: there is more aggression, less trust, more fear, and less participation in the life of the community. As a psychoanalyst, I was particularly interested in his quest for the factors that play a role at individual level. Low social status proves to have a determining effect on health.

If anything, it seems to be more of a problem within groups that are presumed to be equal (for example, civil servants and academics). This finding conflicts with the general assumption that income inequality only hurts the underclass — the losers — while those higher up the social ladder invariably benefit. That’s not the case: its negative effects are statistically visible in all sectors of the population, hence the subtitle of Wilkinson’s second work: why more equal societies almost always do better. In that book, Wilkinson and Pickett adopt a fairly simple approach. Using official statistics, they analyse the connection between income inequality and a host of other criteria. The conclusions are astounding, almost leaping off the page in table after table: the greater the level of inequality in a country or even region, the more mental disorders, teenage pregnancies, child mortality, domestic and street violence, crime, drug abuse, and medication.

Combine these two, and you would indeed be able to see whether such a connection existed. And by that I don’t mean a causal connection, but a striking pattern; a rise in one being reflected in the other, or vice versa. This was exactly the approach used by Richard Wilkinson, a British social epidemiologist, in two pioneering studies (the second carried out with Kate Pickett). The gauge they used was eminently quantifiable: the extent of income inequality within individual countries. This is indeed a good yardstick, as neo-liberal policy is known to cause a spectacular rise in such inequality. Their findings were unequivocal: an increase of this kind has far-reaching consequences for nearly all health criteria. Its impact on mental health (and consequently also mental disorders) is by no means an isolated phenomenon. This finding is just as significant as the discovery that mental disorders are increasing.


pages: 318 words: 77,223

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian

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Airbnb, balance sheet recession, bank run, barriers to entry, Bretton Woods, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve

Emmanuel Saez and Gabriel Zucman, “Wealth Inequality in the US Since 1913,” NBER Working Paper No. 20615, October 2014. 3. Estelle Sommiller and Mark Price, “The Increasingly Unequal Income States of America,” Economic Policy Institute, January 26, 2015, http://www.epi.org/publication/income-inequality-by-state-1917-to-2012/. 4. “17 Things We Learned About Income Inequality in 2014,” Atlantic, December 23, 2014, http://www.theatlantic.com/business/archive/2014/12/17-things-we-learned-about-income-inequality-in-2014/383917/. 5. Federal Reserve Board of Governors, “Changes in US Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin 100, no. 4 (September 2014), http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf. 6. Rakesh Kochhar and Richard Fry, “Wealth Inequality Has Widened Along Racial, Ethnic Lines Since the End of the Great Recession,” Pew Research Center, December 12, 2014, http://www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/. 7.

Those from Africa and the Middle East did not need to be reminded of the disruptive and violent role of nonstate actors—be it in Iraq, Syria, or Nigeria, just to name a few—and of a West too weak to inform, influence, and coordinate a proper response, let alone impose more peaceful outcomes. And the surge in refugee migration was not that far away. And no one in the room needed to be reminded of the shocking growth of income inequality within nations—one that was contributing to a gradual hollowing out of the middle class in the context of an ever-growing contrast between spreading poverty and unthinkable wealth. Those sitting in that Paris room knew very well that there was a lot riding on central banks’ crucial, unique, and experimental policy-making role, and not just for the institutions but, more broadly, for both current and future generations.

This brings us naturally to the third issue, or the extent to which individual countries have experienced a rise in what I call the inequality trifecta—inequality of income, wealth, and opportunity. Worsening inequality is not new. It has been a feature of a number of countries for decades, including the United States. But it has gotten a lot worse. Indeed, according to data compiled by the Organisation for Economic Co-operation and Development, “income inequality…is at the highest for the past half century” with “the average income of the richest 10% of the population [now] about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.”1 This already considerable gap widens substantially if the richest group is redefined to be the top 5 percent and 3 percent, and it flies off the page if it’s the top 1 percent or 0.1 percent.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

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affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, lump of labour, Malacca Straits, market bubble, microcredit, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional

Unions have grown less powerful, giving blue-collar workers less clout at the bargaining table. Meanwhile, high-wage workers are logging more hours on the job than their low-wage counterparts, which exacerbates the total earnings gap.10 More and more industries are linking pay to performance, which increases wage gaps between those who are more and less productive. In any case, the rise in income inequality is real. Should we care? Economists have traditionally argued that we should not, for two basic reasons. First, income inequality sends important signals in the economy. The growing wage gap between high school and college graduates, for example, will motivate many students to get college degrees. Similarly, the spectacular wealth earned by entrepreneurs provides an incentive to take the risks necessary for leaps in innovation, many of which have huge payoffs for society.

Frank found that a majority of Americans would choose B. In other words, relative income does matter. Envy may be part of the explanation. It is also true, Mr. Frank points out, that in complex social environments we seek ways to evaluate our performance. Relative wealth is one of them. There is a second, more pragmatic concern about rising income inequality. Might the gap between rich and poor—ethics aside—become large enough that it begins to inhibit economic growth? Is there a point at which income inequality stops motivating us to work harder and becomes counterproductive? This might happen for all kinds of reasons. The poor might become disenfranchised to the point that they reject important political and economic institutions, such as property rights or the rule of law. A lopsided distribution of income may cause the rich to squander resources on increasingly frivolous luxuries (e.g., doggy birthday cakes) when other kinds of investments, such as human capital for the poor, would yield a higher return.

The overall poverty rate disguises some figures that would otherwise leap off the page: Roughly one in five American children is poor as are nearly 35 percent of black children. Our only resounding success is poverty among the elderly, which has fallen from 30 percent in the 1960s to below 10 percent, largely as the result of Social Security. Income inequality. We care about the size of the pie; we also care about how it is sliced. Economists have a tool that collapses income inequality into a single number, the Gini index.* On this scale, a score of zero represents total equality—a state in which every worker earns exactly the same. At the other end, a score of 100 represents total inequality—a state in which all income is earned by one individual. The countries of the world can be arrayed along this continuum.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

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bank run, banking crisis, barriers to entry, Bernie Madoff, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial innovation, full employment, fundamental attribution error, George Akerlof, income inequality, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, Steven Pinker, telemarketer, The Market for Lemons, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, Zipcar

The inequality indexation scheme could be designed either to gradually reverse the level of inequality, to bring it eventually to a more acceptable level, or to merely freeze it at the present level, so that it does not get worse. The latter course may be the most politically acceptable. A scheme could be designed that would allow substantial income inequality to persist forever, that would merely be aimed at preventing a serious worsening of income inequality. It would after all be easier to accustom people to inequality indexation of taxes if such a system had no immediate impact, and no chance of changing the current social order. People would still be able to get rich, as they can today, but we would plan in advance not to let income inequality get much worse. If inequality never worsened, then the inequality indexation scheme would have no effect. The combined wealth of the Forbes 400 in 2011 was $1.5 trillion, or 2.6% of the national household net worth.20 As the percentage of total societal wealth is small, and as most of these people are seen as contributing to society by running large businesses, this degree of inequality may be acceptable, or at least there may not be the political will to address it.

I have proposed that in the future nations should index their tax systems to inequality.19 Under inequality indexation (which I have also called inequality insurance) the government would not legislate xed income tax rates for each tax bracket, but would instead prescribe in advance a formula that would tie the tax rates to statistical measures of pretax inequality. If income inequality were to worsen, the tax system would become automatically more progressive. This is a “ nancial” solution to the problem of inequality in the sense that we impose the indexation scheme before we know that income inequality will worsen, and before people know who might e ectively be highly taxed by it. So the indexation scheme is dealing with a risk, the risk of rising inequality, before it happens, much as insurance contracts do. In fact, inequality indexation could be considered a kind of insurance—inequality insurance.

So we should deal with the potential problem now. An inequality indexation formula might be enacted as a political quid pro quo for some pro-growth policy that is controversial because of its possible consequences for income inequality. The formula would promote average economic well-being as well as deal with risks to that well-being. Leonard Burman at Syracuse University and I did a historical analysis of the possible e ects of inequality indexation, had it been imposed many years ago. 21 We found that if an inequality indexation scheme had been legislated in 1979 that would have frozen after-tax income inequality at the then-current level, the marginal tax rate on highincome individuals would have increased to an extraordinarily high level, over 75%. This nding provides stark evidence of how much economic inequality has worsened since 1979.


pages: 468 words: 123,823

A People's History of Poverty in America by Stephen Pimpare

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affirmative action, British Empire, car-free, clean water, cognitive dissonance, Columbine, Daniel Kahneman / Amos Tversky, deindustrialization, delayed gratification, dumpster diving, East Village, Frederick Winslow Taylor, George Gilder, hiring and firing, Howard Zinn, illegal immigration, impulse control, income inequality, index card, Jane Jacobs, low skilled workers, Mahatma Gandhi, meta analysis, meta-analysis, Naomi Klein, New Urbanism, payday loans, Ralph Waldo Emerson, Ronald Reagan, The Bell Curve by Richard Herrnstein and Charles Murray, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, Thomas Malthus, union organizing, urban renewal, War on Poverty, white flight, working poor, Works Progress Administration

Sharpe, 1997). 48 Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America 2006/2007 (Ithaca, NY: ILR/Cornell University Press, 2007). 49 “The Maxwell Poll: Civic Engagement and Inequality,” April 2005, poll.campbellinstitute.org. 50 Gabriel Lenz, “The Policy-Related Causes and Consequences of Income Inequality,” Russell Sage Foundation, January 2003; Benjamin I. Page and James R. Simmons, What Government Can Do: Dealing with Poverty and Inequality (Chicago: University of Chicago Press, 2000). 51 Elizabeth A. Freund and Irwin L. Morris, “The Lottery and Income Inequality in the States,” Social Science Quarterly 86, no. 5 (December 2005): 996–1012. 52 Quoted in Jill Quadagno, “Theories of the Welfare State,” Annual Review of Sociology 13 (1987): 110. 53 Jong-sung Yoo and Sanjeev Khagram, “A Comparative Study of Inequality and Corruption,” American Sociological Review 70 (February 2005): 136–57.

and veterans widows and elderly women women and children women tramps and vagrants See also homeless shelters; tramps and transients Hoovervilles (shantytowns) Hope VI program (1990s) Hopkins, Harry and Depression-era workers and food riots and generosity of the poor Hickok’s reports to and indignity of applying for public charity and welfare recipients and motherhood How the Other Half Lives (Riis) Howard, Helen Howells, William Dean Hoyt, Catherine Hoyt, Joyce Hudson Institute Hull House Humane Society (Society for the Relief of Distressed Debtors) hunger in America defining “food insecurity,” estimates of and the other essential human needs over the life course those dismissing claims of See also food (hunger and food relief) Hunter, Robert Hurricane Katrina Illinois “Personal Liberty Law,” immigrants colonial day laborers/migrant labor camps and exploitative working conditions official poverty rates post–Hurricane Katrina work In the Shadow of the Poorhouse (Katz) incarceration. See prisons/incarceration income inequality causes of and colonial-era distribution of wealth and corruption effects of and national myth of a free and equal society indentured servitude and children and orphan asylums and Thirteenth Amendment and white colonial immigrants See also slaves and slavery Independent Indian Health Service “indignation meetings,” individualism, American “industrial armies,” industrial workers inequality and democracy income inequality and national myth of a free and equal society infant mortality rates infanticide insurance and policies for black neighborhoods state-level children’s health insurance programs unemployment insurance benefits Irvine, Alexander Isham, Edward Ivins, Molly Jackson, Brenda Jacobs, Harriet Jacobs, Jane Jansson, Bruce Japanese Americans, forced relocation of Jensen, Laura Jim Crow Johnson, Lyndon Johnson, Stretch Joint Congressional Committee Jones, LeAlan Jones, S.M.

See also welfare reform “pesthouses,” Philadelphia colonial almshouses colonial debtor’s prisons colonial hospitals for the sick poor colonial-era distribution of wealth colonial-era poverty rates family homeless shelters late-eighteenth-century poor neighborhoods police round-ups of homeless men Pierce, Franklin Piven, Frances Fox Place, Jeff police harassment of the homeless political participation and diminished expectations of the poor and disenfranchised ex-felons and income inequality and poor people’s opinions of government and relief recipients The Poor Pay More (Caplovitz) poor whites, Southern during Civil War colonial immigrants as indentured servants and history of welfare in the American South and slavery poorhouses. See also homeless shelters Population Reference Bureau Portland, Oregon poverty, measuring alternative measures and car/home ownership rates and changing living standards and children comparing western nations critical/serious hardships economic mobility efforts to minimize poverty levels geographic variation historical comparisons and immigrants income inequality international agencies material poverty methods of calculating absolute “poverty line,” official rates and measures Orshansky method over the life course poverty events/as durable condition pre-1965 methods public-health threats quality of life indicators and race redefinitions of poverty as lack of freedom relative poverty and UDHR and UN Millennium Development goals and women/gender women’s well-being poverty and lost hope and blame and culture of poverty and “cycle of poverty,” diminished expectations homelessness and mental illness and minority students’ aspirations and national myth of free and equal society and the “other America,” and political participation poor children poverty seen as moral failure substance abuse and disapprobation and the supposed passivity of the poor women on welfare See also shame/stigma of receiving relief prisons/incarceration African American incarceration rates colonial/nineteenth-century jails convict labor/convict leasing debtor’s prisons demographics of prison population and the Great Migration nineteenth-century tramps and vagrants statistics and voting rights and women private charity church-run food relief programs colonial-era religious and ethnic charities control/coercion of and corrupting influence of patronage post–Civil War and subservience/supplication by the poor prostitution Pruitt-Igoe housing project (St.


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The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War (The Princeton Economic History of the Western World) by Robert J. Gordon

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This is apparent in the fast food industry, for the primary tools to provide rapid and accurate delivery of fast food to customers arriving in their own vehicles were developed in the 1990s, not within the past decade.18 FOOD ISSUES: INEQUALITY AND OBESITY U.S. income inequality was high between the 1890s and 1920s and fell sharply during the Great Depression and World War II. The era between 1945 and 1975 was called by Claudia Goldin and Robert Margo “The Great Compression,” after which income inequality began its multidecade increase, which still continues. The growing divide between middle- and upper-class Americans and their poorer fellow citizens has numerous causes and consequences, most of them treated in chapter 18. Here our attention turns to the relationship between income inequality, nutrition, and obesity. There is day-and-night difference in the quality and quantity of food consumed at the top and bottom of the income distribution.

See health and health care; infectious diseases dishwashers, 360 doctors, 224–28; education of, 232–33; paying for services of, 234–37; since 1940, 476–78; working in hospitals, 230 Domar, Evsey, 569 domestic service workers, 256 Douglas, Donald, 395–96 Downing, Leslie, 429–30 Dranove, David, 493 drive-in movie theaters, 420 driverless cars, 599–601 driver’s licenses, 388–89 drug legalization, 646–47 drugs (medications), 222–24, 643; birth control pill as, 486; future of, 594; new molecular entities for, 479; penicillin and antibiotics, 465–67; regulation of, 476 DVDs (Digital Video Disks), 437 DVRs (digital video recorders), 427, 436, 439 Earned Income Tax Credit (EITC), 645–46 Eastland (ship), 239 Eastman, George, 197 e-books, 437 e-commerce, 443, 457–58 economic growth: after 1970, 523–28; changing pace of, 2; education and, 624–27; faster and slower, 528–31; forecasting future of, 634–39; global warming’s effects of, 634; mid-twentieth century peak in, 18–19; mismeasurements in, 526–28; objective measures of, 585–89; promoted by federal government, 310–16; slowdown in (1970-), 325–28, 522–23 Edison, Thomas, 568; electric light bulb of, 20, 117–19, 128, 150, 191; as entrepreneur, 571; first electric power plant by, 17; long-playing records invented by, 427; motion pictures and, 198, 200; patents held by, 572; phonograph invented by, 186–87, 197 education: in 1870, 58–59; child labor and, 282–85; college, costs of, 510–14; contribution to productivity of, 15; income inequality and, 624–27; inequality in, 606; in labor quality, 543–44; land-grant colleges for, 311–12; life expectancy and, 485; in medical schools, 226–27, 232–33; in nursing schools, 230; preschool education, 647–48; reform of, 644; secondary and higher, 648; as source of income inequality, 620–24; of women, 507; after World War II, 499–500, 520, 521 eight-hour day, 543 Eisenhower, Dwight D., 389, 390 elderly people: hospital stays for, 491; increased life expectancy of, 463; in labor force, 252–54; medical care of, 483–84; retirement of, 514–19; after World War II, 500, 520–21 electric irons, 121–22 electricity: batteries for, 182; diffusion of house wiring for, 114; electrification of housing, 115–22, 315; elevated trains powered by, 148; generation of, 559; houses wired for, 95; increase in productivity tied to, 17; invention of, 4; railroads powered by, 142; used by household appliances, 359–62; used by television sets, 423; used for public transportation, 131; used for streetcars, 146–47; used in department stores, 89; used in manufacturing, 269–70, 557, 560; wiring of housing for, 5 electric lights, 117–19; as General Purpose Technology, 555–56; for railroads, 142; safety of, 237 electric typewriters, 452, 579–80 electrocardiogram, 226 electronics: home and consumer, 583–84; medical, 478–81; See also communications; computers elevated trains, 147–48 elevators, 4 Eliot, Charles, 50, 51 Elwood, Paul, 491 e-mail, 443, 454, 456 Emerson, Ralph Waldo, 288 Employee Retirement Income Security Act (ERISA; 1974), 516–17 employment: in 1870, 248; between 1870 and 1970, 6; after 1940, 501; age discrimination in, 519; in clothing manufacturing, 350–51; criminal records and, 632; distribution of occupations, 52–54; health insurance tied to, 488–89, 493–94; humans replaced by machines in, 602–3; of immigrants, 614–15; in manufacturing, decline in, 628–29; by occupations (1870–2009), 254–58; pensions and, 515–17; of servants, 47; unemployment and, 272–73; of women, 273–74, 286–87, 505–7; work week and hours for, 258–61; in young firms, 585; See also labor force; work energy: global warming and, 634; production of (1899–1950), 558–59; used by household appliances, 359–62; used by television sets, 423; See also electricity Engerman, Stanley L., 56 ENIAC (Electronic Numerical Integrator and Computer), 449 entertainment, 174; in 1870, 49–50; from 1870 to 1940, 202–5; cable television for, 425–26; digital media for, 435–38; Internet for, 456; movies for, 197–203; newspapers and magazines for, 174–77; phonographs for, 186–90; post-World War II, 409–11; post-World War II music, 427–29; radio for, 190–97; superstars in, 618; television for, 412–13, 415–20, 421–25; video cassette recorders for, 426–27; during World War II, 413–15 entrepreneurs, 570–72 Epperson, Frank, 74 erectile dysfunction, 486 Europe: automobile developed in, 150–51; decline of growth in, 562; opinion of U.S. in (1851), 27–28; patterns of urban development in, 367–68 Ewbank, Douglas, 213 Facebook, 456–57, 579 Fageol Safety Coach (bus line), 160 families, 630–32 Farber, Sidney, 470 farm animals: cattle, 264–65; horses, 263, 264 farmhouses, 112–13 farming.

After people transition from malnourishment to an adequate diet, they do not become taller, no matter how rich they are. The relationship between income and height extends beyond the provision of food to also include the ability to afford health care, as well as better housing conditions affordable to those who earn a higher income. Because deprivation stunts growth whereas extreme affluence does not increase height, the average height of a given population declines with greater income inequality. Much of the biometric literature concerns differences across nations, while here we are interested in the evolution of stature in the United States over time. The most stunning result is that the adult height of native-born American males declined by more than 3 percent, from 68.3 inches for birth year 1830 to 66.6 inches for birth year 1890, after which there was a spurt to 69.6 inches in birth year 1940, with little change after that.62 Why did height decline in an era when economic growth was so rapid and progress occurred along so many dimensions, including average per-capita food consumption?

The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank

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carbon footprint, carried interest, Cass Sunstein, clean water, congestion charging, corporate governance, deliberate practice, full employment, income inequality, invisible hand, Plutocrats, plutocrats, positional goods, profit motive, Ralph Nader, rent control, Richard Thaler, Ronald Coase, Ronald Reagan, sealed-bid auction, smart grid, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, trickle-down economics, ultimatum game, winner-take-all economy

For example, even though CEOs in Japan earn less than one-fifth as much as American CEOs and face substantially higher marginal tax rates, they actually work longer hours than their American counterparts. Trickle-down theory’s emphasis on incentives has led many to predict that greater income inequality should be positively correlated with economic growth rates. The idea here is that greater income disparities should cause people to feel greater pressure to catch up with those ahead of them. As discussed in chapter 4, inequality does indeed affect spending patterns. Yet when researchers examine the data within individual countries over time, they find a negative correlation between growth rates and inequality. During the three decades immediately following World War II, for example, income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have 160 CHAPTER TEN been only about half as large during the years since 1973, a period in which income and wealth inequality have been steadily rising in most countries.

The average cost of an American STARVE THE BEAST—BUT WHICH 0NE? 61 wedding in 2009 was $28,082.20 The corresponding figure in 1980 (also in 2009 dollars) was $11,213.21 The collective effect of all this extra spending has been largely just to raise the bar that defines special occasions. The events end up costing substantially more than they used to, but no one walks away feeling any more special than before. Rising Income Inequality and Expenditure Cascades The libertarian’s faith in Adam Smith’s invisible hand rests on the assumption that consumer spending is essentially independent of context. Yet context is often decisive, and when it is, the incentives that drive individual spending often produce results that are profoundly wasteful. The explosive growth of CEO pay in recent decades, for example, has led many executives to build larger and larger mansions.

I note in passing that this exercise is in at least one important respect very different from the famous thought experiment proposed by the moral philosopher John Rawls.1 Rawls asked readers to imagine themselves behind a veil of ignorance that shielded them from knowing what their own talents and temperaments were. He argued that distribution rules chosen from behind such a veil would be presumptively fair, since people wouldn’t know which particular rules would work to their advantage. Rawls argued that rules chosen under these circumstances would permit an increase in income inequality only if it served to raise the income of society’s poorest member. Although others have argued that most people behind a veil of ignorance 202 CHAPTER TWELVE would permit more inequality than that, there is broad agreement that the Rawlsian thought experiment provides a strong rationale for taking aggressive steps to limit inequality. One could argue that the exercise I propose is unfair because people know their talent levels in advance and therefore have the power to exclude those unlucky enough to be born without much talent.


pages: 309 words: 78,361

Plenitude: The New Economics of True Wealth by Juliet B. Schor

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Asian financial crisis, big-box store, business climate, carbon footprint, cleantech, Community Supported Agriculture, credit crunch, Daniel Kahneman / Amos Tversky, decarbonisation, dematerialisation, demographic transition, deskilling, Edward Glaeser, en.wikipedia.org, Gini coefficient, global village, income inequality, income per capita, Isaac Newton, Joseph Schumpeter, knowledge economy, life extension, McMansion, new economy, peak oil, pink-collar, post-industrial society, prediction markets, purchasing power parity, ride hailing / ride sharing, Robert Shiller, Robert Shiller, sharing economy, Simon Kuznets, single-payer health, smart grid, The Chicago School, Thomas L Friedman, Thomas Malthus, too big to fail, transaction costs, Zipcar

Overall, average real per-person spending increased 42 percent. This doesn’t mean well-being was proceeding apace. Average spending gives information about one spot (or “moment”) in a distribution. As has been extensively documented, the distribution of purchasing power was getting vastly more unequal. Since 2000, nearly half, or 47 percent, of the nation’s entire income has accrued to the top 20 percent of the population. Before the crash, income inequality was worse than at any time since the end of the 1920s boom, and by some measures had even exceeded that historic peak. Even though consumption was increasing, so too were poverty, indebtedness, and lack of health insurance. Broader measures showed erosion in well-being even as spending was accelerating. The United States, which in 1990 ranked number two in the world on the Human Development Index, had plunged to number fifteen by 2006.

More than half earning less than a thousand dollars annually is the author’s calculation from Chen and Ravallion (2008), table 5. 26 In 1960 the average person consumed just a third: Economic report of the president (2009), table B-31, p. 321, per capita consumption expenditures in 2000 dollars, author’s calculation. 1960-2008:3. 26 inflation-adjusted per-person expenditures have tripled for furniture and household goods: Economic report of the president (2009), table B-17, p. 305, author’s calculation of per capita changes from aggregate expenditures, 1990-2008:3. 26 Overall, average real per-person spending increased 42 percent: Economic report of the president (2009), table B-31, p. 321, per capita consumption expenditures in 2000 dollars, author’s calculation, 1990-2008:3. 26 Since 2000, nearly half, or 47 percent, of the nation’s entire income: Mishel, Bernstein, and Shierholz (2009), table 1.7, p. 61. 26 income inequality was worse than . . . since the end of the 1920s: The U.S. Census Bureau’s historical data on Gini coefficients shows the 2006 Gini of 47 as the highest since 1967, the earliest reported by the Census. See United States Census Bureau (2009). The Gini in 1929 is estimated at 41 as reported by Brenner, Kaelble, and Thomas (1991), p.199. The share going to the top 1 percent was not quite at 1929 levels (Saez [2008]).

Work time rising by 204 is from Mishel, Bernstein, and Shierholz (2009), table 3.2, Trend in average wages and average hours, 1967-1973, p. 128. 168 reducing hours and instigating furloughs: Dewan (2009) and Luo (2009). 168 sustainability advocates increasingly recognize: Speth (2008), Victor (2008), and, earlier, Hayden (2000). 168 the financialization of the United States economy: Epstein (2006) and Epstein and Schor (1990). 169 The influential formulations of Gary Becker: Becker (1978). 170 the evolutionary psychology literature . . . falls short: Saad (2007) and Miller (2009). For example, the evolutionary argument predicts strong sex differentiation in consumption patterns; however, recent trends are toward convergence, as in cosmetics and other consumer purchases. A compelling treatment is Whybrow (2005). 170 consumption-based competition appears to vary with the distribution of income: For the influence of income inequality on hours and income, see Bowles and Park (2005). 170 a decline in materialist values: Inglehart (1989, 1997). 171 Gar Alperovitz has studied employee-owned companies: Alperovitz (2005). 172 Slow Money movement: Tasch (2008). 172 Conscious consumers who . . . pay a bit more for products: On the conscious-consumer movement, see Willis (2009), Willis and Schor (n.d.), Seyfang and Elliott (2009), and Schor (forthcoming). 172 investors would reduce the returns: Keynes (1936). 172 There is no magic, or “natural,” rate of return: Neoclassical economic theory has used the concept of “natural” rates, for example, the “natural” rate of unemployment.


pages: 261 words: 10,785

The Lights in the Tunnel by Martin Ford

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Albert Einstein, Bill Joy: nanobots, Black-Scholes formula, call centre, cloud computing, collateralized debt obligation, credit crunch, double helix, en.wikipedia.org, factory automation, full employment, income inequality, index card, industrial robot, inventory management, invisible hand, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, knowledge worker, low skilled workers, moral hazard, pattern recognition, prediction markets, Productivity paradox, Ray Kurzweil, Search for Extraterrestrial Intelligence, Silicon Valley, Stephen Hawking, strong AI, superintelligent machines, technological singularity, Thomas L Friedman, Turing test, Vernor Vinge, War on Poverty

Export and import flows between nations are not simulated in our tunnel because they are just accounting contrivances. Our tunnel is just a bunch of lights—each of which represents someone, somewhere with a job. The conventional view is echoed strongly by former Federal Reserve Chairman Alan Greenspan in his book, The Age of Turbulence. Greenspan’s book includes an entire chapter devoted to the growing problem of income inequality. Greenspan tells us that income in the United States is now more concentrated that at any time since the late 1920s.34 He correctly attributes this to globalization and, especially, technological advance, pointing out that many of the jobs previously held by “moderately skilled workers” are nowhandled by computers. What Greenspan apparently fails to see is that technological progress will never stop, and in fact, may well accelerate.

It is important to note that a gross margin tax would, of course, only work in the for-profit sector. In other employment sectors a different scheme would need to be used, or perhaps payroll taxes could be retained. “Progressive” Wage Deductions As this book is being written, there is significant public outcry over the issue of excessive paychecks for corporate CEOs. One of the basic messages I have tried to express is that extreme income inequality and concentration of income is not simply an issue of fairness. In fact, it drives at the very heart of a functional mass market. As we have mentioned previously, if you consider nearly any moderately priced mass market product or service, an average worker contributes nearly as much to the viability of that market as a corporate CEO. An extremely wealthy individual may purchase a very nice car, or perhaps even several cars.

Copyrighted Material – Paperback/Kindle available @ Amazon Danger / 153 implement policies to address the situation. The natural incentives in the private sector would tend to accelerate, rather than resolve, the crisis. There is an ongoing trend toward concentration of income that is driven largely by the continuing advance of automation technology and globalization, and also by a lack of progressive tax policies. Many people might argue that increasing income inequality is caused primarily by a “skill premium.” In other words, in the modern, technological economy, people who are highly educated and skilled have a significant advantage in the labor force. While this has been true so far, it is largely because relatively low skill jobs have been the first to be automated and also the first to be subjected to the full force of globalization. As we saw in Chapter 2, advancing automation technology will increasingly threaten highly paid knowledge workers with college educations.


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The Second Intelligent Species: How Humans Will Become as Irrelevant as Cockroaches by Marshall Brain

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Amazon Web Services, clean water, cloud computing, computer vision, en.wikipedia.org, full employment, income inequality, job automation, knowledge worker, mutually assured destruction, Occupy movement, Search for Extraterrestrial Intelligence, self-driving car, Stephen Hawking, working poor

They show that the way we have currently designed our society in the United States is heavily skewed toward the wealthy, to the point where a large majority of the U.S. population is suffering while a tiny percentage is concentrating a shocking amount of wealth at everyone else's expense. Section 3 – How might we solve the problems caused by the concentration of wealth and income inequality in the United States? How might we begin to solve the problems caused by the concentration of wealth and income inequality in the United States? In the current economy, as we currently think about it, one way we might begin to find a solution is by significantly increasing the minimum wage, and then scaling other wages appropriately. In addition we would simultaneously slash the wages, stock grants, cash bonuses, etc. received by the wealthy by establishing a maximum wage (or using the tax structure, which once went as high as 94%).

slug=execpay13&date=20020913 [24] http://www.usatoday.com/money/companies/management/2003-03-31-ceopay2_x.htm [25] http://www.fortune.com/fortune/ceo/articles/0,15114,443051,00.html [26] http://www.nytimes.com/2015/03/04/opinion/establishment-populism-rising.html?&_r=1 [27] http://www.amazon.com/exec/obidos/ISBN=0805063897 [28] http://www.amazon.com/exec/obidos/tg/detail/-/0060938455 [29] http://thinkprogress.org/economy/2015/01/28/3616308/income-inequality-2013/ [30] https://www.youtube.com/watch?v=vttbhl_kDoo [31] https://www.youtube.com/watch?v=uWSxzjyMNpU [32] http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph [33] http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/06/this-viral-video-is-right-we-need-to-worry-about-wealth-inequality/ [34] http://www.reddit.com/r/ConcentrationOfWealth [35] http://www.census.gov/popclock/ [36] http://www.census.gov/popclock/data_tables.php?

What happens as the process accelerates and tens of millions of workers become unemployed and unemployable? As the truck drivers, checkout clerks, waitresses, construction workers, maids, janitors, etc. all lose their jobs, what happens to all of these displaced workers? And what happens to all of the money that used to be paid to them in wages? We can look back over the past 30 years and see exactly what will happen. There has been a consistent trend of income inequality over the past three decades, and that trend will accelerate as robots take over jobs in increasing numbers. The money paid to CEOs and executives will increase while the money available for everyone else shrinks. The trend toward the concentration of wealth happens on many different fronts, so let me give you an example. I have personally been able to watch the effect that the Apple iPad has had on one industry.

Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

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banking crisis, banks create money, barriers to entry, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, floating exchange rates, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, money: store of value / unit of account / medium of exchange, offshore financial centre, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

Section 5 describes Ecuador’s existing government programs intended to address poverty and vulnerability in the short and long term. Section 6 discusses Ecuador’s capacity in future years to help the poor to manage crises and to deepen their human-capital formation. Section 7 discusses some of the strategic policy options available to policymakers. 2. Inequality and Poverty Ecuador’s recent crises have come in a context of high poverty and income inequality. Although Latin America as a whole has extremely high income inequality compared with other regions of the world, especially Europe and East Asia, Ecuador’s record is unenviable even within Latin America. Moreover, unlike some other Latin American countries, which combine high inequality with relatively high per-capita income, Ecuador’s inequality is accompanied by low per-capita income. As noted above, Ecuador’s Gini coefficient has worsened in recent years.

Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 56 CRISIS AND DOLLARIZATION IN ECUADOR ceased, and this largely explains why the economy slid into such a deep recession in 1999. This recession aggravated Ecuador’s deepening poverty (see chapter 4) and worsened most social indicators. Ecuador had gone into the crisis with some of Latin America’s most unfavorable indicators of poverty incidence and income inequality. In 1998, at the outset of the crisis, 46 percent of the population was poor, compared with 34 percent in 1994. During the same years, extreme poverty (insufficient income for a minimum food basket) had worsened from 15 to 17 percent. In 1998 69 percent of the rural population was impoverished, compared with 56 percent in 1994. Worsening inequality accompanied this trend of deepening poverty: The overall income Gini ratio worsened from 0.54 in 1994 to 0.58 in 1998.

Federal Reserve Bank of Minneapolis Quarterly Review, Fall, pp. 1-18. Savastano, M. 1996. “Dollarization in Latin America: Recent Evidence and Some Policy Issues.” International Monetary Fund Working Paper. 4 Ecuador: Crisis, Poverty, and Social Protection Suhas Parandekar, Rob Vos, and Donald Winkler 1. Introduction Ecuador’s economic crisis of 1998–99 and its move to full dollarization in early 2000 took place in a context of high poverty and income inequality—exposing the poor to the risk of irreversible losses. The constraints on public expenditure have set tight limits on the ability of the Ecuadoran government to protect the poor and have threatened the delivery of basic social services. This chapter updates our understanding of Ecuador’s poverty, especially as it concerns the human capital of the poor; evaluates the government’s policy framework for protecting the poor in times of crisis; and discusses policy options for improving that framework.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

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Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, Bretton Woods, BRICs, business climate, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, Flash crash, floating exchange rates, forward guidance, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, invisible hand, jitney, Kenneth Rogoff, labor-force participation, labour mobility, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, Plutocrats, plutocrats, Ponzi scheme, price stability, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, uranium enrichment, Washington Consensus, working-age population, yield curve

Wang Xialou, deputy director of China’s National Economic Research Foundation, and Wing Thye Woo, a University of California at Davis economist, say that when counting what they call “hidden” income—unreported income that may include the results of graft—the income of the richest 10% of Chinese households was 65 times that of the poorest 10%. Minxin Pei, a China expert at Claremont McKenna College, states that corruption, cronyism, and income inequality in China today are so stark that social conditions closely resemble those in France just before the French Revolution. The overall financial, social, and political instability is so great as to constitute a threat to the continued rule of China’s Communist Party. Chinese authorities routinely downplay these threats from malinvestment in infrastructure, asset bubbles, overleverage, corruption, and income inequality. While they acknowledge that these are all significant problems, officials insist that corrective actions are being taken and that the issues are manageable in relation to the overall size and dynamic growth of the Chinese economy.

Smith, Hayek, and Goodhart all make the point that the variety and adaptability of human action in the economic sphere are a quintessential case of computational complexity that exceeds the capacity of man or machine to optimize. This means not that economic systems cannot approach optimality but that optimality emerges from economic complexity spontaneously rather than being imposed by central banks through policy. Today central banks, especially the U.S. Federal Reserve, are repeating the blunders of Lenin, Stalin, and Mao without the violence, although the violence may come yet through income inequality, social unrest, and a confrontation with state power. While the Adam Smith and Friedrich Hayek formulations of the economic complexity problem are well known, Charles Goodhart added a chilling coda. What happens when data used by central bankers to set policy is itself the result of prior policy manipulation? ■ The Wealth Effect Measures of inflation, unemployment, income, and other indicators are carefully monitored by central bankers as a basis on which to make policy decisions.

The Panamanian company can then resell into normal distribution channels for the usual price of $200 per piece. The $100 “profit” per piece resulting from the underinvoicing is then left to accumulate in Panama. With millions of furniture items shipped, the accumulated phony profit in Panama can reach into the hundreds of millions of dollars. This is money that would have ended up in China but for the invoicing scheme. Capital flight by elites is only part of a much larger story of income inequality between elites and citizens in China. In urban areas, the household income of the top 1 percent is twenty-four times the average of all urban households. Nationwide, the disparity between the top 1 percent and the average household is thirty times. These wide gaps are based on official figures. When hidden income and capital flight are taken into account, the disparities are even greater. The Wall Street Journal reported: Tackling inequality requires confronting the elites that benefit from the status quo and reining in the corruption that allows officials to pad their pockets.


pages: 293 words: 81,183

Doing Good Better: How Effective Altruism Can Help You Make a Difference by William MacAskill

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barriers to entry, Black Swan, Branko Milanovic, Cal Newport, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Brooks, effective altruism, en.wikipedia.org, experimental subject, follow your passion, food miles, immigration reform, income inequality, index fund, Isaac Newton, job automation, job satisfaction, labour mobility, Lean Startup, M-Pesa, meta analysis, meta-analysis, microcredit, Nate Silver, Peter Singer: altruism, purchasing power parity, quantitative trading / quantitative finance, randomized controlled trial, self-driving car, Skype, Stanislav Petrov, Steve Jobs, Steve Wozniak, Steven Pinker, The Wealth of Nations by Adam Smith, universal basic income, women in the workforce

., the rest of the population—quickly became shorthand for the income gap in America. Inequality in America is getting starker over time: while typical household income grew by less than 40 percent between 1979 and 2007, the income of the richest 1 percent grew by 275 percent in that same time period. The French economist Thomas Piketty, who gained international fame for his 2014 book Capital in the Twenty-First Century, has suggested that the level of income inequality in the United States is “probably higher than in any other society at any time in the past, anywhere in the world.” This can lead those of us who aren’t in that 1 percent to feel powerless, but this focus neglects just how much power almost any member of an affluent country has. If people focus exclusively on American inequality, they’re missing an important part of the bigger picture.

“Sure,” you might say, “the poor in developing countries might not have much money, but that money can pay for so much more because the cost of living in those places is cheaper.” It’s true that money goes further overseas. When I was in Ethiopia, I ate at one of Addis Ababa’s fanciest restaurants, and the bill came to about ten dollars. I even once stayed in a hotel room (albeit, a nasty one) for a night for one dollar. However, that graph of income inequality has already taken into account the fact that money goes further overseas. Let’s look at that bottom 20 percent of the world’s population: that’s 1.22 billion people who earn less than $1.50 per day, and thereby count as members of the “extreme poor.” You might assume that “$1.50 per day” means that every day the extreme poor live on the equivalent of $1.50 in their local currency. But it actually means they live on an amount of money equivalent to what $1.50 could buy in the United States in 2014.

(If height were distributed like income is, we would regularly see people towering 270 feet tall, peering over skyscrapers.) That’s why the world’s average income, which is $10,000 per year, is so much higher than the typical income, which is only $1,400 per year: the richest people bring up the average. For this reason, fat-tailed distributions are unintuitive. That’s partly why it’s so difficult to understand income inequality. We don’t realize that we’re extreme outliers. In fact, fat-tailed distributions are fairly common. For example, most people live in a small number of cities; most people who have died in an earthquake died in one of the relatively rare catastrophic ones; a small number of words make up the majority of most printed text (which means that, if you want to learn a language, you’re better off learning the one thousand or so most common words first).


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

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accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, high net worth, income inequality, investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, means of production, moral hazard, mortgage debt, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Plutocrats, plutocrats, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, Winter of Discontent, working poor, Yom Kippur War

The top 0.01 percent is making 76.2% more’, Washington Post, 6 December, using data from Piketty and Saez, World Top Incomes Database, http://knowmore.washingtonpost.com/2013/12/06/youre-probably-making-10-percent-less-than-you-were-ten-years-ago-the-top-0-01-percent-is-making-76-2-percent-more/. 4 Bell, B. and Van Reenen, J. (2010) ‘Bankers’ pay and extreme wage inequality in the UK’ , Centre for Economic Performance, London School of Economics. 5 See Saez, E. (2013) ‘Income inequality: evidence and implications’, lecture at University of California, Berkeley, 2013, http://www.youtube.com/watch?v=_y7Xtwxd90I. 6 Inequality Briefing (2014) Briefing 26: ‘Almost one third of wealth in the UK is inherited, not earned’, 11 April, http://inequalitybriefing.org/brief/briefing-26-almost-one-third-of-wealth-in-the-uk-is-inherited-not-earned. 7 Oxfam (2014) ‘Working for the few: political capture and economic inequality’, 178 Oxfam Briefing Paper, 20 January. 8 Dorling, D. (2012) The case for austerity among the rich, London: Institute of Public Policy Research; Saez, E. (2013) ‘Income inequality: evidence and policy implications’, http://elsa.berkeley.edu/users/saez/lecture_saez_arrow.pdf. 9 Dorling, D. (2013) ‘Fairness and the changing fortunes of people in Britain’, Journal of the Royal Statistical Society A, 176(1), 97–128.

Nelson, B. (1969) The idea of usury: From tribal brotherhood to universal otherhood, 2nd edn, Chicago, IL: University of Chicago Press. Psalm 37: 21–22 says, ‘The wicked borrow and do not repay, but the righteous give generously, those the Lord blesses will inherit the land, but those he curses will be destroyed.’ Religions rarely do consistency. 56 Hodgson, G. (2013) ‘Banking, finance and income inequality’, Positive Money, https://www.positivemoney.org/publications/banking-finance-and-income-inequality/. While this is interesting, it represents national financial systems as closed rather than part of an international system; it also ignores mechanisms of redistribution from poor to rich that do not depend on the creation of interest-bearing credit money. 57 Henwood, D. (1997) Wall Street, London: Verso, p 4. 58 Warren, E. (2007) ‘The coming collapse of the middle class’, Jefferson Memorial Lecture, University of California, Berkeley, http://www.youtube.com/watch?

Those in the top 1% in the UK have incomes ranging from just under £100,000 to billions.4 What’s more, the richer they are, the faster their income has grown: the top 0.5% have increased their share faster than the rest of the 1%, but not as fast as the top 0.1%, while the top 0.01% (ten-thousandth) have enriched themselves even faster.5 Inequalities in wealth – the monetary value of individuals’ accumulated assets minus their liabilities (debts) – are even wider than income inequalities, and increasing. In the US, the top 1% own 35% of the nation’s wealth and the bottom 40% a mere 0.2%! In the UK in 2008–10, the members of the top 1% each had £2.8 million or more (14% of the nation’s wealth), though, given the opportunities for the rich to hide their wealth, this is almost certainly an underestimate (Figure 1.4). Twenty-eight per cent of wealth in the UK is inherited, not earned.6 Half of the population had wealth of less than £232,400, and the poorest 10% had less than £12,600: Figure 1.4: Distribution of total wealth between households, 2008–10, Great Britain Source: Hills, J., Bastagli, F., Cowell, F., Glennerster, H., Karagiannaki, E, and McKnight, A. (2013) ‘Wealth distribution, accumulation, and policy’, Centre for the Analysis of Social Exclusion, CASEbrief 33.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

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bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, investor state dispute settlement, invisible hand, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

Brunnermeier of Princeton University and his coauthors have referred to as stealth recapitalizations (see his presentation at the G7 Conference in Frankfurt, March 27, 2015, available at https://scholar.princeton.edu/sites/default/files/markus/files/diabolicloop_sovereignbankingrisk.pdf). 20 In the World Economic Forum’s 2012 and 2013 Global Risk reports, “severe income disparity” was ranked number one. 21 See Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides, “Redistribution, Inequality, and Growth,” IMF Staff Discussion Note, SDN/14/02, 2014, available at https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf; and Federico Cingano, “Trends in Income Inequality and its Impact on Economic Growth,” OECD Social, Employment and Migration Working Papers No. 163, 2014, available at http://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-SEM-WP163.pdf. 22 In countries with big ethnic and racial divides (such as the United States and France), there can be further dimensions to this growth in inequality. When the economy goes into a slump, it is the workers from these groups that are first laid off. When there is a heated economy (as in the late 1990s in the United States), these divides narrow markedly. 23 El Dilema (Barcelona: Planeta, 2013).

See my book Making Globalization Work. 38 It is perhaps obvious: the least skilled are those who are let go first when there is an economic downturn; and the cutbacks in government spending associated with economic downturns are particularly costly to those at the bottom, who depend on government social spending. While many governments say that they will “protect” such social spending, in many cases, the cutbacks are in fact regressive. See, for example, Jason Furman and Joseph E. Stiglitz, “Economic Consequences of Income Inequality,” in Symposium Proceedings—Income Inequality: Issues and Policy Options (Jackson Hole, WY: Federal Reserve Bank of Kansas City, 1998), pp. 221–63; and Stiglitz, Price of Inequality. 39 This was an early insight in the literature in the theory of local public goods, where individuals could move freely from one local community to another. See, for example, Joseph E. Stiglitz, “Theory of Local Public Goods,” in The Economics of Public Services, ed.

And as we have noted, those in the middle and bottom are more dependent on public services, and especially in the worst-afflicted countries (but even in those not in crisis) public expenditures have suffered from enormous cutbacks. We don’t have good data to see how these citizens are faring, but for a few countries, we do have data on what has been happening to inequality. These data suggest that indeed, many are facing hardship. In Spain, for instance, in the years before the crisis, inequality had been coming down, but by 2014, the Gini coefficient, a standard measure of income inequality, was about 9 percent over its 2007 level. In the case of Greece, the Gini coefficient increased by 5 percent from just 2010 to 2014. It usually takes years and years to move the Gini coefficient by a few percentage points. Data on poverty reinforce the conjecture that those in the middle and bottom have suffered particularly from the crisis. In virtually every country in the eurozone there has been an increase in poverty, especially childhood poverty.


pages: 518 words: 147,036

The Fissured Workplace by David Weil

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accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, business process, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, corporate governance, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, declining real wages, employer provided health coverage, Frank Levy and Richard Murnane: The New Division of Labor, George Akerlof, global supply chain, global value chain, hiring and firing, income inequality, intermodal, inventory management, Jane Jacobs, Kenneth Rogoff, law of one price, loss aversion, low skilled workers, minimum wage unemployment, moral hazard, Network effects, new economy, occupational segregation, performance metric, pre–internet, price discrimination, principal–agent problem, Rana Plaza, Richard Florida, Richard Thaler, Ronald Coase, shareholder value, Silicon Valley, statistical model, Steve Jobs, supply-chain management, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, ultimatum game, union organizing, women in the workforce, Y2K, yield management

Since both are central to the core competencies of the firm, the methods used to ensure security among the companies that provide work for the lead financial company would be key components of the organizational arrangements used. The expansion of fissuring in the legal world, however, suggests that such arrangements can be developed. 38. The definitive study of income inequality in the United States is Picketty and Saez (2003). The authors have periodically updated their detailed estimates of income inequality and made them available to researchers and the public. For the most recent updates, see Saez (2013). See also Congressional Budget Office (2011). 39. Estimates from Mishel, Bivens, Gould, and Shierholz (2013). 40. Picketty and Saez show this redistribution back to the top of the income distribution: the share of income held by the top 10%–5% of the income distribution declined slightly, from 11.5% in 1980 to 11.0% in 2007, and even the top 5%–1% increased its share only modestly, from 13.0% in 1980 to 15.2% in 2007.

Third, once that work is relocated, explore the possibilities of having other companies provide those services. Finally, reevaluate the remaining jobs in the company and repeat the process, reducing the core group of workers directly employed by the lead financial firm. Given that there are far more people paid to do mid-level jobs than those at the top of Wall Street firms, the potential to ratchet down costs is significant.37 Fissured Workplaces and Income Inequality For almost fifty years between the beginning of the Great Depression and the early 1970s, the trend in income distribution in the United States was toward greater equality. In 1928, as the Gilded Age reached its apex, the top 1% of families in the U.S. income distribution held 23.9% of national income. The Great Depression brought the share of income held by the top 1% down to 15.6% four years later.

Another preeminent economist, Alan Blinder (2006), notes that a country increasingly dependent on personal services for a substantial part of its GDP (as a result of offshoring of goods that can be shipped and impersonal services that can be performed at lower cost abroad) faces economic challenges in that those services typically are less amenable to productivity improvement, even if they cannot be offshored. 29. There was a large literature in the late 1990s on the impact of trade on wages and employment versus other explanations of growing income inequality (in particular skill-biased technological change). For widely cited studies from this scholarship, see Berman, Bound, and Griliches (1994); Berman, Bound, and Machin (1998); Bernard and Jensen (1997); Cline (1997); Feenstra and Hanson (1999); and Kletzer (2001). 30. See Blinder (2006) and Gereffi, Humphrey and Sturgeon (2005). 31. Kletzer (2002) describes the difficulty of providing opportunities for workers in industries and jobs highly impacted by trade including outsourcing.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

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Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money: store of value / unit of account / medium of exchange, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, open economy, paradox of thrift, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus

One of the best measures of the rent seeking relationship between elites and citizens in a stagnant economy is the Gini coefficient, a measure of income inequality; a higher coefficient means greater income inequality. In 2006, shortly before the recent recession began, the coefficient for the United States reached an all-time high of 47, which contrasts sharply with the all-time low of 38.6, recorded in 1968 after two decades of stable gold-backed money. The Gini coefficient trended lower in 2007 but was near the all-time high again by 2009 and trending higher. The Gini coefficient for the United States is now approaching that of Mexico, which is a classic oligarchic society characterized by gross income inequality and concentration of wealth in elite hands. Another measure of elite rent seeking is the ratio of amounts earned by the top 20 percent of Americans compared to amounts earned by those living below the poverty line.

Unemployment in 2011 is comparable to the levels of the Great Depression, when consistent methodologies for the treatment of discouraged workers are used for both periods. In short, there is nothing about the post-1947 period of so-called hard economic science to suggest that it has had any success in mitigating the classic problems of boom and bust. In fact, there is much evidence to suggest that the modern practice of economics has left society worse off when one considers government deficit spending, the debt overhang, rising income inequality and the armies of long-term unemployed. Recent failures have stripped economists of their immunity from rigorous scrutiny by average citizens. What works and what does not in economics is no longer just a matter of academic debate when forty-four million Americans are on food stamps. Claims by economic theorists about multipliers, rationality, efficiency, correlation and normally distributed risk are not mere abstractions.

Losers are typically those Americans who are prudent savers and those living on pensions whose fixed returns are devalued by inflation. Winners are typically those using leverage as well as those with a better understanding of inflation and the resources to hedge against it with hard assets such as gold, land and fine art. The effect of creating undeserving winners and losers is to distort investment decision making, cause misallocation of capital, create asset bubbles and increase income inequality. Inefficiency and unfairness are the real costs of failing to maintain price stability. Another mandate of the Fed is to function as a lender of last resort. In the classic formulation of nineteenth-century economic writer Walter Bagehot, this means that in a financial panic, when all bank depositors want their money at once, a central bank should lend money freely to solvent banks against good collateral at a high rate of interest to allow banks to meet their obligations to depositors.


pages: 279 words: 87,910

How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky

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banking crisis, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, David Ricardo: comparative advantage, death of newspapers, financial innovation, Francis Fukuyama: the end of history, full employment, happiness index / gross national happiness, income inequality, income per capita, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, lump of labour, market clearing, market fundamentalism, profit motive, purchasing power parity, Ralph Waldo Emerson, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, wage slave, World Values Survey

List of Charts 1. Keynes’s forecast 2. Growth since Keynes 3. Weekly hours since Keynes 4. Hours of work since 1983 5. Income share of the richest 1 percent 6. GDP per head and life satisfaction 7. Happiness according to income position in the UK 8. Happiness and income by country 9. Alcohol-related deaths in the UK 10. Obesity in the UK 11. Unemployment in OECD countries 12. Income inequality since 1977 13. Distribution of wealth in the UK 14. Marriage and divorce in the UK 15. Attendance at cultural events in the UK Introduction This book is an argument against insatiability, against that psychological disposition that prevents us, as individuals and as societies, from saying “enough is enough.” It is directed at economic insatiability, the desire for more and more money.

In his nineteenth-century classic, Democracy in America, Alexis de Tocqueville noticed that America’s “general equality of condition” was the most fertile soil for the growth of the work ethic and acquisitive instinct.35 In Europe, Tocqueville claimed, no one cared about making money, because the lower classes had no hope of it, and the upper classes thought it vulgar to think about it. Only in the United States could workers believe that through hard work they might achieve the fortunes necessary to enjoy the luxuries of the rich. The American combination of social equality and income inequality has since become the capitalist norm, leading to a situation in which every member of society is in a sense competing against every other. And the greater the inequality, the greater the competitive pressure. “If pay varies greatly,” writes economist Richard B. Freeman, “there is a sizeable incentive to do what it takes to climb up the earnings distribution, including putting in long hours.”

British governments have sporadically launched initiatives to distribute wealth more broadly; this was the aim of the Thatcher privatizations of the 1980s. Wider share-ownership schemes have also been promoted on a company basis, including, famously, by John Lewis, Britain’s leading retail chain, which is owned and run by its 76,500 permanent employees.44 However, such visionary enterprises have failed to counteract the overall trend towards the concentration of wealth in the hands of the few, as shown in Chart 13. Chart 12. Income Inequality since 1977 Source: ONS; World Bank; Eurostat Chart 13. Distribution of Wealth in the UK Source: ONS; HMRC [Note: Marketable wealth (also known as net worth) is the value of all assets that can be bought and sold—shares, property, bank savings and so on—minus liabilities. It excludes, for example, occupational pensions that cannot be transferred. Here the value of dwellings, assets that are often passed down or inherited rather than bought, are excluded.]


pages: 471 words: 109,267

The Verdict: Did Labour Change Britain? by Polly Toynbee, David Walker

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banking crisis, Big bang: deregulation of the City of London, call centre, central bank independence, congestion charging, Corn Laws, Credit Default Swap, decarbonisation, deglobalization, deindustrialization, Etonian, failed state, first-past-the-post, Frank Gehry, gender pay gap, Gini coefficient, high net worth, hiring and firing, illegal immigration, income inequality, knowledge economy, labour market flexibility, market bubble, millennium bug, North Sea oil, Northern Rock, offshore financial centre, pension reform, Plutocrats, plutocrats, Ponzi scheme, profit maximization, purchasing power parity, shareholder value, Skype, smart meter, stem cell, The Spirit Level, too big to fail, University of East Anglia, working-age population, Y2K

Blair once said if he did not leave behind a fairer Britain, he would have failed. He failed. Brown too, despite using the words fair and fairness forty times in his 2008 conference speech. How much money people have relative to others is the touchstone of equity. Gender, race, disability and class can generate injustice, but income decides, binding children’s life chances to their home background. Labour tried but did not quite prevent income inequality getting worse in an already notably unequal country. But they slowed down the rise in inequality. Tax, benefits and spending changes ‘significantly redistributed income to the less well off’, the Centre for Economic Performance concluded. ‘Inequality would have been much higher otherwise.’ The 1997 campaign banned references to poverty as too redolent of Old Labour. So when Blair, having been prime minister for only a month, walked up a disinfected stairway on the Aylesbury estate in Peckham to make his first speech about the plight of the poor, he addressed ‘social exclusion’ instead.

Only the redistribution of extra tax would boost the income of poor households up towards the child poverty target; only extra tax would damp the soar-away incomes of the better-off. And this Labour would not address openly and squarely. Without changing the basic distribution of wealth and income, they could never attain their stated ambition. Something was pulling incomes apart in all rich countries, except possibly France. Overall income inequality is measured by a standard called the Gini coefficient – the higher it is, the more unequal the society. On a scale of 100 in 2008, the US figure was 46.6. When Labour left office in 1979, the UK stood at 25. It rose during the 1980s, far more than in comparable countries, stabilizing at 34 in the early 1990s. From 1997 it rose two points to 36 – notably higher than Germany, Canada, France and the Scandinavian countries.

Yet many poor parents chose to look this gift horse squarely in the mouth. A third of parents in deprived areas were not claiming, perhaps because of lack of knowledge or a consumerist society’s suspicion of something for nothing. The fund became a target for budget cutters after the 2010 election. Imagine a highly paid QC arguing Labour’s case. He might plead mitigation. (‘He’ because women had still to penetrate the upper reaches of the legal profession.) Income inequality had risen dramatically before 1997. To make a difference, Labour would have needed a much clearer understanding of trends than ministers could muster, especially the spread of rewards within private companies. Yet under Labour child poverty showed its sharpest fall for decades, and the UK showed the biggest drop in the EU. For the first time since the mid 1970s the figures were moving in the right direction.


pages: 353 words: 98,267

The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

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Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, new economy, New Urbanism, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, women in the workforce, World Values Survey, Yom Kippur War, young professional

A survey by the Pew Research Center found that even as the Republican candidate John McCain headed for disaster in the presidential election of November 2008, 37 percent of Republicans rated themselves as “very happy,” compared with 25 percent of Democrats. A similar trend has held since 1972, when the General Social Survey started asking the question. This is true around the world. Apparently, it has to do with the left’s guilt. A study by psychologists at New York University found that the right-left happiness gap increases with deepening income inequality. This suggests people on the right are better at rationalizing inequality as a normal feature of life and feel less guilty about it. But improve people’s economic outlook and chances are you will make them happier. More than a decade after the fall of the Berlin Wall in November 1989, former East Germans remained unhappier than their fellow citizens from the western side. They would have been even less satisfied were it not for the income boost following unification.

Research among a subcaste of potters in Karnataka found the average dowry to be equivalent to six years’ worth of the bride’s family income. In Goa, on the west coast, average dowries rose from about 2,000 rupees in 1920 to between 500,000 and 1 million rupees in 1980. They are rising. One study estimated that dowries across India rose by 15 percent a year between 1921 and 1981. Some suggest it is due to economic development and rising income inequality, which has allowed richer lower-caste women to bid up the prices for higher-caste grooms. Others suggest that fast population growth since the 1920s tilted the male-to-female ratio in favor of men. That’s because women marry at a younger age than men. As the population grew, there were more young brides available for each successive cohort of older grooms. Indeed, among the Karnataka potters, one woman complained that her fifteen-year-old daughter was among thirteen girls competing for six men.

It reduces the risk of political prosecution and ethnic strife. But it doesn’t do this across the board. There are large pockets of misery even in highly developed countries. In these impoverished corners religious belief will thrive, offering a shot at security and ultimate happiness. Here God can play His role as the ultimate form of insurance. In the United States—which suffers the most acute income inequality in the developed world—these pockets abound. Seen this way, it becomes obvious why religion is growing in some parts of the world even as secularization advances in others: in poor religious countries, people have more babies than in rich, secular states. Across the world, development has reduced fertility rates. Families in rich countries have chosen to have fewer children and invest more resources in each of them.


pages: 323 words: 90,868

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

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3D printing, Airbnb, American energy revolution, autonomous vehicles, Bakken shale, barriers to entry, Bernie Sanders, BRICs, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, gig economy, global supply chain, global value chain, hydraulic fracturing, income inequality, indoor plumbing, industrial robot, interchangeable parts, Internet of things, inventory management, invisible hand, Jacquard loom, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low skilled workers, lump of labour, Lyft, manufacturing employment, means of production, new economy, performance metric, pets.com, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, TaskRabbit, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, transaction costs, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, very high income, working-age population

The value of the code in the machines becomes relatively more important as cars get smarter; Volvo, like many manufacturers, is working to get autonomous vehicles in regular operation on Swedish streets within the next few years. Already the cars are smart enough to do much of the brainwork involved in driving, from plotting routes to keeping a safe distance from the car ahead. Driverless cars are not yet generating discomfort among the men who drive cabs around central Gothenburg, many of whom are immigrants or the children of immigrants. The hollowing out of the industrial workforce is, however. Income inequality has risen in this famously egalitarian country,1 and recent Swedish governments have reformed their country’s generous welfare programmes to encourage more unemployed people to seek work. In a country in which people with an immigrant background (that is, who are either immigrants or the children of immigrants) represent a disproportionate share of claimants, political support for generous welfare has broken down.

On the one hand, much of the growth in benefit compensation has come from rising health insurance contributions, and since that is driven by soaring healthcare costs, it hardly represents much of an improvement in inflation-adjusted compensation. More importantly, growth in total benefits has also stagnated for much of the last twenty years.19 The hardships suffered by workers show up in other worrying trends as well. One is rising income inequality – which helps to explain why average incomes have risen faster than median ones, since those at the top have risen most. Though inequality is occasionally dismissed as an American problem, dispersion in incomes is, in fact, widespread. Over the last thirty years, the share of total income earned by the top 10 per cent of earners in America has soared from about a third in 1980 to half today.

This decline, incidentally, is what we would expect in a world in which productivity is growing faster than wages; the difference is captured by someone, and if it isn’t workers then it is some other group with a claim on an economy’s economic output.22 It is not a coincidence that these trends all developed at roughly the same time, in the 1970s and 1980s. They represent a distinct break from what had come before. For decades before that, real wage growth kept up with productivity growth, which had itself risen faster than in any prior period. Income inequality, which had been extraordinarily high in the early twentieth century, fell dramatically from the 1930s to the 1950s and stayed low for the two decades after that. And, before this period, the labour share ‘wiggled’ yet did not trend, not as it has over the last generation. So where does this leave us? When workers are displaced from one set of tasks, some go on to compete with other highly skilled workers to do cognitively complex tasks – but most don’t.


words: 49,604

The Weightless World: Strategies for Managing the Digital Economy by Diane Coyle

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barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, clean water, computer age, Corn Laws, cross-subsidies, David Ricardo: comparative advantage, dematerialisation, Diane Coyle, Edward Glaeser, everywhere but in the productivity statistics, financial deregulation, full employment, global village, hiring and firing, Howard Rheingold, income inequality, informal economy, invisible hand, Jane Jacobs, Joseph Schumpeter, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Marshall McLuhan, McJob, microcredit, Network effects, new economy, Nick Leeson, night-watchman state, North Sea oil, offshore financial centre, pension reform, pensions crisis, Ronald Reagan, Silicon Valley, spinning jenny, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tobin tax, two tier labour market, very high income, War on Poverty, winner-take-all economy, working-age population

The mitigating factor in the winner-takes-all trend, Danny Quah notes, is that dematerialisation is also helping to reduce the costs and difficulty of becoming a superstar. You do not need to be born with a great bone structure or have the huge amount of capital needed to start up a pharmaceuticals company. You need an idea, a cheap computer and a telephone. He writes: ‘At the same time that income inequalities become more extreme, mobility between The Weightless World 14 rich and poor also rises’. It is a bit like Britain’s National Lottery fever, he argues. People are willing to see a few win millions of pounds because they can also have a chance at untold riches for just £1 a ticket. Weightless politics Politics will be transformed by the weightless world. The economic problems will be different and unexpected.

In fact, the concentration of the unemployment problem in the European Union countries makes it unlikely that any world-wide phenomenon like Weightless Work 45 the information technology revolution can take sole blame for job losses. America has raced ahead in the use of information technology without suffering permanent mass unemployment — although whether it has paid the price for generating jobs in lower incomes for many workers and greater income inequality instead is something that is discussed in more detail later. Neither theory nor evidence supports the conclusion that computers have destroyed jobs in the aggregate. What the available evidence from a series of studies does indicate is that lagging behind in information technology has probably hindered long-run job creation in Europe. Especially on the Continent, there has been scant growth in employment in the private sector at all and especially not in the high-technology sectors that have grown very rapidly in the US and Japan.

This notion that security is a key dimension of well-being parallels a division drawn in economic theory between the ‘core’ and ‘periphery’ in the labour market, or between insiders and outsiders. The distinction has a venerable history. What makes it fresh now is the way it interacts with another long-standing difference, between the haves and the have-nots. For the US and UK, where deregulation and flexibility have given a new edge to the insider-outsider distinction, have also seen a startling increase in income inequality for the first time in a century. In fact, inequality might be as pronounced now as it was a hundred years ago. For the earnings of British men are more unequal now than they have been at any time since 1870. The Britain of today resembles the Britain of George Gissing. The novelist painted a grim picture of life not only for the destitute but also for the struggling petit bourgeoisie for whom economic disaster was only ever a hair’s breadth away.


pages: 330 words: 91,805

Peers Inc: How People and Platforms Are Inventing the Collaborative Economy and Reinventing Capitalism by Robin Chase

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3D printing, Airbnb, Amazon Web Services, Andy Kessler, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business climate, call centre, car-free, cloud computing, collaborative consumption, collaborative economy, collective bargaining, congestion charging, crowdsourcing, cryptocurrency, decarbonisation, don't be evil, Elon Musk, en.wikipedia.org, ethereum blockchain, Ferguson, Missouri, Firefox, frictionless, Gini coefficient, hive mind, income inequality, index fund, informal economy, Internet of things, Jane Jacobs, Jeff Bezos, jimmy wales, job satisfaction, Kickstarter, Lean Startup, Lyft, means of production, megacity, Minecraft, minimum viable product, Network effects, new economy, Oculus Rift, openstreetmap, optical character recognition, pattern recognition, peer-to-peer lending, Richard Stallman, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, smart cities, smart grid, Snapchat, sovereign wealth fund, Steve Crocker, Steve Jobs, Steven Levy, TaskRabbit, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, Turing test, Uber and Lyft, Zipcar

This is the structure for our times: With it we can experiment, iterate, adapt, and evolve, quickly. We can solve large problems cost-effectively and rapidly. We can scale globally yet adapt to the very local. The old industrial model cannot solve climate change. It is too slow, too inefficient, too exclusive. Peers Inc is driving the rapid transformation of our economy and will also provide an answer to the conundrum of disappearing jobs, escalating income inequality, and devastating resource scarcity. What we do now will have profound and lasting effects on our future. We are at the end of the old fossil-fuel-saturated, consumption-based industrial economy. We are at the beginning of the new collaborative economy, which thrives on sharing, openness, and connectedness. What we choose to leave behind and how we prepare for the new will determine whether we make this transition in time and how many people we help cross the chasm.

As the platform starts to really perform, the tendency is for larger platforms to eat smaller ones because of network effects: We all want to use the short-term rental service with the broadest possible range of rooms advertised, or be on the social network that has most of our friends on it. The winners keep winning and tend to wind up with monopolistic power. She continues: It soon grows beyond replacement. Just look at how even after [Microsoft] management wasted billions of dollars on Bing, it is still failing against [Google], while [Google] never even missed a quarter. Thus, hyper efficiency, automation, wealth transfer and income inequality go together. In addition, this concentrating quality has all the power of the gravitational pull of a black hole. That is because in this model, with a relatively fixed cost for the central processing engine, he with the most transactions wins. Not only are all transactions amortized against a similar fixed base allowing for lower end prices, but the biggest engine gets smarter, faster. Thus, in their desperate race against each other to be the number one transaction engine, any emerging giants quickly obliterate mom and pop operations without blinking.

“It allows employers to quickly change and reallocate resources in the workplace.”30 All the while, Denmark is among the most productive economies in the world.31 True, it has one of the highest tax rates to pay for these benefits and commitment to retraining,32 but it is also ranked as the “Happiest Country” in the United Nation’s 2013 World Happiness Report.33 Can these policies (also implemented in other Nordic and northern European countries) be adapted to accommodate a fully flexible workforce? Let’s go back to one of Roxane’s sentences: “Hyper efficiency, automation, wealth transfer, and income inequality go together.” While this has been the path of least resistance, we just saw that tax and employment policies can in fact deliver both higher growth rates and adequate income equality. But can these policies work in an environment of increased unemployment? I recently talked to a CEO of a telecommunications company that had been sitting on a technology improvement that would not only dramatically reduce the company’s costs and improve customer service but do so by reducing the company’s workforce by 40,000 people.


pages: 128 words: 35,958

Getting Back to Full Employment: A Better Bargain for Working People by Dean Baker, Jared Bernstein

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, collective bargaining, declining real wages, full employment, George Akerlof, income inequality, inflation targeting, minimum wage unemployment, new economy, price stability, quantitative easing, Report Card for America’s Infrastructure, rising living standards, War on Poverty

For African American families the impact was similar to that for low-income families, and white families saw gains equivalent to gains at the median. The last bar is particularly important as it explicitly measures correlation between slack labor markets and the growth of income inequality, measured here as the ratio of high to low incomes. One extra point of labor market slack is associated with a 1.6 percent increase in the ratio of high to low incomes. Below, we see this same type of relationship in data on earnings, suggesting an important linkage between slack job markets, uneven wage gains, and income inequality. At least for working families, the mechanism upon which these correlations rest is the paycheck, and that in turn is a result of two important factors associated with tighter job markets: more hours of work, and higher hourly wages.

The relatively straight line in Figure 2-1 in Chapter 2 shows the Congressional Budget Office (CBO) estimates of the NAIRU; the more erratic line is the actual unemployment rate.[1] The comparison enables a few pertinent observations about full employment, regardless of your thoughts about the NAIRU: Since the 1980s, the job market has spent a lot more time above than below the NAIRU, i.e., it has had a lot of slack. Not coincidentally, over those years wages have stagnated and income inequality has grown. The NAIRU is not constant. It slowly drifts up and down based on the changing relationships between unemployment and inflation, as well as changes in the characteristics of the workforce. This makes it tricky, and less useful from a policy perspective, to pin the NAIRU down to a precise percentage-point estimate. During much of the 1990s the unemployment rate was below the CBO’s NAIRU.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

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accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, new economy, New Urbanism, Occupy movement, peak oil, phenotype, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, short selling, Silicon Valley, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

Contradiction 12 Disparities of Income and Wealth An analysis of the Internal Revenue Service income tax returns for New York City in 2012 showed that the average income of the top 1 per cent in that year was $3.57 million, while half of the population in this extremely high-rent and high-cost-of-living city were trying to get by on $30,000 a year or less. In three days the ultra rich made more money than most New Yorkers made in a year. By any standards, this level of income inequality is astonishing, surely making New York City one of the most unequal cities in the world. On the other hand these figures should not surprise anyone, given the enormous earnings of the leading hedge fund managers (five of whom earned, in the wake of the crisis, more than $3 billion each in 2009) and the huge bonuses customarily doled out by the leading banks in the city. Nationally, as might be expected, the income disparities are nowhere near as dramatic, even though they had been increasing markedly since the 1970s or so.

It comprises a broad offensive against all those institutions – such as trade unions and socialist political parties – that had for long struggled to protect labour from the worst impacts of periodic bouts of widespread unemployment. The conditions prevailing within the labour reserve have, as a consequence, deteriorated markedly since the 1980s for political and strategic reasons. Capital in effect has been deepening income inequalities and poverty in order to sustain itself. This story is a gross oversimplification, but it provides a neat illustration of how the contradictory unity of production and realisation has been manifest historically through the cyclical movement in income disparities from relatively narrow to explosively expansive. It was also paralleled by shifts in economic orthodoxy. Keynesian demand management dominated economic thinking in the 1960s, as we earlier remarked, whereas monetarist supply-side theories came to dominate after 1980 or so.

Indeed, such a reduction, it can be plausibly argued, is absolutely necessary for capital to survive in the present conjuncture because the current disparities threaten to become an absolute contradiction by virtue of escalating imbalances between the capacity to manage the contradictory unity between production and realisation. But, if the theory of capital’s necessary inequalities is correct, then there will come a point where a programme to reduce wealth and income inequalities will threaten the reproduction of capital. Once a move towards a profit squeeze gets under way, then it can ultimately threaten to squeeze the lifeblood out of capital to compensate for the way capital systematically sucks the lifeblood out of labour. Nobody knows exactly where the breaking point might lie, but it will surely be well before the levels of equality preferred in the US public opinion polls are reached.


pages: 406 words: 113,841

The American Way of Poverty: How the Other Half Still Lives by Sasha Abramsky

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, bank run, big-box store, collective bargaining, deindustrialization, Francis Fukuyama: the end of history, full employment, ghettoisation, Gini coefficient, housing crisis, illegal immigration, immigration reform, income inequality, indoor plumbing, job automation, Mark Zuckerberg, Maui Hawaii, microcredit, mortgage debt, mortgage tax deduction, new economy, Occupy movement, offshore financial centre, payday loans, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, profit motive, Ronald Reagan, school vouchers, upwardly mobile, War on Poverty, Washington Consensus, women in the workforce, working poor, working-age population, Works Progress Administration

Anyone can, in America, strike it rich. All one needs for success is a little bit of gumption and a willingness to take risks. That was, in many ways, the key argument that GOP presidential hopeful Rick Santorum laid out in a major speech before the Detroit Economic Club on February 16, 2012. “I’m about equality of opportunity. I’m not about equality of result when it comes to income inequality. There is income inequality in America. There always has been, and hopefully, and I do say that, there always will be,” Santorum told his audience, in a city in which two-thirds of children were currently living below the poverty line. “Why? Because people rise to different levels of success based on what they contribute to society and to the marketplace. And that’s as it should be. And we shouldn’t have a society that has a president who envies or creates class warfare or envy between one group of people and another.

Just prior to the implementation of welfare reform in 1996, 4.43 million families nationwide were on Aid to Families with Dependent Children (AFDC), the main welfare program for families in deep poverty. In 2010, two-plus years into an economic crisis that had created the worst job market in America since the Great Depression, only 1.86 million families were on Temporary Aid to Needy Families (TANF), the successor program to AFDC.4 In the 2000s, George W. Bush talked about “compassionate conservatism” while presiding over a stampede toward income inequality the likes of which America hadn’t seen in nearly a century. By 2004, the poverty rate had bounced back up to 12.7 percent, following four straight years in which the Census Bureau reported growing economic hardship for those at the bottom of the economy—falling median wages, despite enormous productivity increases and an expectation that workers would work ever more hours per year,5 and an increased inability to meet the daily needs of life.6 By 2008, at the end of Bush’s two terms in office, the poverty rate was up to 13.2 percent.7 At the same time, tax rates were cut for high-end earners, for investors, and for corporations, resulting in a massive expansion in wealth for those at the top of the economic pyramid.

In the post–World War II years, polls suggested that fewer than one in four Americans wanted to reduce public expenditures on welfare. By the early 1970s, solid majorities favored cutting back welfare dollars for the poor. And by 1977, more than 90 percent of respondents believed welfare recipients should be working.16 From the 1970s on, as misery and hardship stubbornly refused to vanish from the national landscape, America’s commitment both to reducing income inequality and to mitigating the effects of that inequality began to wane. Both rhetorically and in terms of practical policies, America’s leadership class began a long march away from redistributive liberalism. Tax policy became more regressive. And the tax code came overwhelmingly to benefit the wealthiest Americans, with a falloff in the progressive nature of the tax bands and the near-complete emasculation of the estate tax system.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, moral hazard, mortgage debt, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, Richard Feynman, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

Morelli, Chartbook of Economic Inequality, ECINEQ Working Paper, 2014 Many factors have contributed to these shifts in income distribution. The political trends that dominated most of the twentieth century were stalled or reversed in its final decades. Globalisation has had dramatic effects on world income inequality: economic growth in China and India has lifted more people out of poverty in the last two decades than in any previous era of world history. But globalisation has tended to increase income inequality within already rich countries. While it enabled people with unique or distinctive skills – whether musical or sporting celebrities or consulting engineers – to deploy these skills in a wider market, it also intensified competition for unskilled labour as low-tech manufacturing was able to relocate to low-wage countries.

‘We are the 99 per cent’ was the slogan of the ‘Occupy’ protesters, drawing attention to the degree to which a small minority have benefited disproportionately during the era of financialisation. At the end of the First World War ‘the 1 per cent’ – the highest-earning percentile of the income distribution – received between 15 and 20 per cent of gross income. The USA, land of immigration and opportunity, was more equal than the countries of old Europe. But the rise of democracy, and the growth of social security and the modern state, led to sharp reductions in income inequality across the developed world in the fifty years that followed. As Fig. 2 shows, by 1970 the share of the top 1 per cent had fallen by around half, and the share of the top 0.1 per cent had diminished even more sharply. Since these figures relate to gross income, and benefits and top rates of taxation increased everywhere, the equalising effect was even greater than these figures suggest. Many people may be surprised that Germany in 1970 was significantly less equal than Britain, France or the USA.

Many people may be surprised that Germany in 1970 was significantly less equal than Britain, France or the USA. The main explanation is the success of that country’s largely family-owned Mittelstand, or medium-size business sector, which I will discuss further in Chapter 5. The egalitarian trends did not continue. In France and Germany they simply came to an end; these measures of income inequality have not changed since 1970. In Britain and the USA incomes of the top 1 per cent and 0.1 per cent have increased sharply. The reversal is particularly marked in the USA. The share of ‘the 1 per cent’ there is now greater than it was a century ago, and US income distribution is now by some margin the most unequal of the four countries. What has happened to capital is much less clear. As I shall describe in Chapters 5 to 7, the growth of the owner-occupied housing stock and of pension rights has broadened the distribution of personal wealth.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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accounting loophole / creative accounting, Airbnb, Ben Bernanke: helicopter money, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, winner-take-all economy, Wolfgang Streeck

See also financial crisis (2008) The Great Transformation (Polanyi), 76 Greece as allowed to remain in currency union, 148 clientelism of, 144 demands for reparations of to Germany, 171 government replacement in, 143 as increasingly impoverished and declining, 68 rise of risk premiums on public debt, 128 as saturated with cheap credit, 145, 147 suspension of democracy in, 92, 94 SYRIZA government of, 36 greed, as symptom of individualized individuals, 14, 205 Greek Central Bank, 144 Greenspan, Alan, 85 gridlock, 6 growth models, 21, 22, 24 H Habermas, Jürgen, 169, 198 Haffert, Lukas, 136 hard work and hard play, 9 haute finance, 94, 162, 215, 246 Hayek, Friedrich von, 3, 74, 79, 154, 155, 159 Hayekian growth model, 21, 22, 24 Hayekian/Hayekianism, 52, 53, 75, 126, 155 Heller, Hermann, 151–63 The Hidden Persuaders (Packard), 210–11 Hilferding, 3 Hirschmann, Albert, 108 Historical School of Economics (Historische Schule), 166, 201, 243 historical social order, 203 Hodgson, Geoffrey, 61 Holder, Eric, 32 home ownership, 84 homo oeconomicus model, 223, 239 hoping, 42–3 Horkheimer, Max, 244 I IG Metall, 148 IMF Economic Forum, 66 immaterial economic needs, politics of, 212 income inequality, 53, 83–4, 140. See also economic inequality; inequality income tax rates, top marginal income tax rates (1900–2011), 55f indebtedness, 16, 47, 53, 66, 85–9, 114, 121–2 independent crisis cycles, 13 indeterminacy, 12, 13, 37 individualized individuals, 14 inequality. See also economic inequality; income inequality as apocalyptic horseman of contemporary capitalism, 18 as factor intertwined with low growth, 66 oligarchic inequality, 28–30 as something people could potentially get used to, 60 rise of, 15, 17, 34, 35, 45, 49, 50, 52, 53, 57, 62, 67, 69, 186, 215, 219 inflation as conquered after 1979, 79, 81–2 current efforts to raise, 18, 67 as monetary reflection of distributional conflict between working class and capitalist class, 78–9 as public enemy number one in 1970s, 18, 20 rates of (1970–2014), 80f information technology, impact of rise of, 9 insecure workers, conversion of into confident consumers, 2–3 instability, 3, 73 Institut für Sozialforschung, 244 integration in Europe, 144, 146 neo-functionalist integration, 146, 175 social integration.

Low growth, in turn, reinforces inequality by intensifying distributional conflict, making concessions to the poor more costly for the rich, and making the rich insist more than before on strict observance of the ‘Matthew principle’ governing free markets: ‘For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath.’3 Furthermore, rising debt, while failing to halt the decline of economic growth, compounds inequality through the structural changes associated with financialization – which in turn aimed to compensate wage earners and consumers for the growing income inequality caused by stagnant wages and cutbacks in public services. Can what appears to be a vicious circle of harmful trends continue forever? Are there counterforces that might break it – and what will happen if they fail to materialize, as they have for almost four decades now? Historians inform us that crises are nothing new under capitalism, and may in fact be required for its longer-term health.

Growing public indebtedness is put down to electoral majorities living beyond their means by exploiting their societies’ ‘common pool’, and to opportunistic politicians buying the support of myopic voters with money they do not have.9 However, that the fiscal crisis was unlikely to have been caused by an excess of redistributive democracy can be seen from the fact that the build-up of government debt coincided with a decline in electoral participation, especially at the lower end of the income scale, and marched in lockstep with shrinking unionization, the disappearance of strikes, welfare-state cutbacks and exploding income inequality. What the deterioration of public finances was related to was declining overall levels of taxation (Figure 1.5) and the increasingly regressive character of tax systems, as a result of ‘reforms’ of top income and corporate tax rates (Figure 1.6). Moreover, by replacing tax revenue with debt, governments contributed further to inequality, in that they offered secure investment opportunities to those whose money they would or could no longer confiscate and had to borrow instead.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

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affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, land reform, land tenure, large denomination, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

US soybean producers farm high-yield, genetically modified soy varieties, which are not available in China. And the Chinese soybean sector has been disrupted historically by changing government policy, leading to relocation of soy production further north and also much less effective extension, processing and marketing support than with other crops. 12. GINI data are per the Standardized World Income Inequality Database (SWIID) and the University of Texas Estimated Household Income Inequality data set. The latter attempts to adjust for some methodological weaknesses in the SWIID series. In trend terms, both data sets tell a very similar story. Rural income data per the Landesa 2010 China survey. 13. From ‘nongye zhichi gongye’ to ‘gongye fanbu nongye, chengshi zhichi nongcun’ . Hu’s 2005 speech was entitled ‘Constructing a Harmonious Society and Advancing New Rural Construction’.

However, since most land outside the Bangkok area could not be officially taken by creditors because of the absence of formal title, and because peasants could simply disappear and find new land, there were some limits to rural suffering. After the Second World War, as the population growth rate rose to 3 per cent a year and tenancy, landlessness and wage-based labour increased further, there was a big jump in income inequality in rural areas. The government increased expenditure on rural infrastructure, but its overall policy remained heavily urban-biased. The proof of this was the setting-up of a monopoly state buyer of rice for export, or a monopsony, which pushed down domestic rice prices received by farmers, creating instead trading profits for government that in some years amounted to one-third of total state income.

Bauer, ‘Report on a Visit to the Rubber Growing Smallholdings of Malaya, July–September 1946’ (London: His Majesty’s Stationery Office, 1948). 98. See Lim, Peasants and Their Agricultural Economy, 1874–1941, p. 125. A similar pattern of high-yield market gardens feeding urban and mining populations was apparent in African colonies, like Rhodesia, with a pro-scale bias in agricultural policy. See Freund. 99. See K. S. Jomo, A Question of Class, pp. 77 and 123–4. In addition, Shireen Madziah Hashim, Income Inequality and Poverty in Malaysia (Lanham, MD and Oxford: Rowman & Littlefield, 1998), p. 202, states that the export tax, research levy and replanting levy to which rubber was subjected in the 1980s amounted to a combined tax of 13 per cent of crop value. 100. On land concentration, see Jomo, A Question of Class, p. 113. According to Jomo, tenancy is more prevalent in rice farming than in rubber; landlessness rates range up to 40 per cent.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

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Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, haute couture, illegal immigration, income inequality, invention of the telephone, invention of the wheel, invisible hand, John Nash: game theory, John von Neumann, Kevin Kelly, knowledge economy, labour market flexibility, late capitalism, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Death and Life of Great American Cities, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Washington Consensus, women in the workforce, yield curve, yield management

But the population of these countries is relatively small. Two populous poor countries-China and India-have grown much more rapidly in income than the rich countries of the world. Since these two countries alone account for about one-third of world population, the overall effect of this growth on the world distribution ofincome is huge.t If forced to vote, I would probably conclude that world Culture and Prosperity { 37} income inequality-as measured by the distribution ofincome per household-has probably gone down. But it is far more important to understand the complex changes that have occurred, and why they have occurred, than to engage m rhetorical debate about rising or falling inequality. *See Wade and Wolf in Prospect, March 2001. Firebaugh (1999)) Melchior et al. (2000)) Henderson (2000)) Castles (1998). t See Atkinson (1970)) Kakwani (1980)) and Atkinson (1983) for discussion of the problems ofstatistical measurement ofinequality.

People dissatisfied with their economic lives should seek political power through collective action. The right won the Cold War and the left lost, so productivity theories have the upper hand today. The profits of Goldman Sachs and Coca-Cola are the fruits of victory. The rewards of investment bankers and CEOs may seem outlandish to you and me, but the market tells us they are worth it. After declining for decades, income inequality within rich states has again increased in the last twenty years (see Box 4.1). But can these theories explain the different economic lives of Heidi and Ivan, Ravi and Sven? Whose output is more valuable, Heidi's or Ravi's? I don't know how to answer that question and am certain that the people who hired Heidi and Ravi, or sign their paychecks, have not thought about it. But it is even less plausible that Heidi earns so much because she is a tough negotiator, or that Swiss teachers are a uniquely influential political group.

., and A. Moran. 1999. Privatising Victoria's Electricity Distribution. Melbourne: Institute of Public Affairs. Ferguson, A. 1767. An Essay on the History of Civil Society. Ed. Fania Oz-Salzberger, New York: Cambridge University Press. 1996. Ferguson, N. 2001. The Cash Nexus: Money and Power in the Modern World, 1700-2000. London: Allen Lane, Penguin Press. Firebaugh, G. 1999. "Empirics of World Income Inequality." American journal ofSociology 104 (May): 1597-630. Fisher, D. E. 1997. Tube: The Invention ofTelevision. Fort Washington, Pa.: Harvest Books. Fisher, D. H. 1989. Albion's Seed. New York: Oxford University Press. Flannery, K. 1973. "The Origins of Agriculture." Annual Reviews of Anthropology 2: 271-310. Flatow, I. 1992. They All Laughed-from Lightbulbs to Lasers: The Fascinating Stories Behind the Great Inventions That Have Changed Our Lives.


pages: 537 words: 158,544

Second World: Empires and Influence in the New Global Order by Parag Khanna

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Admiral Zheng, affirmative action, anti-communist, Asian financial crisis, Bartolomé de las Casas, Branko Milanovic, British Empire, call centre, capital controls, central bank independence, cognitive dissonance, colonial rule, complexity theory, crony capitalism, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, Edward Glaeser, energy security, European colonialism, facts on the ground, failed state, flex fuel, Francis Fukuyama: the end of history, friendly fire, Gini coefficient, global reserve currency, global supply chain, haute couture, Hernando de Soto, illegal immigration, income inequality, informal economy, invisible hand, Islamic Golden Age, Khyber Pass, knowledge economy, land reform, low skilled workers, means of production, megacity, Monroe Doctrine, oil shale / tar sands, oil shock, open borders, open economy, Pax Mongolica, pirate software, Plutonomy: Buying Luxury, Explaining Global Imbalances, Potemkin village, price stability, race to the bottom, RAND corporation, reserve currency, rising living standards, Ronald Reagan, Silicon Valley, Skype, South China Sea, special economic zone, stem cell, Stephen Hawking, Thomas L Friedman, trade route, trickle-down economics, uranium enrichment, urban renewal, Washington Consensus, women in the workforce

The first generation of illiterate Gastarbeiter sent their remittances back home to their Anatolian villages, but the second generation of European Turks have become employers themselves, spreading their wealth and their skills back home by building factories and schools. In the central Anatolian province of Kayseri, warehouses churn out large stocks of fine kilims (rugs) to augment the region’s agriculture.7 The current, third-generation Turkish diaspora has spread from Berlin to Bishkek, sending back significant funds, which help reduce Turkey’s income inequality (which, alongside those of Brazil, China, and the United States, is the highest in the world). “We have so much stability now that even as a migrant people, we look forward to wandering home,” a German Turk mused while resting on the drive from Ankara to Kayseri. Indeed, the Turkish economy is now bounding toward self-sustainability. It took all of Europe to subdue the Turks in the seventeenth century, and with Turkish horizons again spanning all directions, the EU will have to become not only an economic anchor for Turkey but a psychological and political one as well.

As for modernization, Pakistan’s military-controlled economy is actually a fraud of luxury imports and rock-bottom real estate selloffs, including a sleek, Arab-financed “seven-star” property in Islamabad meant to emulate the glitter of Dubai.8 Karachi is at once the country’s richest and poorest city, the center of industry and of radical madrasahs exporting extremists to Afghanistan and Kashmir, and the site of deadly riots between pro-and anti-Musharraf forces. The only thing “booming” in Pakistan are the constant suicide bombings in all corners of the country. Most men are still employed as chauffeurs, security guards, or shopkeepers struggling for a predictable life in an increasingly disorderly country. Income inequality is increasing; carjacking, burglary, and sectarian violence are all on the rise. Over the next twenty years, the population will near two hundred million—unmanageable even for the military. Pakistan is becoming more like faltering, splintering Indonesia than the Islamist democratic powerhouse Turkey. Musharraf took power in the name of efficiency and anticorruption, not democracy. In Pakistan people talk about elections but never quite know when they might take place or even what form they will take.

Somewhat as Nigeria and South Africa are to the continent of Africa, Latin America would barely exist on the diplomatic map if not for Mexico, Venezuela, and Brazil. Neither region is economically competitive, suffering from high debt, excessive spending, low tax collection, falling productivity, low innovation, low education standards, high business costs, and stalling poverty reduction in both cities and rural areas. 20 Latin America and Africa have the highest income inequality in the world, but Latin America’s is, but worse because it has more wealthy people. The region’s indigenous peasants are a high-altitude version of Africa’s destitute farmers tilling tiny plots, while super-wealthy African and Latin elites live in mansion villas with abundant first-world amenities. Latin America’s dances—salsa, samba, rumba, tango—all involve swift, jerking maneuvers, even unpredictable lurches.


pages: 372 words: 107,587

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

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3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, invisible hand, Isaac Newton, Kenneth Rogoff, late fees, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, post-oil, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, working poor

The recent 2010 UN Human Development Report concludes that people in poor nations are generally healthier, wealthier, and better educated than they were 40 years ago.40 Surveying human progress in 135 countries — 92 percent of the world’s population — the report shows that average life expectancy rose from 59 to 70 years, primary school enrolment grew from 55 to 70 percent, and per capita income doubled to more than $10,000. The report’s authors do devote a section to discussion of the “weak association between [GDP] growth and quality of life indicators such as health, education, political freedom, conflict and inequality,” and also note that, “Within countries rising income inequality is the norm.” BOX 5.4 Development or Overdevelopment? Development critics place significant emphasis on these latter points. It is relatively easy to measure GDP; it is more difficult to quantitatively assess the integrity of families and communities. Also, much of the measured “progress” of the past few decades has occurred in a few rapidly industrializing nations, while many very poor countries have actually lost ground in terms of most citizens’ access to food, water, and shelter.

Inequality among nations can also be tracked with the Gini coefficient; it turns out that, in recent decades, the richest countries have pulled ahead while the poorest countries fell further behind, with a few in the middle (including China and India) playing a rapid game of catch-up. However, “catching up” has meant increasing wealth inequality within those “developing” nations. Current research shows that global income inequality peaked in the 1970s when there was little overlap between “rich” and “poor” countries. Since then, the rapid industrialization of nations like China, India, Indonesia, and Malaysia has complicated the picture.48 The absolute number of people living in poverty — across a range of definitions — has consistently declined globally during the past 50 years, and the percentage of people living in poverty has fallen even faster.49 Nevertheless, according to a study by the World Institute for Development Economics Research at United Nations University, the richest one percent of adults has continued to pull ahead, owning 40 percent of global assets in the year 2000, with the wealthiest ten percent of adults accounting for 85 percent of the world total.

The bottom half of the world adult population owns barely one percent of global wealth.50 The reasons for change in wealth inequality within and among nations are varied: tax policies, capital investment, culture, education, natural resources, trade, and history all play roles. Moreover, there is controversy between those who say inequality within nations is good because it stokes more growth (governments should aim for equality of opportunity, not equality in incomes, according to free-market advocates), and those who say too much income inequality is inherently unfair and tends to become structural and to foreclose economic opportunity for the majority of the world’s people. The end of growth will no doubt alter the prospects of both rich and poor, in both absolute and relative terms. Those with privilege will no doubt struggle to maintain it, while the poor, driven to desperation by generally worsening economic conditions, may in increasing numbers of instances organize or even revolt in order to increase their share of a shrinking pie.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus

After all, as Andrew Lo noted in a recent wickedly entitled essay called “Reading about the Financial Crisis: A 21-Book Review,” the crisis is both overexplained and overdetermined.2 The crisis is overexplained in that there are so many possible suspects who can be rounded up and accused of being “the cause” that authors can construct convincing narratives featuring almost any culprit from Fannie and Freddie to leverage ratios to income inequality—even though the meltdown obviously was a deeply nonlinear and multicausal process.3 The crisis is overdetermined in that, being a nonlinear, multicausal process, many of these supposed causes could be ruled out and the crisis could still have occurred. For example, three excellent books on the crisis stress, respectively, increasing income inequality in the run-up to the crisis, the captured nature of bank regulation, and the political power of finance. Each book certainly captures an important aspect of the crisis.4 But are these factors absolutely necessary to adequately explain it?

President Bush’s former economic advisor Glenn Hubbard thinks that raising top taxes will never raise enough revenue to make a dent in the debt.43 Moreover, 2012 presidential candidate Mitt Romney found such redistribution to be “un-American,” showing an astonishing ignorance of the policies of Dwight Eisenhower (Republican).44 But there is plenty of room to tax at the top because of the bailouts. It’s the gift that keeps on giving. After the 1929 crash income inequality and financial-sector pay declined sharply relative to ordinary earnings, but this time they did not, so taxing now is simply taking the bailout back to the taxpayer. This idea does not just resonate with progressive circles in the United States. A team of German economists recently calculated that a one-time capital levy of 10 percent on personal net wealth exceeding Euro 250,000 per taxpayer could raise revenue by 9 percent of GDP.

Thorolfur Matthiasson and Sigrun Davidsdottir, “State Costs of the 2008 Icelandic Financial Collapse,” Economonitor, December 5, 2012, http://www.economonitor.com/blog/2012/12/state-costs-of-the-2008-icelandic-financial. 27. “Iceland Debt to GDP,” http://www.tradingeconomics.com/iceland/government-debt-to-gdp. 28. Statistics Iceland, http://www.statice.is/. 29. “Iceland—2012 Article IV Consultation Concluding Statement of the IMF Mission,” http://www.imf.org/external/np/ms/2012/030212.htm. 30. “Iceland—2012 Article IV Consultation.” 31. Stefán Ólafsson and Arnaldur Sölvi Kristjánsson, “Income Inequality in a Bubble Economy: The Case of Iceland 1992–2008,” conference paper for Luxembourg Income Study Conference, June 2010, http://www.lisproject.org/conference/papers/olafsson-kristjansson.pdf. 32. Statistics Iceland, http://www.statice.is/. 33. Statistics Iceland, http://www.statice.is/. 34. Ólafsson and Kristjánsson, “Risk of poverty and income distribution 2011,” Iceland Statistics, March 26, 2012, http://www.statice.is/. 35.


pages: 353 words: 91,520

Most Likely to Succeed: Preparing Our Kids for the Innovation Era by Tony Wagner, Ted Dintersmith

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affirmative action, Airbnb, Albert Einstein, Bernie Sanders, Clayton Christensen, David Brooks, en.wikipedia.org, Frederick Winslow Taylor, future of work, immigration reform, income inequality, index card, Jeff Bezos, jimmy wales, Khan Academy, Kickstarter, knowledge economy, knowledge worker, low skilled workers, Lyft, Mark Zuckerberg, means of production, new economy, pattern recognition, Paul Graham, Peter Thiel, Ponzi scheme, pre–internet, school choice, Silicon Valley, Skype, Steven Pinker, TaskRabbit, the scientific method, unpaid internship, Y Combinator

The Impact of College on Citizenship and Our Social Fabric “Education,” Horace Mann declared in 1848, “is a great equalizer of the conditions of men, the balance wheel of the social machinery.” That was true in our country for a long, long time. But today, the United States faces enormous challenges on the issues of income inequality, social mobility, and our shrinking middle class. Yet, most of the discussion in our country about these issues squarely revolves around tax code policy. On the topic of college’s role in leveling the playing field, our leaders espouse platitudes about how we need to help all young Americans obtain a college degree. President Obama recently called a college degree “an economic imperative.”52 Today, our higher-education system is becoming a cause of income inequality in our country, instead of a solution. In a single generation, we’ve seen college’s role in our society and economy change entirely. In the twentieth century, college was instrumental in extending economic opportunity and social integration to millions of young Americans, fueling the rise of a growing, robust middle class.

“Inventing the SAT,” The Alicia Patterson Foundation, April 6, 2011. http://aliciapatterson.org/stories/inventing-sat (accessed December 17, 2014). 16 Jaschik, Scott. “SAT Scores Drop Again,” Inside Higher Ed, September 25, 2012. https://www.insidehighered.com/news/2012/09/25/sat-scores-are-down-and-racial-gaps-remain (accessed December 17, 2014). 17 Zumbrun, Josh. “SAT Scores and Income Inequality: How Wealthier Kids Rank Higher.” Wall Street Journal, October 7, 2014. http://blogs.wsj.com/economics/2014/10/07/sat-scores-and-income-inequality-how-wealthier-kids-rank-higher/ (accessed March 31, 2015). 18 Strauss, Valerie. “A basic flaw in the argument against affirmative action,” Washington Post, July 17, 2014. http://www.washingtonpost.com/blogs/answer-sheet/wp/2014/07/17/a-basic-flaw-in-the-argument-against-affirmative-action/ (accessed December 8, 2014). 19 Pinker, Steven.

Within the next two decades, it’s entirely possible that the United States will have an ever-widening inequality gap that makes Occupy Wall Street look like an early tremor foreshadowing a massive earthquake. Or, it’s entirely possible that millions of kids will leave school able to fully capitalize on the productivity advantages offered by a globally connected world, define their own dreams, and live happy, productive, self-sustaining lives. These millions of innovative successes will create new jobs that benefit society broadly, narrowing income inequality and reducing poverty levels. The Stakes for Civil Society For much of our nation’s history, we functioned with an effective citizenship model. Our society had a small number of information sources that were shared broadly across the population. Our limited information sources served to focus the attention of citizens and their representatives and ensured, generally for the good, a shared set of assumptions in making policy decisions.


pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, accounting loophole / creative accounting, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, asset allocation, business process, Cass Sunstein, centre right, choice architecture, collateralized debt obligation, collective bargaining, corporate governance, corporate social responsibility, crony capitalism, David Brooks, delayed gratification, double helix, factory automation, financial deregulation, financial innovation, full employment, game design, greed is good, If something cannot go on forever, it will stop, impulse control, income inequality, inflation targeting, invisible hand, job automation, Joseph Schumpeter, knowledge worker, late fees, Long Term Capital Management, loss aversion, low skilled workers, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, technoutopianism, the built environment, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, Walter Mischel, winner-take-all economy

Were we serious about interrupting our downward spiral, we would start by recognizing the social limits of immediate gratification and of an economic strategy that always prioritizes the largest, quickest, cheapest payoff. This isn’t to question the idea of efficiency—of exploiting technology and technique to get the biggest bang for our buck. Efficiency is what made our civilization possible, and we’ll need more and more of it as we navigate the crises of income inequality, ecological degradation, and resource scarcity that the Impulse Society has been unable to address effectively—or has simply made worse.But it is to criticize the ideology of efficiency—or the belief, sacred in contemporary politics and especially business, that the greatest output at the lowest cost should always be society’s aim. That dogma, though we credit it for our prosperity, is now destroying that prosperity.

More problematic, however, were the economic prescriptions offered by Reagan and other self-styled fiscal conservatives: massive doses of radical individualism and free-market zeal, untempered by regulation or institutional moderation. Ultimately, these policies would simply accelerate the corrosion of the very social values that conservatives sought to preserve. And yet, even as the consequences of our free-market ideology ripped through society, hammering the job market, exacerbating income inequality, and making life extremely challenging for families, communities, and the would-be self-reliant; conservatives’ near-religious faith in efficient markets required them to ignore the contradictions and the collateral damage—or to awkwardly try to justify those costs as the natural order of things. If the left has always been too suspicious of the market, conservatives were now committing the opposite error.

In the aftermath of our financial and political meltdowns, many of us no longer trust the basic structures and assumptions underlying society. It’s not only that our confidence in the political system is at a historic low. We’ve also concluded, many of us, that our economic system is effectively working against us—that it has been so thoroughly corrupted by a quick-returns, winner-take-all mentality that income inequality, corporate brutality, and periodic market meltdowns are the new reality. We’ve seen the other kinds of market failure as well. We’ve seen the religion of cost cutting taken to absurd, even destructive extremes—as when Bangladesh sweatshops collapse because contractors skimp on concrete; or when a corner-cutting oil company spews a hundred million gallons of crude into the Gulf. We’ve seen the way Big Data and other digital technologies have mainly provided big business with new tools to track and manipulate us with the stealth of our national security apparatus.


pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

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1960s counterculture, affirmative action, corporate governance, David Brooks, deindustrialization, East Village, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, market fundamentalism, McMansion, microcredit, moral hazard, new economy, New Urbanism, offshore financial centre, oil shock, Plutocrats, plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional

On the role of corporate restructuring and deregulation in increasing inequality, see Leslie McCall, "Corporate Restructuring and Rising Inequality: What is the Connection and Does It Matter?" Demos, December 2003. [back] 7. Dinesh D'Souza, "The Virtue of Prosperity," Hoover Digest, no. 1 (2001). For an excellent analysis of the conservative defense of economic inequality, and a critique of that defense, see Shelly Arseneault and Donald Matthewson, "Conservative Dilemmas: Problems with the Ideological Defense of Income Inequality," unpublished paper, August 2003. [back] 8. For an overview of recent research on this topic, see Alan Krueger, "The Apple Falls Close to the Tree, Even in the Land of Opportunity," New York Times, 14 November 2002, C2. [back] 9. Much of the research exploring the possible social consequences of inequality has been supported by the Russell Sage Foundation. Most of it remains in the form of unpublished papers (as of this writing).

Claudia Goldin and Robert Margo, "The Great Compression: The Wage Structure in the United States at Mid-Century," National Bureau of Economic Research, August 1991; and Paul Krugman, "For Richer," New York Times Magazine, 22 October 2002, 62. [back] 40. David Callahan, Kindred Spirits: Harvard's Extraordinary Business School Class of 1949 and How They Transformed American Business (New York: John Wiley & Sons, 2002). [back] 41. Uslaner, The Moral Foundations of Trust, 181. [back] 42. For evidence that residential segregation has increased along with inequality, see Susan Mayer, "The Effect of Geographic Distribution of Income Inequality on Children's Educational Attainment," Northwestern University/ University of Chicago Joint Center for Poverty Research, 2001. [back] 43. Edward Blakely and Mary Gail Snyder, Fortress America: Gated Communities in the United States (Washington, D.C.: The Brookings Institution, 1997). See also Haya El Nasser, "Gated Communities More Popular, and Not Just for the Rich," USA Today, 15 December 2002, A1.

See also Carl N. Dengler, In Search of Human Nature: The Decline and Revival of Darwinism in American Social Thought (New York: Oxford University Press, 1992). [back] 27. On working hard and admiration for the rich, see findings from a variety of surveys in Ladd and Bowman, Attitudes Toward Economic Inequality, 53–57; on blame for failure, see Tamara Draut, New Opportunities: Public Opinion on Poverty, Income Inequality, and Public Policy, 1996–2002 (New York: Demos, 2002), 7. Other surveys on the causes of poverty report similar findings, although these findings are not consistent across all polling. See, for example, surveys reported by Ladd and Bowman, Attitudes Toward Economic Inequality, 52. Daniel Yankelovich's data also underscores what he says is a "trend toward Social Darwinism." Yankelovich comments that "unequal results are no longer deemed to be society's fault."


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

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3D printing, Airbnb, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business process, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, crowdsourcing, cryptocurrency, disintermediation, diversified portfolio, Elon Musk, Erik Brynjolfsson, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, loss aversion, Lyft, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, TaskRabbit, trade route, transportation-network company, Turing test, Uber and Lyft, Uber for X, unpaid internship, Y Combinator, young professional, Zipcar

If corporations convert too many assets from the working and business economies into pure capital, then the whole system seizes up for lack of fuel. The main figure they cite, the Gini coefficient of income inequality, measures how much income has been monopolized by the shareholders at the top. A Gini coefficient of 0 would mean that everyone has the same amount of money; a coefficient of 1 means that all the income is being taken by just one person or corporation. According to Beth Ann Bovino, chief economist at S&P, once that coefficient goes above 0.4 or 0.45—where we are as of this writing—it hurts growth for everyone. “It’s good for a market economy to have income inequality but to extremes, it can actually damage growth long term and make it less sustainable.”19 Bovino showed that it’s not just the extreme of inequality that’s to blame but the decline of labor and business income in the face of rising capital gains.

John Hagel, John Seely Brown, and Duleesha Kulasooriya, Shift Happens: How the World Is Changing, and What You Need to Do About It (Houston, Tex.: Idea Bite Press, 2014). 15. Hagel et al., Foreword, “The Shift Index 2013.” 16. “‘Trying to Recapture the Magic’: The Strategy Behind the Pharma M&A Rush,” knowledge.wharton.upenn.edu, May 28, 2014. 17. Rushkoff, Life Inc., 174. 18. Beth Ann Bovino et al., “How Increasing Income Inequality Is Dampening Economic Growth, and Possible Ways to Change the Tide,” globalcreditreport.com, August 5, 2014. 19. Geoffrey Rogow, “Wealth Inequality Can Damage Economy, S&P’s Bovino Says,” blogs.wsj.com, August 5, 2014. 20. Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 3rd ed. (New York: Harper Perennial, 2008). 21. “Worldwide Revenue of Major Toy Companies in 2012 (in Million U.S.

., 229 Circuit City, 90 Citizens United case, 72 Claritas, 32 click workers, 50 climate change, 135, 227–28, 237 coin of the realm, 128–29 collaboration as corporate strategy, 106–7 colonialism, 71–72 commons, 215–23 co-owned networks and, 220–23 history of, 215–16 projects inspired by, 217–18 successful, elements of, 216–17 tragedy of, 215–16 worker-owned collectives and, 219–20 competencies, of corporations, 79–80 Connect+Develop, 107 Consumer Electronics Show, 19 Consumer Reports,33 contracting with small and medium-sized enterprises, 112 cooperative currencies, 160–65 favor banks, 161 LETS (Local Exchange Trading System), 163–65 time dollar systems, 161–63 co-owned networks, 220–23 corporations, 68–82 acquisition of startups, growth through, 78 amplifying effect of, 70, 73 Big Shift and, 76 cash holdings of, 76, 77–78 competency of, 79–80 cost reduction, growth through, 79–80 decentralized autonomous corporations (DACs), 149–50 Deloitte’s study of return on assets (ROA) of, 76–77 distributive alternative to platform monopolies, 93–97 evaluation of, 69–74 extractive nature of, 71–72, 73, 74, 75, 80–82 growth targets, meeting, 68–69 income inequality and, 81–82 limits to corporate model, 75–76, 80–82 managerial and financial methods to deliver growth by, 77–79 monopolies (See monopolies) obsolescence created by, 70–71, 73 offshoring and, 78–79 personhood of, 72, 73–74, 90, 91 recoding of, 93–97, 125–26 repatriation and, 80 retrieval of values of empire and, 71–72, 73 as steady-state enterprises, 97–123 Costco, 74 cost reduction, and corporate growth, 79–80 Couchsurfing.com, 46 crashes of 1929, 99 of 2007, 133–34 biotech crash, of 1987, 6 flash crash, 180 Creative Commons, 215 creative destruction, 83–87 credit, 132–33 credit-card companies, 143–44 crowdfunding, 38–39, 198–201 crowdsharing apps, 45–49 crowdsourcing platforms, 49–50 Crusades, 16 Cumbrian Pounds, 156 Curitiba, Brazil modified LETS program, 164–65 Daly, Herman, 184 data big, 39–44 getting paid for our own, 44–45 “likes” economy and, 32, 34–36 in pre-digital era, 40 Datalogix, 32 da Vinci, Leonardo, 236 debt, 152–54 decentralized autonomous corporations (DACs), 149–50 deflation, 169 Dell, 115–16 Dell, Michael, 115–16 Deloitte Center for the Edge, 76–77 destructive destruction, 100 Detroit Dollars, 156 digital distributism, 224–39 artisanal era mechanisms and values retrieved by, 233–34 developing distributive businesses, 237–38 digital industrialism compared, 226 digital technology and, 230–31 historical ideals of distributism, 228–30 leftism, distinguished, 231 Pope Francis’s encyclical espousing distributed approach to land, labor and capital, 227–28 Renaissance era values, rebirth of, 235–37 subsidiarity and, 231–32 sustainable prosperity as goal of, 226–27 digital economy, 7–11 big data and, 39–44 destabilizing form of digitally accelerated capitalism, creation of, 9–10 digital marketplace, development of, 24–30 digital transaction networks and, 140–51 disproportionate relationship between capital and value in, 9 distributism and, 224–39 externalizing cost of replacing employees in, 14–15 industrialism and, 13–16, 23–24, 44, 53–54, 93, 101–2, 201, 214, 226 industrial society, distinguished, 11 “likes” and similar metrics, economy of, 30–39 platform monopolies and, 82–93, 101 digital industrialism, 13–16, 23–24, 101–2, 201 digital distributism compared, 226 diminishing returns of, 93 externalizing costs and, 14–15 growth agenda and, 14–15, 23–24 human data as commodity under, 44 income disparity and, 53–54 labor and land pushed to unbound extremes by, 214 “likes” economy and, 33 reducing bottom line as means of creating illusion of growth and, 14 digital marketplace, 24–30 early stages of e-commerce, 25–26 highly centralized sales platforms of, 29 initial treatment of Internet as commons, 25 “long tail” of widespread digital access and, 26 positive reinforcement feedback loop and, 28 power-law dynamics and, 26–29 removal of humans from selection process in, 28 digital transaction networks, 140–51 Bitcoin, 143–49, 150–51, 152 blockchains and, 144–51 central authorities, dependence on, 142 decentralized autonomous corporations (DACs) and, 149–50 PayPal, 140–41 theft and, 142 direct public offerings (DPOs), 205–6 discount brokerages, 176–78 diversification, 208, 211 dividends, 113–14, 208–10 dividend traps, 113 Dorsey, Jack, 191–92 Draw Something, 192, 193 Drexler, Mickey, 116 dual transformation, 108–9 dumbwaiter effect, 19 Dutch East India Company, 71, 89, 131 eBay, 16, 26, 29, 45, 140 education industry, 95–97 Eisenhower administration, 52–53, 63, 75 Elberse, Anita, 28 employee-owned companies, 116–18 Enron, 133, 171n Eroski, 220 eSignal, 178 EthicalBay, 221 E*Trade, 176, 177 Etsy, 16, 26, 30 expense reduction, and corporate growth, 78–79 Facebook, 4, 31, 83, 93, 96, 201 data gathering and sales by, 41, 44 innovation by acquisition of startups, 78 IPO of, 192–93, 195 psychological experiments conducted on users by, 32–33 factors of production, 212–14 Fairmondo, 221 Family Assistance Plan, 63 family businesses, 103–4, 231–32 FarmVille, 192 favor banks, 161 Febreze Set & Refresh, 108 Federal Reserve, 137–38 feedback loop, and positive reinforcement, 28 Ferriss, Tim, 201 feudalism, 17 financial services industry, 131–33, 171–73, 175 Fisher, Irving, 158 flash crash, 180 flexible purpose corporations, 119–20 flow, investing in, 208–10 Forbes,88, 173, 174 40-hour workweek, reduction of, 58–60 401(k) plans, 171–74 Francis, Pope, 227, 228, 234 Free, Libre, Open Knowledge (FLOK) program, 217–18 Free (Anderson), 33 free money theory, local currencies based on, 156–59 barter exchanges, 159 during Great Depression, 158–59 self-help cooperatives, 159 stamp scrip, 158–59 tax anticipation scrip, 159 Wörgls, 157–58 frenzy, 98–99 Fried, Jason, 59 Friedman, Milton, 64 Friendster, 31 Frito-Lay, 80 front running, 180–81 Fulfillment by Amazon, 89 Fureai Kippu (Caring Relationship Tickets), 162 Future of Work initiative, 56n Gallo, Riso, 103–4 Gap, 116 Gates, Bill, 186 General Electric, 132 General Public License (GPL) for software, 216 Gesell, Silvio, 157 GI Bill, 99 Gimein, Mark, 147 Gini coefficient of income inequality, 81–82, 92 global warming, 135, 227–28, 237 GM, 80 Goldman Sachs, 133, 195 gold standard, 139 Google, 8, 48, 78, 83, 90–91, 93, 141, 218 acquisitions by, 191 business model of, 37 data sales by, 37, 44 innovation by acquisition of startups, 78 IPO of, 194–95 protests against, 1–3, 5, 98–99 grain receipts, 128 great decoupling, 53 Great Depression, 137, 158–59 Great Exhibition, 1851, 19 Greenspan, Alan, 132–33 growth, 1–11 bazaars, and economic expansion in late Middle Ages, 16–18 central currency and, 126, 129–31, 133–36 digital industrialism, growth agenda of, 14–15, 23–24 highly centralized e-commerce platforms and, 29 startups, hypergrowth expected of, 187–91 as trap (See growth trap) growth trap, 4–5, 68–123 central currency as core mechanism of, 133–34 corporations as program and, 68–82 platform monopolies and, 82–93, 101 recoding corporate model and, 93–97 steady-state enterprises and, 98–123 guaranteed minimum income programs, 62–65 guaranteed minimum wage public jobs, 65–66 guilds, 17 Hagel, John, 76–77 Hardin, Garrett, 215–16 Harvard Business Review,108–9 Heiferman, Scott, 196–97 Henry VIII, King, 215, 229 Hewlett-Packard UK, 112 high-frequency trading (HFT), 179–80 Hilton, 115 Hobby Lobby case, 72 Hoffman, Reid, 61 Holland, Addie Rose, 205–6 holograms, 235 Homeport New Orleans, 121 housing industry, 135 Huffington, Arianna, 34, 35, 201 Huffington Post, 34, 201 human role in economy, 13–67 aristocracy’s efforts to control peasant economy, 17–18 bazaars and, 16–18 big data and, 39–44 chartered monopolies and, 18 decreasing employment and, 30–39 digital marketplace, impact of, 24–30 industrialism and, 13–16, 18–24, 44 “likes” economy and, 30–39 reevaluation of employment and adopting policies to decrease it and, 54–67 sharing economy and, 44–54 Hurwitz, Charles, 117 IBM, 90–91, 112 inclusive capitalism, 111–12 income disparity corporate model and, 81–82 digital technology as accelerating, 53–54 Gini coefficient of, 81–82, 92 growth trap and, 4 power-law dynamics and, 27–28, 30 public service options for reducing, 65–66 IndieGogo, 30, 199 individual retirement accounts (IRAs), 171 industrial farming, 134–35 industrialism, 18–24 branding and, 20 digital, 13–16, 23–24, 44, 53–54, 93, 101–2, 201, 214, 226 disempowerment of workers and, 18–19 human connection between producer and consumer, loss of, 19–20 isolation of human consumers from one another and, 20–21 mass marketing and, 19–20 mass media and, 20–21 purpose of, 18–19, 22 value system of, 18–19 inflation, 169 Instagram, 31 Intercontinental Exchange, 182 interest, 129–31 investors/investing, 70, 72, 168–223 algorithmic trading and, 179–84 bounded, 210–15 commons model for running businesses and, 215–23 crowdfunding and, 198–201 derivative finance, volume of, 182 digital technology and, 169–70, 175–84 direct public offerings (DPOs) and, 205–6 discount brokerages and, 176–78 diversification and, 208, 211 dividends and, 208–10 flow, investing in, 208–10 high-frequency trading (HFT) and, 179–80 in low-interest rate environment, 169–70 microfinancing platforms and, 202–4 platform cooperatives and, 220–23 poor performance of do-it-yourself traders and, 177–78 retirement savings and, 170–75 startups and, 184–205 ventureless capital and, 196–205 irruption, 98 i-traffic, 196 iTunes, 27, 29, 34, 89 J.


pages: 326 words: 103,170

The Seventh Sense: Power, Fortune, and Survival in the Age of Networks by Joshua Cooper Ramo

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Airbnb, Albert Einstein, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, British Empire, cloud computing, crowdsourcing, Danny Hillis, defense in depth, Deng Xiaoping, Edward Snowden, Fall of the Berlin Wall, Firefox, Google Chrome, income inequality, Isaac Newton, Jeff Bezos, job automation, market bubble, Menlo Park, natural language processing, Network effects, Norbert Wiener, Oculus Rift, packet switching, Paul Graham, price stability, quantitative easing, RAND corporation, recommendation engine, Republic of Letters, Richard Feynman, Richard Feynman, road to serfdom, Sand Hill Road, secular stagnation, self-driving car, Silicon Valley, Skype, Snapchat, social web, sovereign wealth fund, Steve Jobs, Steve Wozniak, Stewart Brand, Stuxnet, superintelligent machines, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, too big to fail, Vernor Vinge, zero day

So the once prosperous middle class, an essential element of any stable capitalist system, was being pulled apart. The rich were getting richer; the poor in other countries (or the machines) were taking the jobs. Though financial and monetary stimulus were pouring into the system, there was no trickle down. “The extent and continuing increase in income inequality in the United States greatly concern me,” Bernanke’s successor Janet Yellen remarked in 2015, after seven years of quantitative easing policy. “The past several decades have seen the most sustained rise in income inequality since the nineteenth century.” Even with more money floating around, there was, paradoxically (at least using traditional thinking), less demand. But that wasn’t the whole story. Networks were also working insidiously on the supply side of the equation. Remember that markets always set prices by balancing supply and demand.

In fact they tell us exactly how our most vexing problems—the very problems networks have created—might be solved. Old-style ideas will, however, lead us down dangerous paths. Our leaders today are, as a result, often imperiling us in ways they can’t understand. Honestly, these figures are not mentally prepared to fight any sort of battle on this landscape, whether it is against terrorists or income inequality or pandemic diseases. They probably never will be. The language and habits of this new world are simply too obscure for them. This book is not, in any event, written for them. It is written for those coming to power and those already in power—even if they don’t know it yet. It is written for those who are inheriting the possibility of that last generation’s inventions and the price of their errors.

We must get to know them by operating them. But our leaders have never had such a chance. Partly this is age, I think. But honestly it is also temperament. Networks are packed with tremendous potential. Many of our current leaders like things as they are. The words “potential” and “threat” rhyme in their consideration. They don’t appreciate that puzzles such as the future of United States–China relations or income inequality or artificial intelligence or terrorism are all network problems, unsolvable with traditional thinking. At the same moment in time that so many of us are alive with the joy of being around something that is beginning, most of our leaders are locked, sadly or with terror, into the ending of something else. Same exact moment. Different instincts. It reminds me of Virginia Woolf’s novel The Years, in which the once-commanding Colonel Pargiter finally passes away, liberating his daughter Eleanor into a world of adventure even as the change dooms Crosby, the family’s long-serving maid.


pages: 256 words: 15,765

The New Elite: Inside the Minds of the Truly Wealthy by Dr. Jim Taylor

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British Empire, call centre, dark matter, Donald Trump, estate planning, full employment, glass ceiling, income inequality, Jeff Bezos, Louis Pasteur, Maui Hawaii, McMansion, means of production, passive income, performance metric, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ronald Reagan, stealth mode startup, Steve Jobs, Thorstein Veblen, trickle-down economics, women in the workforce

As the industrial era wound down and the Great Depression took hold in the 1930s, attitudes toward the wealthy changed dramatically, and the government finally had the mandate and political will to begin reshaping the distribution of money in society. Certainly a change in attitude had been brewing for decades. Starting in 1876, third-party candidates such as William Jennings Bryan launched a series of increasingly strong runs for the presidency, largely on platforms of addressing income inequality and protecting the interests of the urban and rural poor. These third-party efforts might have helped the poor if they had succeeded, but their failures had unintended consequences; throughout the late 1800s, most presidential victors failed to claim a majority of the popular vote, and the lack of a mandate weakened the presidency. The Senate came to have relatively greater influence, but senators at the time were appointed, not elected, and they used the power vacuum to protect the business interests of the wealthy industrialists who had an inordinate impact on their getting appointed in the first place.

Ibid. 10. www.Ashoka.com (accessed February 28, 2008). 11. Charles Piller, Edmund Sanders, and Robyn Dixon, ‘‘Dark Cloud Over Good Works of Gates Foundation,’’ Los Angeles Times, January 7, 2007, http://www.latimes.com/news/nationworld/nation/la na-gatesx07jan07,0,4205044,full.story (accessed April 14, 2008). C H A P T E R T W E L V E The Plutonomy When 5 Percent of the Haves Own More Than the Other 95 Percent Combined ‘‘[I]ncreasing income inequality is bad for the economy, bad for crime rates, bad for people’s working lives, bad for infrastructural development, and bad for health—in both the short and long term.’’ —George Davey Smith, British Medical Journal ‘‘Our inequality materializes our upper class, vulgarizes our middle class, brutalizes our lower class.’’ —Matthew Arnold ‘‘Many social scientists believe this sudden rebirth of economic inequality is the biggest news of the last halfcentury. . . .

Kevin Phillips summed up this dramatic monetary transformation, and the tepid social response to it: ‘‘In just a little over two centuries the United States went from being a society born of revolution and touched by egalitarianism to being the country with the industrial world’s biggest fortunes and its largest rich-poor gap. It is a transformation that Americans will have to start thinking about.’’6 It is a remarkable—and accurate—choice of words: They will have to start thinking about it. The Plutonomy 207 Not rise up, or take to the streets, or create a revolution at the ballot box. Not even have been thinking about. For most Americans, income inequality is an abstract philosophical conundrum that barely registers as troubling, amid the myriad concerns that face them today. In October 2007, Harrison Group conducted a nationally representative survey (of all Americans, not just affluent or wealthy ones), asking which social problems and national issues people were most concerned with; poverty barely cracked the top ten, behind health care, Iraq, terrorism, Internet predators, education, guns in schools, and drugs.


pages: 75 words: 22,220

Occupy by Noam Chomsky

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corporate governance, corporate personhood, deindustrialization, Howard Zinn, income inequality, invisible hand, Martin Wolf, Nate Silver, Occupy movement, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, Ralph Nader, Ronald Reagan, too big to fail, union organizing

All of this has now been brought to the fore. You can say that it’s now almost a standard framework of discussion. Even the terminology is accepted. That’s a big shift. Earlier this month, the Pew Foundation released one of its annual polls surveying what people think is the greatest source of tension and conflict in American life. For the first time ever, concern over income inequality was way at the top. It’s not that the poll measured income inequality itself, but the degree to which public recognition, comprehension and understanding of the issue has gone up. That’s a tribute to the Occupy movement which put this strikingly critical fact of modern life on the agenda so that people who may have known of it from their own personal experience see that they are not alone, that this is all of us. In fact, the U.S. is off the spectrum on this.


pages: 72 words: 21,361

Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson

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Amazon Mechanical Turk, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, business process, call centre, combinatorial explosion, corporate governance, crowdsourcing, David Ricardo: comparative advantage, easy for humans, difficult for computers, Erik Brynjolfsson, factory automation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, hiring and firing, income inequality, job automation, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, Kickstarter, knowledge worker, labour mobility, Loebner Prize, low skilled workers, minimum wage unemployment, patent troll, pattern recognition, Ray Kurzweil, rising living standards, Robert Gordon, self-driving car, shareholder value, Skype, too big to fail, Turing test, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, winner-take-all economy

What’s more, this increase in the relative price of educated labor—their wages—comes during a period where the supply of educated workers has also increased. The combination of higher pay in the face of growing supply points unmistakably to an increase in the relative demand for skilled labor. Because those with the least education typically already had the lowest wages, this change has increased overall income inequality. It’s clear from the chart in Figure 3.5 that wage divergence accelerated in the digital era. As documented in careful studies by David Autor, Lawrence Katz, and Alan Krueger, as well as Frank Levy and Richard Murnane and many others, the increase in the relative demand for skilled labor is closely correlated with advances in technology, particularly digital technologies. Hence, the moniker “skill-biased technical change,” or SBTC.

Invest in education. Start by simply paying teachers more so that more of the best and the brightest sign up for this profession, as they do in many other nations. American teachers make 40% less than the average college graduate. Teachers are some of America’s most important wealth creators. Increasing the quantity and quality of skilled labor provides a double win by boosting economic growth and reducing income inequality. 2. Hold teachers accountable for performance by, for example, eliminating tenure. This should be part of the bargain for higher pay. 3. Separate student instruction from testing and certification. Focus schooling more on verifiable outcomes and measurable performance and less on signaling time, effort or prestige. 4. Keep K-12 students in classrooms for more hours. One reason American students lag behind international competitors is they simply receive about one month less instruction per year. 5.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

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bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Washington Consensus

Building on the pioneering ideas of the Polish economist Michal Kalecki, whose work in the early 1930s anticipated much of Keynes, the Cambridge school of post-Keynesian economists—Joan Robinson, Geoffrey Harcourt, Nicholas Kaldor, Robin Marris, and Robert Rowthorn—have noted that although workers tend to spend almost all their incomes, the entrepreneurs and investors who benefit from corporate profits save a high proportion of what they receive.12 The post-Keynesians also argued that advanced capitalism generally shifts income distribution in favor of profits and away from wages, partly because of technological progress and monopoly, and partly for political reasons such as restrictions on organized labor. The result of widening income inequalities and rising profitability is that a growing share of national income flows to owners of capital, who spend less than they earn. Meanwhile wage earners are forced to run down their savings and increasingly to rely on debt to maintain their standard of living. The only way to keep the economy growing in these conditions is for government to support demand with deficit financing and for the banking system to expand credit to poorer and less creditworthy borrowers.

As long as this credit expansion creates sufficient demand, the economy can continue to operate with reasonably full employment. But if income distribution continues to move against labor, workers eventually find themselves unable to service further borrowing and a financial crisis becomes inevitable as working-class borrowers begin to default on their loans. The post-Keynesian economy with widening income inequality is therefore always veering between the Scylla of recession due to inadequate consumption and the Charybdis of financial crisis caused by unsustainable debt. Many of the left-wing criticisms of the Obama Administration’s economic policies from U.S. Keynesian economists such as Paul Krugman, Robert Reich, James K. Galbraith, and Joe Stiglitz are linked to this school of thought. THE THEORIES JUST OUTLINED spell out in intricate and persuasive detail how financial excesses can come about, why they are bound to hit any market-based economy, and why the resulting fluctuations can sometimes be long lasting and extreme.

Prolonged stability caused by the Great Moderation suppressed financial risk, as explained by Minsky, and thereby transformed expectations, creating the herd behavior and reflexive changes in reality described by Soros. At the same time, the long period of low interest rates due to excess savings in Asia encouraged Austrian-style malinvestment in low-income housing, as well as the aggressive financial innovation predicted by Minsky. This happened despite the fact that low-income consumers and homeowners were becoming less creditworthy because of the widening income inequality anticipated by Kalecki and the New Keynesians. The boom in finance, meanwhile, interacted with the ideological super-bubble described by Soros and, through the process of reflexivity, created an excessive faith in markets that changed political realities. An extreme form of deregulation that had no chance of working in the long-term did seem to work for a few years in the market fundamentalist America of President Bush.

Making Globalization Work by Joseph E. Stiglitz

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affirmative action, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, Berlin Wall, business process, capital controls, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Gini coefficient, global reserve currency, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, inventory management, invisible hand, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, trickle-down economics, union organizing, Washington Consensus

Economists who place less importance on reducing income inequality are more prone to think that the actions governments might take to reduce that inequality are too costly, and may even be counterproductive. These "free market" economists are also more inclined to believe that markets, by themselves, without government intervention, are efficient, and that the best way to help the poor is simply to let the economy grow—and, somehow, the benefits will trickle down to the poor. (Interestingly, such beliefs have persisted, even as economic research has undermined their intellectual foundations.) On the other hand, those who, like me, think that markets often fail to produce efficient outcomes (producing too much pollution and too little basic research, for instance) and are disturbed by income inequalities and high levels of poverty; also believe that reducing that inequality can cost less than the conservative economists predict.

., 273, 309n Human Genome Project (HGP), 113 Human Genome Sciences (HGS), 113-14 human rights, 6 Hussein, Saddam, 136, 229, 231 Hydro, 328n hyperinflation, in Eastern Europe, 37 imports: of oil and gas, 289, 290 restrictions on, 33, 35 unemployment and, 253 import surges, 90-91 incentives, xviii, 189 intellectual property and, 122, 173 and partnership structure, 194 social costs and, 190 income, income inequality, xiv, xvi, 4, 8, 25, 31, 35-36, 40, 44, 270-72 India, xi, xviii, 3, 17, 23, 53, 68, 74, 126-27, 139, 193, 299n, 304n, 324n, 337n development success of, 42-44, 56 dumping charge against China brought by, 93 economic inequality in, 26, 44 economic rise of, 271 entertainment industry in, 129 free trade for, 6 Kyoto Protocol and, 169 literacy rate in, 25 median income in, 25 population of, 26 short-term capital restrictions in, 34 tech sector in, 42, 43, 57 unskilled labor in, 271, 272 Indian Institute of Science, 42 Indonesia, 31, 34, 54, 134, 146, 264 debt of, 231 deforestation and logging in, 157, 180 economic crisis in, 226, 243 poverty in, 297n reserves held by, 247-48 industrial countries: bankruptcy laws in, 239 and challenges of globalization, 273-76 crime and corruption in, 55, 56, 200 environment of developing countries and, 285-86 garment factories in, 304n global financial reform and, 286 globalization vilified in, 269 greenhouse gas emissions of, 175 Kyoto protocol and, 169-70, 175, 181, 183 legal aid for developing countries from, 128, 205-6 loans from, 237 materialism of, 188 upskilling of labor forces of, 275 Uruguay Round unfair to, 275 Industrial Revolution, 23, 46, 337n industrial subsidies, 84 inequality, xv, xvi-xvii, 8, 36-37, 46, 49, 137, 238 see also income, income inequality infant economy argument, 70 inflation, 235, 237, 279-80, 288 INDEX informed citizenry, economic decision making and, xiii, xviii, 28 Infosys Technologies, 25, 307n infrastructure, 20, 39, 40, 43, 62, 6970, 150 governments role in, 27-28, 49 as key to economic development, 26, 27, 32 Initiative for Policy Dialogue, 151-52 innovation, 285 as inhibited by patents, 110, 113-14 as reduced by monopolies, 109, 202 social justice achieved through, 118 as spurred by prices, 105 innovation fund, 124 Insider; The (film), 187 instability: countered by global greenback system, 263-64 evolution of, 256-60 of exchange rate, 247, 255, 261 of financial markets, ix, xi global reserves as cause of, 254-60 trade liberalization and, 69 insurance, insurance markets, 88 intellectual property, 77, 78, 97, 103-32, 280, 285, 311n balancing innovation with, 106 biodiversity and, 127 corporate interests and, 131 designing balanced projections for, 112-16 development-oriented regime for, 118 and incentives, 122, 173 of Microsoft, 202 monopolies created by, 107 property rights vs., 107, 108 protection of, 51, 72 research and, 111 standards for, 119, 128 strengths and limits of, 107-12 in trade agreements, 116-17 U.S. push for, 96 WTO requirements for, 305n see also Trade-Related Aspects of Intellectual Property Rights (TRIPS) InterAmerican Development Bank, 307n interdependence, as globalization tool, 266 interest rates, 70, 218-19, 220, 221, 222, 235, 236, 246, 247, 257, 288 as cost of reserve, 249-50 on loans, 241, 248-50, 265 unemployment and, 253 349 Intergovernmental Panel on Climate Change (IPCC), 168 International AIDS Vaccine Initiative, 336n International Conference on Financing for Development, 14 International Convention for Regulation of Whaling (1946), 168 International Cotton Advisory Committee (ICAC), 306n International Credit Court, 230 International Labour Organization, 8, 117 International Monetary Fund (IMF), ix, xii, 12-13, 16-17, 21, 28, 34, 36, 54, 154-55, 209, 225, 226, 277, 279-80, 320n, 331n, 334n, 335n, 338n Argentina and, 211, 221, 222-24, 241, 242 Asian Monetary Fund discouraged by, 260 attempt to discredit Stiglitz by, 293n bailouts by, 217 bankruptcy and, 287 BIS vs., 237 capital market liberalization and, 16, 38, 39 changes in voting structure at, 281-82 conditions on aid from, 15, 57, 146-47 creation of, 74 debt negotiation and, 215 debt relief by, 15, 239-40 democracy undermined by, 56 democratic deficit in, 18, 276 East Asian crisis exacerbated by, ix, 31, 34-35, 231, 248, 261 establishment of, 236 failed recommendations from, 31, 38-39, 40, 146-47 improved accountability for, 283-84 Indonesia and, 243 Iraq and, 234 loans to developing countries from, 41, 212, 226 Nigeria and, 234-35 overlending and, 220 policy flaws and failures of, xii, xiii, 255, 266 power plants and, 218 privatization advised by, 142-43, 234 Russian economic failures accelerated by, ix-x, 234, 242-43 SDRs and, 261-62 trade deficits as focus of stabilization policies of, 264 350 INDEX International Trade Commission, U.S., 308n International Trade Organization (ITO), 74-75 Internet, 20, 43, 84 "invisible hand," xiv Iraq, 135, 136, 229, 231, 234, 238 Iraq War, xviii, 5, 22, 172, 286, 291 see also war on terrorism Ireland, 170 irrigation, 85 Italy, 213, 224, 295n Ivory Coast, 41 Jamaica, 12, 84, 307n Japan, 33, 71, 77, 85, 261, 264, 270, 295n, 328n Asian Monetary Fund proposed by, 260 bribery in, 139 Chinese pollution in, 164 energy efficiency of, 170 greenhouse gases of, 169, 172 Kyoto Protocol and, 169, 173, 177, 180, 185 in Paris Club, 234 reserves held by, 247-48, 254-56, 258 tariffs of, 303n wage disparity in, 46 Jefferson, Thomas, 108, 314n Jones Act (1920), 88-89, 307n Jubilee 2000, 226-27 Justice Department, U.S., 201, 313n Kaletra, 121 Kantor, Mickey, 131, 318n Karnataka, India, 25 Katrina, Hurricane, 172, 307n Kazakhstan, 40, 133, 134, 139 Kennedy Round, 305n Kenya, 40, 41 Keynes, John Maynard, xvii-xviii, 68, 235, 239, 260, 261 Khodorkovsky, Mikhail, 144 Klein, Joel, 313n knowledge, 285, 302n patents as impediment to distribution of, 110 as public good, 107-8, 123, 174, 315n, 317n see also economies of information; traditional knowledge knowledge gap, 29, 51, 57, 118, 188, 272 Kyoto Protocol, 169-74, 180-81, 310n, 315n deforestation and, 179-80 developing countries and, 169-70, 173, 175-76 and emissions targets for developing countries, 174-76 trade agreements and, 315n trade sanctions and, 177-78, 182 2012 revised version of, 180 U.S. rejection of, 171-74, 176, 180, 184 labor, 79 flow of, 78, 88-90 free trade and, 66-67 middleaged, 67-68 unskilled, 8890, 271, 272 labor standards agreement, 117 Lagos, 134 Lagos, Richard, 320n Lamy, Pascal, 80 Lancet, 316n land grants, 20 Latin America, xi, 11, 24, 35-36, 89, 134 bail-outs in, 217 bilateral trade agreements in, 97 debt forgiveness in, 240 development failures in, 44, 47 government interventionist policies of 35 growth of development in, 30, 36-37, 238 import restrictions in, 35 inflation in, 36 leftist governments in, 36-37 money flow to U.S. from, 221 NAFTA and, 285 per capita income of, 35-36 policy reform in, 296n poverty rate vs.

., 273, 309n Human Genome Project (HGP), 113 Human Genome Sciences (HGS), 113-14 human rights, 6 Hussein, Saddam, 136, 229, 231 Hydro, 328n hyperinflation, in Eastern Europe, 37 imports: of oil and gas, 289, 290 restrictions on, 33, 35 unemployment and, 253 import surges, 90-91 incentives, xviii, 189 intellectual property and, 122, 173 and partnership structure, 194 social costs and, 190 income, income inequality, xiv, xvi, 4, 8, 25, 31, 35-36, 40, 44, 270-72 India, xi, xviii, 3, 17, 23, 53, 68, 74, 126-27, 139, 193, 299n, 304n, 324n, 337n development success of, 42-44, 56 dumping charge against China brought by, 93 economic inequality in, 26, 44 economic rise of, 271 entertainment industry in, 129 free trade for, 6 Kyoto Protocol and, 169 literacy rate in, 25 median income in, 25 population of, 26 short-term capital restrictions in, 34 tech sector in, 42, 43, 57 unskilled labor in, 271, 272 Indian Institute of Science, 42 Indonesia, 31, 34, 54, 134, 146, 264 debt of, 231 deforestation and logging in, 157, 180 economic crisis in, 226, 243 poverty in, 297n reserves held by, 247-48 industrial countries: bankruptcy laws in, 239 and challenges of globalization, 273-76 crime and corruption in, 55, 56, 200 environment of developing countries and, 285-86 garment factories in, 304n global financial reform and, 286 globalization vilified in, 269 greenhouse gas emissions of, 175 Kyoto protocol and, 169-70, 175, 181, 183 legal aid for developing countries from, 128, 205-6 loans from, 237 materialism of, 188 upskilling of labor forces of, 275 Uruguay Round unfair to, 275 Industrial Revolution, 23, 46, 337n industrial subsidies, 84 inequality, xv, xvi-xvii, 8, 36-37, 46, 49, 137, 238 see also income, income inequality infant economy argument, 70 inflation, 235, 237, 279-80, 288 INDEX informed citizenry, economic decision making and, xiii, xviii, 28 Infosys Technologies, 25, 307n infrastructure, 20, 39, 40, 43, 62, 6970, 150 governments role in, 27-28, 49 as key to economic development, 26, 27, 32 Initiative for Policy Dialogue, 151-52 innovation, 285 as inhibited by patents, 110, 113-14 as reduced by monopolies, 109, 202 social justice achieved through, 118 as spurred by prices, 105 innovation fund, 124 Insider; The (film), 187 instability: countered by global greenback system, 263-64 evolution of, 256-60 of exchange rate, 247, 255, 261 of financial markets, ix, xi global reserves as cause of, 254-60 trade liberalization and, 69 insurance, insurance markets, 88 intellectual property, 77, 78, 97, 103-32, 280, 285, 311n balancing innovation with, 106 biodiversity and, 127 corporate interests and, 131 designing balanced projections for, 112-16 development-oriented regime for, 118 and incentives, 122, 173 of Microsoft, 202 monopolies created by, 107 property rights vs., 107, 108 protection of, 51, 72 research and, 111 standards for, 119, 128 strengths and limits of, 107-12 in trade agreements, 116-17 U.S. push for, 96 WTO requirements for, 305n see also Trade-Related Aspects of Intellectual Property Rights (TRIPS) InterAmerican Development Bank, 307n interdependence, as globalization tool, 266 interest rates, 70, 218-19, 220, 221, 222, 235, 236, 246, 247, 257, 288 as cost of reserve, 249-50 on loans, 241, 248-50, 265 unemployment and, 253 349 Intergovernmental Panel on Climate Change (IPCC), 168 International AIDS Vaccine Initiative, 336n International Conference on Financing for Development, 14 International Convention for Regulation of Whaling (1946), 168 International Cotton Advisory Committee (ICAC), 306n International Credit Court, 230 International Labour Organization, 8, 117 International Monetary Fund (IMF), ix, xii, 12-13, 16-17, 21, 28, 34, 36, 54, 154-55, 209, 225, 226, 277, 279-80, 320n, 331n, 334n, 335n, 338n Argentina and, 211, 221, 222-24, 241, 242 Asian Monetary Fund discouraged by, 260 attempt to discredit Stiglitz by, 293n bailouts by, 217 bankruptcy and, 287 BIS vs., 237 capital market liberalization and, 16, 38, 39 changes in voting structure at, 281-82 conditions on aid from, 15, 57, 146-47 creation of, 74 debt negotiation and, 215 debt relief by, 15, 239-40 democracy undermined by, 56 democratic deficit in, 18, 276 East Asian crisis exacerbated by, ix, 31, 34-35, 231, 248, 261 establishment of, 236 failed recommendations from, 31, 38-39, 40, 146-47 improved accountability for, 283-84 Indonesia and, 243 Iraq and, 234 loans to developing countries from, 41, 212, 226 Nigeria and, 234-35 overlending and, 220 policy flaws and failures of, xii, xiii, 255, 266 power plants and, 218 privatization advised by, 142-43, 234 Russian economic failures accelerated by, ix-x, 234, 242-43 SDRs and, 261-62 trade deficits as focus of stabilization policies of, 264 350 INDEX International Trade Commission, U.S., 308n International Trade Organization (ITO), 74-75 Internet, 20, 43, 84 "invisible hand," xiv Iraq, 135, 136, 229, 231, 234, 238 Iraq War, xviii, 5, 22, 172, 286, 291 see also war on terrorism Ireland, 170 irrigation, 85 Italy, 213, 224, 295n Ivory Coast, 41 Jamaica, 12, 84, 307n Japan, 33, 71, 77, 85, 261, 264, 270, 295n, 328n Asian Monetary Fund proposed by, 260 bribery in, 139 Chinese pollution in, 164 energy efficiency of, 170 greenhouse gases of, 169, 172 Kyoto Protocol and, 169, 173, 177, 180, 185 in Paris Club, 234 reserves held by, 247-48, 254-56, 258 tariffs of, 303n wage disparity in, 46 Jefferson, Thomas, 108, 314n Jones Act (1920), 88-89, 307n Jubilee 2000, 226-27 Justice Department, U.S., 201, 313n Kaletra, 121 Kantor, Mickey, 131, 318n Karnataka, India, 25 Katrina, Hurricane, 172, 307n Kazakhstan, 40, 133, 134, 139 Kennedy Round, 305n Kenya, 40, 41 Keynes, John Maynard, xvii-xviii, 68, 235, 239, 260, 261 Khodorkovsky, Mikhail, 144 Klein, Joel, 313n knowledge, 285, 302n patents as impediment to distribution of, 110 as public good, 107-8, 123, 174, 315n, 317n see also economies of information; traditional knowledge knowledge gap, 29, 51, 57, 118, 188, 272 Kyoto Protocol, 169-74, 180-81, 310n, 315n deforestation and, 179-80 developing countries and, 169-70, 173, 175-76 and emissions targets for developing countries, 174-76 trade agreements and, 315n trade sanctions and, 177-78, 182 2012 revised version of, 180 U.S. rejection of, 171-74, 176, 180, 184 labor, 79 flow of, 78, 88-90 free trade and, 66-67 middleaged, 67-68 unskilled, 8890, 271, 272 labor standards agreement, 117 Lagos, 134 Lagos, Richard, 320n Lamy, Pascal, 80 Lancet, 316n land grants, 20 Latin America, xi, 11, 24, 35-36, 89, 134 bail-outs in, 217 bilateral trade agreements in, 97 debt forgiveness in, 240 development failures in, 44, 47 government interventionist policies of 35 growth of development in, 30, 36-37, 238 import restrictions in, 35 inflation in, 36 leftist governments in, 36-37 money flow to U.S. from, 221 NAFTA and, 285 per capita income of, 35-36 policy reform in, 296n poverty rate vs.


pages: 527 words: 147,690

Terms of Service: Social Media and the Price of Constant Connection by Jacob Silverman

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23andMe, 4chan, A Declaration of the Independence of Cyberspace, Airbnb, airport security, Amazon Mechanical Turk, augmented reality, Brian Krebs, California gold rush, call centre, cloud computing, cognitive dissonance, correlation does not imply causation, Credit Default Swap, crowdsourcing, don't be evil, Edward Snowden, feminist movement, Filter Bubble, Firefox, Flash crash, game design, global village, Google Chrome, Google Glasses, hive mind, income inequality, informal economy, information retrieval, Internet of things, Jaron Lanier, jimmy wales, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, license plate recognition, life extension, Lyft, Mark Zuckerberg, Mars Rover, Marshall McLuhan, meta analysis, meta-analysis, Minecraft, move fast and break things, national security letter, Network effects, new economy, Nicholas Carr, Occupy movement, optical character recognition, payday loans, Peter Thiel, postindustrial economy, prediction markets, pre–internet, price discrimination, price stability, profit motive, quantitative hedge fund, race to the bottom, Ray Kurzweil, recommendation engine, rent control, RFID, ride hailing / ride sharing, self-driving car, sentiment analysis, shareholder value, sharing economy, Silicon Valley, Silicon Valley ideology, Snapchat, social graph, social web, sorting algorithm, Steve Ballmer, Steve Jobs, Steven Levy, TaskRabbit, technoutopianism, telemarketer, transportation-network company, Turing test, Uber and Lyft, Uber for X, universal basic income, unpaid internship, women in the workforce, Y Combinator, Zipcar

.† Instantaneous global communication has failed to stop war, genocide, or famine; women remain second-class citizens in large parts of the world; authoritarian propaganda travels as easily online as human rights reports (in some countries, more easily); smartphones have become the preeminent surveillance tool for corporations and governments alike. While many once foresaw digital capitalism as the harbinger of an era of widespread prosperity, legacy industries such as newspapers have crumbled, and income inequality is now higher than ever—particularly in San Francisco, home to many technology-industry employees who are shuttled daily on private buses to and from massive suburban campuses, where they’re showered with amenities and services and never have to interact with residents of the surrounding communities. Barbrook and Cameron were prescient on this front, writing that “members of the virtual class and other professionals can play at being cyberpunks within hyper-reality without having to meet any of their impoverished neighbors.”

The expression of charity can stand alone, just as an anonymously published essay or a pseudonymous Twitter account can be judged on its own merits, without worrying about the confounding roles of follower counts or influence metrics. Anonymous online speech mitigates some of the obligations that come with digital publishing: incessant promotion, worries about audience composition, appeals to the whims of advertisers and members of one’s peer group or professional network. In a time of precarity—widespread unemployment, record income inequality, rapid technological change, looming environmental calamities—identity has become ever more fixed. One would think that it should be the opposite—that with society, and job markets in particular, in such a state of flux, people should have more flexibility to define themselves as they wish. Perhaps you are a Muslim immigrant living in a midsize American city and wouldn’t mind posting background information on your Facebook profile.

Some things we’re comfortable giving away for free, others we’re not, and the decision on what is exploitative may differ between well-meaning individuals. But as Terranova goes on to explain, we shouldn’t “mistake this coexistence for a benign, unproblematic equivalence.” Or, as another scholar describes it, these companies are engaged in a “variable scale of labor relations,” and some of them can be considered wrong, if not illegal. We see this in the fantastic wages and lifestyles afforded to programmers, and in the record income inequality and urban stratification to which these companies have contributed, as huge sums accrue to a small class of elites while legacy businesses are disrupted out of existence. Because once you achieve scale as a platform owner, it’s enormously lucrative. Craigslist, whose free classified ad model decimated the newspaper classifieds industry, is privately held, but its revenue per employee is estimated to be more than $3 million, tops in Silicon Valley.


pages: 515 words: 132,295

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

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3D printing, accounting loophole / creative accounting, additive manufacturing, Airbnb, algorithmic trading, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, interest rate derivative, interest rate swap, Internet of things, invisible hand, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, knowledge economy, labor-force participation, labour mobility, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund

Eight years on from the financial crisis of 2008, we are finally in a recovery, but it has been the longest and weakest recovery of the postwar era. The reason? Our financial system has stopped serving the real economy and now serves mainly itself, as the story above and many others in this book, along with copious amounts of data, will illustrate. Our system of market capitalism is sick, and the big-picture symptoms—slower-than-average growth, higher income inequality, stagnant wages, greater market fragility, the inability of many people to afford middle-class basics like a home, retirement, and education—are being felt throughout our entire economy and, indeed, our society. DIAGNOSING THE PROBLEM Our economic illness has a name: financialization. It’s a term for the trend by which Wall Street and its way of thinking have come to reign supreme in America, permeating not just the financial industry but all American business.

It’s no accident that corporate stock buybacks, which tend to bolster share prices but not underlying growth, and corporate pay have risen concurrently over the last four decades.54 There are any number of studies that illustrate this type of intersection between financialization and the wealth gap. One of the most striking was done by economists James Galbraith and Travis Hale, who showed how during the late 1990s, changing income inequality tracked the go-go NASDAQ stock index to a remarkable degree.55 The same thing happened during the stock boom of the last several years, underscoring the point that commentators like journalist Robert Frank have made, that wealth built on financial markets is “more abstracted from the real world” and thus more volatile, contributing to a cycle of booms and busts (which of course hurt the poor more than any other group).56 As Piketty’s work so clearly shows, in the absence of some change-making event, like a war or a severe depression that destroys financial asset value, financialization ensures that the rich really do get richer—a lot richer—while the rest become worse off.

Then, as now, financiers used their privileged position to argue that if they were stymied in their attempts to make increasingly large profits, the capitalist system itself would collapse.30 It eventually did, of course—not in spite of finance, but because of it. It’s no accident that the size of the financial sector today as a percentage of GDP is at levels equaled only on the eve of the Great Depression. Like the decade leading up to the financial crisis of 2008, the Roaring Twenties were marked by not only financial boom and technological wonder, but also massive income inequality. Worker wages stagnated and those of the upper classes grew, bolstered in large part by stock prices. Another similarity was a rise in debt, both public and private, which was used to mask the declining spending power of the lower and middle classes and its dampening effect on GDP growth. Then, as now, when people couldn’t afford to buy, they borrowed—Americans in the 1920s bought more than three-quarters of major household items on credit.


pages: 331 words: 60,536

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

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affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income

Only within the OECD countries has income redistribution had noticeable effects in raising incomes of unskilled persons. The greatest income inequalities have been observed among jurisdictions. Income redistribution has done little to alievate them. In fact, we believe that foreign aid and international development programs have had the perverse effect of lowering the real incomes of poor people in poor countries by subsidizing incompetent governments. This is an issue we consider in more depth in analyzing the impact of the Information Revolution on morality. A Century of Rising Income Inequality During the industrial period, the factor that contributed most to determining the ordinary person's lifetime income was the political jurisdiction in which he happened to reside. Contrary to the common impression in rich economies today, income inequality rose rapidly during the industrial period.

Contrary to the common impression in rich economies today, income inequality rose rapidly during the industrial period. An estimate cited by the World Bank suggests that average per capita income in the richest countries ballooned from eleven times that in the poorest countries in 1870 to fifty-two times in l985. While inequality increased dramatically on a global basis, it often appeared otherwise to the fraction of the world inhabiting the wealthy industrial countries. Income inequality rose among jurisdictions rather than within them. For reasons we have already explored, the character of industrial technology itself helped assure that income gaps would narrow within jurisdictions where halfway 175 competent governments mastered the exercise of power on a large scale. When returns to violence were rising, as they were during the Industrial Age, governments that operated on a large scale tended to be controlled by their employees.

Equal Opportunity in the Information Age In the Information Age, familiar locational advantages will rapidly be transformed by technology. Earnings capacity for persons of similar skills will become much more equal, no matter in what jurisdiction they live. This has already begun to happen. Because institutions that have employed compulsion and local advantage to redistribute income are losing power, income inequality within jurisdictions will rise. Global competition will also tend to increase the income earned by the most talented individuals 178 in each field, wherever they live, much as it does now in professional athletics. The marginal value generated by superior performance in a global market will be huge. While public debate will focus on growing 'inequality" in the OECD countries, individuals everywhere will enjoy far more nearly equal opportunity.


pages: 538 words: 138,544

The Story of Stuff: The Impact of Overconsumption on the Planet, Our Communities, and Our Health-And How We Can Make It Better by Annie Leonard

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air freight, banking crisis, big-box store, blood diamonds, Bretton Woods, California gold rush, carbon footprint, clean water, Community Supported Agriculture, dematerialisation, employer provided health coverage, energy security, European colonialism, Firefox, Food sovereignty, Ford paid five dollars a day, full employment, global supply chain, income inequality, Indoor air pollution, intermodal, Jeff Bezos, job satisfaction, McMansion, new economy, oil shale / tar sands, peak oil, Ralph Nader, renewable energy credits, Silicon Valley, special economic zone, supply-chain management, the built environment, trade liberalization, trickle-down economics, union organizing, Wall-E, Whole Earth Review, Zipcar

Leading scientists around the world have identified 350 ppm as the maximum level that the atmosphere can contain for the planet to remain as we know it.6 Toxic industrial and agricultural chemicals now show up in every body tested anywhere in the world, including in newborn babies.7 Source: W. Steffen at al, Global Change and the Earth System: A Planet Under Pressure, 2005. Indoor air pollution kills 1.6 million people per year, with outdoor air pollution taking another 800,000 lives each year.8 About one-fifth of the world’s population—more than 1.2 billion people—experience water scarcity, and this resource is becoming increasingly scarce.9 Global income inequality is staggering. Currently, the richest 1 percent of people in the world have as much wealth and Stuff as the bottom 57 percent.10 So what happens when there’s a subsystem like the economy that keeps growing inside of a system of a fixed size? It hits the wall. The expanding economic system is running up against the limits of our planet’s