income inequality

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pages: 312 words: 91,835

Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic

"Robert Solow", Asian financial crisis, assortative mating, Berlin Wall, bitcoin, Black Swan, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial exploitation, colonial rule, David Ricardo: comparative advantage, deglobalization, demographic transition, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, Francis Fukuyama: the end of history, full employment, Gini coefficient, Gunnar Myrdal, income inequality, income per capita, invisible hand, labor-force participation, liberal capitalism, low skilled workers, Martin Wolf, means of production, mittelstand, moral hazard, Nash equilibrium, offshore financial centre, oil shock, open borders, Paul Samuelson, place-making, plutocrats, Plutocrats, post scarcity, post-industrial society, profit motive, purchasing power parity, Ralph Nader, Second Machine Age, seigniorage, Silicon Valley, Simon Kuznets, special economic zone, stakhanovite, trade route, transfer pricing, very high income, Vilfredo Pareto, Washington Consensus, women in the workforce

Consider the United States first: the graph shows that when we add social transfers to market income (to get gross income) and then deduct direct taxes (to get disposable income), the level of inequality is reduced each time; that is, both social transfers and taxes do indeed reduce inequality. However, the trend in the increase of disposable income inequality is almost the same as the trend in the increase of market income inequality. Market income inequality went up from 42 to just over 50 Gini points (an eight-point increase), while disposable income inequality rose from about 36 to 41 Gini points (a five-point increase). Redistribution became slightly more important, or more progressive, but it failed to offset the underlying increase in market income inequality. FIGURE 2.23. Market, gross, and disposable income inequality in the United States and Germany, 1970–2010 This graph compares inequality in market, gross, and disposable income in the United States (a) and Germany (b) between 1970 and 2013.

Intersectoral wage inequality measures inequality between wages in different industrial sectors; it is not the same as wage inequality between individuals or income inequality among households, so it is at best a proxy of “real” interpersonal inequality.17 Nevertheless, Zhang’s results may reflect a similar trend in interpersonal inequality, especially because in the past, changes in intersectoral wage inequality closely paralleled those in overall income inequality.18 FIGURE 4.4. Income inequality in China, 1975–2012 This graph shows the evolution of income inequality across individuals (measured by Gini values) in China against China’s real GDP per capita. We see that inequality in China has increased steadily since the reforms started (after 1975) but has recently been stable. Data sources: Ginis: All the Ginis database (http://www.gc.cuny.edu/branko-milanovic), calculated from the official Chinese household surveys. GDP per capita from Maddison Project (2013). If evidence showing absence of a further increase in income inequality is confirmed, it may be that China’s level of income inequality has reached a plateau and will soon begin moving downward, in line with Kuznets’s theory.

Inequality of market income and disposable income in selected rich Asian and Western countries (around 2010) This graph shows the relationship between inequality of disposable income (income after social transfers and direct taxes) and inequality of market income (income before social transfers and direct taxes) for selected rich Asian and Western countries. The line shows the situation where disposable income inequality is equal to market income inequality. The distance between the line and the dots shows how much market income inequality is reduced as a result of government redistribution through social transfers and taxes. The three Asian countries have low market income inequality and low government redistribution (their dots lie close to the line). Country abbreviations: Asia: JPN Japan, KOR South Korea, TWN Taiwan; Western countries: AUS Australia, AUT Austria, BEL Belgium, CAN Canada, CHE Switzerland, DEU Germany, DNK Denmark, ESP Spain, FIN Finland, FRA France, GBR Great Britain, GRC Greece, IRL Ireland, ISR Israel, ITA Italy, LUX Luxembourg, NLD Netherlands, NOR Norway, SVN Slovenia, SWE Sweden, USA United States.


pages: 309 words: 91,581

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

assortative mating, autonomous vehicles, blue-collar work, Bonfire of the Vanities, Branko Milanovic, business cycle, call centre, collective bargaining, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, easy for humans, difficult for computers, Erik Brynjolfsson, Everybody Ought to Be Rich, feminist movement, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, Gunnar Myrdal, income inequality, industrial robot, invisible hand, job automation, Joseph Schumpeter, longitudinal study, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, Paul Samuelson, performance metric, positional goods, post-industrial society, postindustrial economy, purchasing power parity, refrigerator car, rent control, 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, Vilfredo Pareto, 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: 775 words: 208,604

The Great Leveler: Violence and the History of Inequality From the Stone Age to the Twenty-First Century by Walter Scheidel

agricultural Revolution, assortative mating, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, colonial rule, Columbian Exchange, conceptual framework, corporate governance, cosmological principle, crony capitalism, dark matter, declining real wages, demographic transition, Dissolution of the Soviet Union, Downton Abbey, Edward Glaeser, failed state, Fall of the Berlin Wall, financial deregulation, fixed income, Francisco Pizarro, full employment, Gini coefficient, global pandemic, hiring and firing, income inequality, John Markoff, knowledge worker, land reform, land tenure, low skilled workers, means of production, mega-rich, Network effects, nuclear winter, offshore financial centre, plutocrats, Plutocrats, race to the bottom, recommendation engine, rent control, rent-seeking, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, Simon Kuznets, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, transatlantic slave trade, universal basic income, very high income, working-age population, zero-sum game

As a result, in Kuznets’ own words, One might thus assume a long swing in the inequality characterizing the secular income structure: widening in the early phases of economic growth when the transition from the pre-industrial to the industrial civilization was most rapid; becoming stabilized for a while; and then narrowing in the later phases. It is worth noting that he assigned considerable importance to political factors, especially with respect to the development of net income inequality after taxes and transfers: fiscal measures and welfare benefits, in narrowing income inequality . . . must have accentuated the downward phase of the long swing, contributing to the reversal of trend in the secular widening and narrowing of income inequality. Yet in his model, even these factors were preceded by and logically predicated upon economic change; for this reason, the long swing in income inequality must be viewed as a part of a wider process of economic growth. Although Kuznets himself self-effacingly characterized his contribution as perhaps 5 per cent empirical information and 95 per cent speculation, some of it possibly tainted by wishful thinking . . . a collection of hunches calling for further investigation, this model eventually rose to great prominence.

The Peninsular War of 1807 to 1814, fought between France and Spain and its allies on Spanish soil, caused widespread destruction and coincided with increased volatility in Spanish real wages and a temporary surge in overall income inequality. By contrast, the years immediately following this conflict witnessed rising real wages, rising nominal wages in relation to land rent, and lower income inequality in general. Destructive warfare and protracted domestic turbulence in Venezuela in the 1820s and 1830s likewise appears to have led to a sharp drop in the ratio of land rents to wages.40 ”WE NO LONGER COUNTED UP WHAT WE HAD KILLED BUT WHAT IT WOULD BRING US”: CIVIL WAR This leaves us with a final question: how does civil war affect inequality? Modern scholarship has generally focused on the reverse—whether inequality contributes to the outbreak of internal conflicts. There is no straightforward answer to that second question. Overall (or “vertical”) income inequality—between people or households within a given country—is not positively correlated with the likelihood of civil war, although the poor quality of data from many developing countries raises doubts about the reliability of any specific finding.

Formal testing has confirmed that notwithstanding strong economic growth in those years, the Kuznets model cannot account for most of the observed decline.23 Recent studies have identified several reasons for this process: falling skill premiums and strong foreign demand that compressed market income inequality by reducing sectoral earnings gaps, recovery from earlier unequalizing macroeconomic crises that had exacerbated poverty, strong labor markets driven by more rapid economic growth, and the redistributive effect of certain government transfers on disposable income inequality. At least in theory, the first of these factors holds particular promise as a potential peaceful driver of equalization in the longer term. Market reforms in the 1990s tended to be accompanied by an expansion of the educational system, an expansion that has since continued and increased the supply of skilled workers, which in turn lowered returns on higher-level schooling and skill premiums and thus overall labor income inequality. There is no single answer to the question whether the reduction in skill premiums owed more to improved supply or diminishing demand.


pages: 309 words: 86,909

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

basic income, Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, God and Mammon, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labor-force participation, land reform, longitudinal study, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, moral panic, 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, zero-sum game

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: 436 words: 98,538

The Upside of Inequality by Edward Conard

affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Albert Einstein, assortative mating, bank run, Berlin Wall, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Climatic Research Unit, cloud computing, corporate governance, creative destruction, Credit Default Swap, crony capitalism, disruptive innovation, diversified portfolio, Donald Trump, en.wikipedia.org, Erik Brynjolfsson, Fall of the Berlin Wall, full employment, future of work, Gini coefficient, illegal immigration, immigration reform, income inequality, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, Kodak vs Instagram, labor-force participation, liquidity trap, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass immigration, means of production, meta analysis, meta-analysis, new economy, offshore financial centre, paradox of thrift, Paul Samuelson, pushing on a string, quantitative easing, randomized controlled trial, risk-adjusted returns, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, selection bias, Silicon Valley, Simon Kuznets, Snapchat, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, total factor productivity, twin studies, Tyler Cowen: Great Stagnation, University of East Anglia, upwardly mobile, War on Poverty, winner-take-all economy, women in the workforce, working poor, working-age population, zero-sum game

Under these conditions, competition for workers seems to lead to a never-ending spiral of productivity improvements and wage increases. These circumstances led economists to believe that income inequality narrows as countries grow richer—what economists call a Kuznets curve, after Simon Kuznets, the economist who theorized it. In agrarian economies, where a small cabal of landowners initially controls the means of production, industrialization of those economies often broadens ownership of the means of production and raises wages, which narrows income inequality. Similarly, where a broad base of uneducated talent becomes educated, income inequality again may narrow. But this provides a cautionary tale. Economists often make their bones by discovering generalizable truths. Economic circumstances, however, affect the application of these generalizable truths.

Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2013). 2. Ibid. 3. Arvid Malm and Tino Sanandaji, “The Role of Entrepreneurship in Rising Wealth and Income Inequality,” Royal Institute of Technology, Paper No. 398, CESIS: (2015), https://static.sys.kth.se/itm/wp/cesis/cesiswp398.pdf. 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,” November 2010, http://piketty.pse.ens.fr/files/Bakijaetal2010.pdf. 4. Bakija, Cole, and Heim, “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality.” 5. Seth H. Giertz and Jacob A. Mortenson, “Recent Income Trends for Top Executives: Evidence from Tax Return Data,” National Tax Journal 66, no. 4 (2013): 913–38, http://digitalcommons.unl.edu/cgi/viewcontent.cgi?

Lawrence Mishel and Natalie Sabadish, “CEO Pay and the Top 1%: How Executive Compensation and Financial Sector Pay Have Fueled Income Inequality,” Economic Policy Institute Brief 331 (May 2, 2012). 8. Piketty, Capital in the Twenty-First Century. 9. Ibid. 10. Song et al., “Firming Up Inequality.” 11. Mishel and Sabadish, “CEO Pay and the Top 1%.” 12. Piketty, Capital in the Twenty-First Century. 13. Song et al., “Firming Up Inequality.” 14. Malm and Sanandaji, “The Role of Entrepreneurship in Rising Wealth and Income Inequality.” Steven N. Kaplan and Joshua D. Rauh, “Family, Education, and Sources of Wealth among the Richest Americans, 1982–2012,” American Economic Review 103, no. 3 (2013), https://ideas.repec.org/a/aea/aecrev/v103y2013i3p158-62.html. 15. Malm and Sanandaji, “The Role of Entrepreneurship in Rising Wealth and Income Inequality.” 16. Brian Raub, Barry Johnson, and Joseph Newcomb, “A Comparison of Wealth Estimates for America’s Wealthiest Decedents Using Tax Data and Data from the Forbes 400,” Compilation of Federal Estate Tax and Personal Wealth Studies: Chapter 7—Studies Linking Income and Wealth (n.d.): 811–25, 2010, http://www.irs.gov/pub/irs-soi/11pwcompench7ewealth.pdf.


pages: 165 words: 45,129

The Economics of Inequality by Thomas Piketty, Arthur Goldhammer

"Robert Solow", affirmative action, basic income, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, conceptual framework, deindustrialization, endogenous growth, Gini coefficient, income inequality, low skilled workers, means of production, moral hazard, Pareto efficiency, 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.


pages: 221 words: 55,901

The Globalization of Inequality by François Bourguignon

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, liberal capitalism, minimum wage unemployment, offshore financial centre, open economy, Pareto efficiency, 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.


Capitalism, Alone: The Future of the System That Rules the World by Branko Milanovic

"Robert Solow", affirmative action, Asian financial crisis, assortative mating, barriers to entry, basic income, Berlin Wall, bilateral investment treaty, Black Swan, Branko Milanovic, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, colonial rule, corporate governance, creative destruction, crony capitalism, deindustrialization, dematerialisation, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, ghettoisation, gig economy, Gini coefficient, global supply chain, global value chain, high net worth, income inequality, income per capita, invention of the wheel, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, low skilled workers, Lyft, means of production, new economy, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, post-materialism, purchasing power parity, remote working, rent-seeking, ride hailing / ride sharing, Silicon Valley, single-payer health, special economic zone, The Wealth of Nations by Adam Smith, Thorstein Veblen, uber lyft, universal basic income, Vilfredo Pareto, Washington Consensus, women in the workforce, working-age population, Xiaogang Anhui farmers

Limits to what taxes and transfers can do To illustrate what can be done using the old tools of tax-and-transfer redistribution and what problems remain, consider the examples of the United States and Germany for the past half century, shown in Figure 2.5. Look first at the lines for market income inequality, which measures inequality in income before taxes and transfers. In both countries (as in practically all rich countries), market income inequality increased dramatically, driven by the factors discussed earlier. The increase was even sharper in Germany than in the United States. The middle line in both graphs shows gross income inequality, that is, the inequality level that exists after taking transfers (such as public pensions and welfare benefits) into account, and the bottom line shows disposable income inequality—after the effects of direct taxes have been included as well. If policymakers or legislators want to curb inequality at the level of disposable income, they must either increase taxes and transfers or make them more progressive.

Data source: Calculated from Luxembourg Income Study data (https://www.lisdatacenter.org). Germany has almost succeeded in offsetting rising market income inequality; inequality in disposable income (the bottom line) shows only a modest increase since the early 1980s. This was achieved through large social transfers (notice the widening gap between the top and middle lines) and to a lesser extent through higher or more progressive taxation (the gap between the middle and the bottom lines has been about the same since 1990). Income redistribution in the United States, in contrast, has become only slightly more progressive, such that disposable income inequality has risen by a similar amount as market income inequality (shown by the parallel movements of the top and bottom lines). This comparison shows that policy can make a difference, but it also illustrates its limitations.

Looking again at Figure 2.5, equalizing endowments would directly affect the underlying market inequality: doing so would slow down and even reverse the increase in the top line, to such an extent that the amount of redistribution (the gap between the top and the two bottom lines) could even go down without affecting the overall inequality of disposable income. The closest real-world example is that of Taiwan, where distribution of both labor and capital incomes is markedly more egalitarian than in any other rich country (see Figure 2.2) and where, as a result, the level of disposable income inequality is similar to that of Canada, an outcome achieved with minimal redistribution. To continue the example to the extreme, consider an imaginary world with absolutely equal endowments of capital and labor: market income inequality would be zero, and no redistribution would be needed; disposable income inequality would be zero as well.39 But how can the distribution of capital and skill endowments be made less unequal? As far as capital is concerned, it could be done by deconcentrating ownership of assets. As for labor, it could be accomplished by equalizing the returns to the approximately same skill levels.


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The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality by Branko Milanovic

Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, endogenous growth, 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, Pareto efficiency, plutocrats, Plutocrats, purchasing power parity, Simon Kuznets, very high income, Vilfredo Pareto, Washington Consensus, zero-sum game

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).


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

Branko Milanovic, business cycle, 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, 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.


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Open: The Progressive Case for Free Trade, Immigration, and Global Capital by Kimberly Clausing

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, active measures, Affordable Care Act / Obamacare, agricultural Revolution, battle of ideas, Bernie Sanders, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, corporate social responsibility, creative destruction, currency manipulation / currency intervention, David Ricardo: comparative advantage, Donald Trump, floating exchange rates, full employment, gig economy, global supply chain, global value chain, guest worker program, illegal immigration, immigration reform, income inequality, index fund, investor state dispute settlement, knowledge worker, labor-force participation, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, offshore financial centre, open economy, Paul Samuelson, profit motive, purchasing power parity, race to the bottom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transfer pricing, uber lyft, winner-take-all economy, working-age population, zero-sum game

The labor share of income and income inequality are not the same thing, since income inequality can also arise from an increased dispersion of labor incomes, if workers at the top experience higher wage increases than workers at the bottom.8 Notably, income inequality has also increased in many (but not all) other countries, despite a wide variety of economic policies and circumstances. Still, income inequality has increased more rapidly in the United States than in most other countries (fig. 2.6). Are Things Really So Bad? The data reported above come from work that uses the broadest definition of income, including capital income from investments.9 Using other sources of data would somewhat moderate the increase in income inequality, though all sources of data agree that income inequality in the United States has increased substantially in recent decades.

If immigrants are more likely to compete with workers at the bottom of the income distribution, that could reduce wage growth for those workers, exacerbating income inequality (though there are also many ways in which immigration helps workers, as discussed in Chapter 8). The international business operations of global corporations likely reduce the bargaining power of labor and labor unions, as companies may use the threat of moving abroad to restrain wage growth at home. And if some types of operations are systematically moved abroad, that reduces demand for those types of workers at home. Figure 2.13: Immigrants are Increasingly Important, But Still Less So than in Early 1900s Data source: Migration Policy Institute. Still, puzzles remain. First, in poorer countries, income inequality is also increasing alongside reductions in the labor share of income.23 That is counter to expectation, since integration with the world economy should be increasing demand for workers in poorer countries.

Superstars earn more due to global markets and the easy distribution of their products—distribution facilitated by technological change. The success of superstars fuels changes in social norms about what level of compensation is “justified” by the marketplace. Still, different societies mediate these same economic forces in different ways. While many countries have experienced aspects of the trends described here (increased income inequality, surges in top 1 percent shares, reduced labor income shares), the United States’ experience of increasing income inequality, accompanied by middle-income economic stagnation, has been particularly dramatic and sustained. Common economic forces like trade and technological change create different consequences in different places, due to different institutions, social norms, and economic policies.43 The remainder of this book will argue that global forces (namely, international trade, international capital mobility, international business, and immigration) are not the chief culprits behind the woes of the American middle class—and that, while these global forces certainly contribute to the economic insecurity facing American workers, clamping down on globalization would harm American workers more than it would help them.


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Inequality and the 1% by Danny Dorling

Affordable Care Act / Obamacare, banking crisis, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Boris Johnson, Branko Milanovic, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, collective bargaining, conceptual framework, corporate governance, credit crunch, David Attenborough, David Graeber, delayed gratification, Dominic Cummings, double helix, Downton Abbey, en.wikipedia.org, Etonian, family office, financial deregulation, full employment, Gini coefficient, high net worth, housing crisis, income inequality, land value tax, longitudinal study, low skilled workers, lump of labour, mega-rich, Monkeys Reject Unequal Pay, Mont Pelerin Society, mortgage debt, negative equity, Neil Kinnock, Occupy movement, offshore financial centre, plutocrats, Plutocrats, precariat, quantitative easing, race to the bottom, Robert Shiller, Robert Shiller, TaskRabbit, The Spirit Level, The Wealth of Nations by Adam Smith, trickle-down economics, unpaid internship, very high income, We are the 99%, wealth creators, working poor

Following the financial crash in the rich world, only six out of thirty OECD countries saw a reduction in market (pre-tax and benefit) income inequalities. Of all OECD countries, it was in Spain that disposable income inequality rose fastest in the first three years after the financial crash.27 Ireland saw the highest increase in market income inequality, but state action resulted in the increase in disposable income inequality being modest (see Figure 6.3). The greedy used the crash to become richer, to buy assets cheaply, and to make new profits out of others’ impoverishment. But it doesn’t have to be this way. State action resulted in disposable income inequality falling in another dozen countries, most dramatically in Iceland, reversing the changes in market income inequality. Around the rich world the same shock is being handled very differently from one country to another.

He argues this is not an accident, but a function of how the coalition views growth can be achieved.’43 Such carefully worded statements are more than a generation away from Denis Healey’s promise of February 1974 to ‘squeeze property speculators until the pips squeak’ – and Healey was to the right of Labour at the time.44 When you hear of slow progress in the UK and US, it may surprise you to learn that income inequality may not be rising everywhere. Globally, according to the World Bank, inequality has been falling since 2000. In Brazil income inequality peaked in the 1980s. In the US it is currently at a peak, but in Sweden it appears to have been falling again just as it has fallen worldwide (see Figure 6.5).45 Such claims for falling worldwide inequality are, of course, disputed; and measures of inequality that are more sensitive to the 1 per cent taking an ever greater share may not be as forgiving of extreme greed as the Gini coefficient; but inequalities within the middle of the distribution can nonetheless fall. Source: Branko Milanovic, 2012 Figure 6.5 Global and selected countries’ income inequality Gini coefficients 1966–2006 Shortly after the release of the 2012 World Bank report suggesting that global income inequality was falling, another organisation published its major findings, stating: ‘Poverty has not declined to the extent claimed and inequity has risen.’46 It may be that, between the mildly rich and the relatively poor, some equalisation is occurring.

Taking children into account complicates the picture further. Finally, calculating entire distribution measures of inequality, such as the Gini coefficient, tends to cause many more readers’ eyes to glaze over. Fortunately there is a strong correlation between the complex Gini coefficient of income inequality (measured after tax and benefits and adjusting for household size) and the simple measure of how much of total income the best-off 1 per cent receives each year. When the 1 per cent receives a low proportion of national income, inequality for the rest of the population is forced to be lower, because no other group can receive more than the best-off 1 per cent. Simply concentrating on the share taken by the 1 per cent is enough. It may even be one of the best measures of inequality to consider in terms of how simple a target it may be for effective social policy.12 Economists have measured the fortunes of the best-off 1 per cent for decades.


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The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class?and What We Can Do About It by Richard Florida

affirmative action, Airbnb, basic income, Bernie Sanders, blue-collar work, business climate, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbine, congestion charging, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, Donald Trump, East Village, edge city, Edward Glaeser, failed state, Ferguson, Missouri, Gini coefficient, Google bus, high net worth, income inequality, income per capita, industrial cluster, informal economy, Jane Jacobs, jitney, Kitchen Debate, knowledge economy, knowledge worker, land value tax, low skilled workers, Lyft, megacity, Menlo Park, mortgage tax deduction, Nate Silver, New Economic Geography, new economy, New Urbanism, occupational segregation, Paul Graham, plutocrats, Plutocrats, RAND corporation, rent control, rent-seeking, Richard Florida, rising living standards, Ronald Reagan, secular stagnation, self-driving car, Silicon Valley, sovereign wealth fund, superstar cities, the built environment, The Chicago School, The Death and Life of Great American Cities, the High Line, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, white flight, young professional

Wage inequality, we found, is statistically associated with the concentration of college graduates, high-tech industry, and knowledge and professional workers.15 Little wonder then that wage inequality is particularly high in leading knowledge hubs. Income inequality is more reflective of long-standing poverty and economic distress at the bottom of the socioeconomic pyramid. William Julius Wilson and other sociologists have long argued that inequality is a product of both poverty and racial disadvantage.16 Our findings bear this out: income inequality across metro areas is statistically associated with both poverty and race as measured by the African American share of metro population, controlling for other factors.17 Furthermore, income inequality is lower where the unionized share of the workforce is higher, and higher in places with lower rates of taxation. Our analysis found statistical associations between urban income inequality, the weakening of unions, and the erosion of the systems of progressive taxation that underpin social insurance programs.

This becomes clear when we look at the metros and cities with the greatest 95–20 ratios, where the incomes of the top 5 percent of households exceed the incomes of the lowest 20 percent by multiples of 10 to 18.11 As Table 5.2 shows, in Bridgeport-Stamford the top 5 percent rakes in, on average, in excess of $550,000. Income inequality in the superstar cities of New York and Los Angeles and the knowledge hubs of Boston, Washington, DC, and San Francisco is also driven by those at the top. But there are other metros where large 95–20 ratios are driven by the especially low incomes of those at the bottom. Such places include the Sunbelt cities of New Orleans and Miami, with their large service economies and high incidences of racially concentrated poverty. Wage inequality, which is different from income inequality, provides another lens into urban America’s widening economic divide (see Table 5.3). Income inequality takes income from rents and capital at the top of the scale into account, as well as the economic condition of people at the bottom who are unemployed or do not work; wage inequality simply measures the gap between the lowest-paid and the highest-paid workers.

William Julius Wilson, The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy (Chicago: University of Chicago Press, 1987); William Julius Wilson, When Work Disappears: The World of the New Urban Poor (New York: Knopf, 1996). 17. The correlation between income inequality and poverty is 0.50, and the correlation between income inequality and race is 0.30. 18. See Barry Bluestone and Bennett Harrison, The Great U-Turn: Corporate Restructuring and the Polarizing of America (New York: Basic Books, 1988). Also see Dierk Herzer, “Unions and Income Inequality: A Panel Cointegration and Causality Analysis for the United States,” Economic Development Quarterly (March 3, 2016). 19. Richard Florida, “Inequality and the Growth of Cities,” CityLab, January 20, 2015, www.citylab.com/work/2015/01/inequality-and-the-growth-of-cities/384571; Richard Florida, “The Connection Between Successful Cities and Inequality,” CityLab, January 6, 2015, www.citylab.com/politics/2015/01/the-connection-between-successful-cities-and-inequality/384243. 20.


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

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, 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, fixed income, Francis Fukuyama: the end of history, full employment, G4S, 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, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, 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 inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, 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

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, 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, fixed income, 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, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, 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.


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Capital in the Twenty-First Century by Thomas Piketty

"Robert Solow", accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, centre right, circulation of elites, 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, Kenneth Arrow, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, 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, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

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.


The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

"Robert Solow", banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

Kuznets’s Dream Based on a statistical analysis of US tax data between  and , the American economist Simon Kuznets came to the remarkable conclusion in  that income inequality in the US had dropped substantially. Based on this fact, Kuznets decided that capitalism contains a law which ensures that as a country becomes richer, income inequality drops. He expressed this in what would later be called the Kuznets curve, as shown in Figure .. The horizontal axis represents income per capita, the vertical axis income inequality. We can see that when income per capita rises, inequality initially rises. Once a certain level of wealth is achieved, income inequality begins to fall.  T HE U TO PIA OF SE LF - RE GUL ATIO N INCOME INEQUALITY INCOME PER CAPITA Figure .. The Kuznets curve The Kuznets curve had a great influence on generations of economists and policy makers, debunking the Marxist idea that capitalism would lead to increasing inequality.

The Kuznets curve The Kuznets curve had a great influence on generations of economists and policy makers, debunking the Marxist idea that capitalism would lead to increasing inequality. This optimistic theory implied that as capitalism developed it would lose the unattractive feature of income inequality and become more socially acceptable. According to Kuznets, a self-regulating mechanism ensured that capitalism would not lead to revolutionary developments, as Marx had predicted. In retrospect it seems that Kuznets’s vision was just a dream, based on a very limited period of history, between the two world wars. During this period income inequality did indeed drop in many Western countries, as shown in Figure .. This drop in income inequality had a great deal to do with the revolutionary circumstances evoked by the wars, which weakened the position of the highest income earners in many countries. This was also expressed in spectacular rises in taxes on the highest incomes, as mentioned in Chapter .

This was also expressed in spectacular rises in taxes on the highest incomes, as mentioned in Chapter . The empirical evidence collected since then by economists such as Atkinson, Piketty, Saez, and others point to increased income inequality since the s.15 This was also illustrated in Figure . and is particularly true of the Anglo-Saxon countries. Piketty recently  THE L IMI TS OF TH E MAR KET investigated the reasons for this trend. We will discuss his theory in Chapter . Here it is sufficient to conclude that no self-regulating mechanism exists in capitalism to reduce income inequality and prevent the system from clashing violently with its limits. In Conclusion In this chapter we questioned whether the market contains selfregulating processes which can prevent the system from ending in self-destruction.


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

"Robert Solow", Admiral Zheng, agricultural Revolution, Branko Milanovic, BRICs, British Empire, call centre, clean water, colonial exploitation, Columbian Exchange, creative destruction, declining real wages, Downton Abbey, end world poverty, financial innovation, germ theory of disease, Gini coefficient, illegal immigration, income inequality, invention of agriculture, invisible hand, John Snow's cholera map, knowledge economy, Louis Pasteur, low skilled workers, new economy, purchasing power parity, randomized controlled trial, rent-seeking, rising living standards, Ronald Reagan, Simon Kuznets, Steve Jobs, Steven Pinker, structural adjustment programs, The Spirit Level, too big to fail, trade route, very high income, War on Poverty

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

attribution theory, business cycle, 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, longitudinal study, means of production, purchasing power parity, rising living standards, twin studies, 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.


Battling Eight Giants: Basic Income Now by Guy Standing

basic income, Bernie Sanders, centre right, collective bargaining, decarbonisation, diversified portfolio, Donald Trump, Elon Musk, full employment, future of work, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), job automation, labour market flexibility, Lao Tzu, longitudinal study, low skilled workers, Martin Wolf, Mont Pelerin Society, moral hazard, North Sea oil, offshore financial centre, open economy, pension reform, precariat, quantitative easing, rent control, Ronald Reagan, selection bias, universal basic income, Y Combinator

Overall, the British tax system is less effective at reducing inequality than the tax systems of most EU countries, including France, Germany and Italy.33 Now we come to the biggest weakness in the claims that inequality has not increased. Wealth has risen faster than income. Wealth inequality in the UK is much greater than income inequality and is well above the OECD average. As private wealth has risen from about three times GDP in the 1960s and 1970s to nearly seven times now,34 the shift from income to wealth must have raised total inequality, even if wealth inequality and income inequality had stayed the same, which is doubtful. So, wealth and income inequality combined must have increased. Since the Big Bang liberalization of financial markets under the Thatcher government, Britain has become much more reliant on the financial sector. Its assets now amount to over 300% of GDP, up from about 100% in the 1970s, while net public wealth has declined, partly due to a transfer of public to private wealth.35 And the concentration of private wealth has increased.

Joyce, A. Norris-Keiller and J. P. Ziliak, ‘Income Inequality and the Labour Market in Britain and the US’, Journal of Public Economics 162, 2018, pp. 48–62. 24 OECD Employment Outlook 2018, Paris: OECD, 2018. 25 Bellfield et al., ‘Two Decades of Income Inequality in Britain’. Notes 117 26 G. Standing, The Precariat: The New Dangerous Class, London: Bloomsbury, 2011. 27 Department for Work and Pensions, Households Below Average Income: An Analysis of the UK Income Distribution: 1994/95-2016/17, London: HMSO, March 2018, p. 10. 28 See, for instance, S. Butler, ‘Tesco Staff Get 10% Pay Rise – But Lose Their Annual Bonus’, The Guardian, 11 June 2019, p. 30. 29 ‘Time to Perk Up’, The Economist, 10 November 2018, p. 71. 30 F. McGuinness, ‘Income Inequality in the UK’, House of Commons Library Briefing Paper 7484, August 2018. 31 Standing, Plunder of the Commons. 32 Office for National Statistics, Effects of Taxes and Benefits on UK Household Income: Financial Year Ending 2017, London: HMSO, June 2018, p. 11. 33 ‘Graphic Detail: Tax and Inequality’, The Economist, 13 April 2019, p. 77. 34 G.

The Gini coefficient – a summary measure of income inequality – has risen from under 0.25 in the late 1970s to 0.34 in 2017–18, a huge increase. However, according to the conventional statistics, this increase took place primarily in the 1980s under the Thatcher government. The Gini coefficient has hardly budged since the 1990s, leading many commentators to claim that wealth and income gaps have been broadly stable since then.4 Yet other evidence indicates that the growth of inequality in recent years has been far greater than the conventional statistics suggest. The Conservative government has repeatedly claimed that inequality has fallen on its watch. As the Secretary of State for Work and Pensions Amber Rudd proclaimed at the end of March 2018, ‘Since we entered government in 2010, income inequality has fallen.’ In the same month, her own department issued a report admitting that inequality had increased due to a rise in the earnings of highpaid workers and the continuing freeze on the level of benefits.5 Battling Eight Giants 10 In May 2019, when the Institute for Fiscal Studies (IFS) announced a five-year study of inequality led by Nobel Laureate Sir Angus Deaton, its report accompanying the launch also claimed that income inequality had been stable.6 US-based Angus Deaton spoke at the launch as if the giant had not been growing for decades but was merely in danger of growing.


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

active measures, affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, disruptive innovation, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, Paul Samuelson, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shared worldview, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, winner-take-all economy, working poor, zero-sum game

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 Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

"Robert Solow", air freight, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bretton Woods, BRICs, business cycle, butterfly effect, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, failed state, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, global pandemic, global supply chain, global value chain, global village, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, Silicon Valley, six sigma, Stuxnet, supply-chain management, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, transaction costs, uranium enrichment

The OECD also finds evidence of a wage gap “between skilled and unskilled workers.”16 Based on comparable evidence, Martin Rama of the World Bank concludes, “If exposure to international trade and foreign direct investment increase the wage premium to skill, access to education for all should be a priority.”17 Although the effects of globalization on within-country inequality differ between countries,18 in most cases integration into the world economy increases income inequality. China, for example, has experienced a moderate but persistent increase in income inequality—as measured by the GINI index—since the 1980s.19 Even India, which has benefited from low and stable levels of inequality over the same time period (with a GINI index hovering around 31.0), exhibits a small increase if the latest (post–financial crisis) data points are included.20 Figure 7.3 highlights some of the within-country income inequalities in the United States as well as in Brazil, Russia, India, and China. Figure 7.2. Economic integration and technological innovations (1980 = 100), 1980–2008. The figure shows the Organisation for Economic Co-operation and Development countries’ averages for developments in trade integration, financial openness, and technologic change and assumes the use of paid workers of working age.

As the returns to capital expressed in profits have risen, those with assets and income have benefited relative to those who do not have such endowments. As the OECD has observed, “Globalisation, skill-biased technological progress and institutional and regulatory reforms” are among “the most important impacts on widening inequality in OECD countries.”14 Figure 7.1. Income inequality in OECD countries, mid-1980s and late 2000s. The data for the mid-1980s refer to the early 1990s for the Czech Republic and Hungary. OECD (Organisation for Economic Co-operation and Development), 2011b, Growing Income Inequality in OECD Countries: What Drives It and How Can Policy Tackle It?, OECD Forum on Tackling Inequality, Paris, 2 May, 6, accessed 3 February 2013, http://www.oecd.org/els/socialpoliciesanddata/47723414.pdf. Used with permission. Figure 7.2 shows that measures of trade integration, research and development expenditures, and especially financial openness rose rapidly in the period when innovations in communication technologies became affordable for individuals and small businesses.

This, however, is inconsistent with evidence on heightened inequality globally, including in poor countries.22 World Bank researcher Branko Milanović and economist Lynn Squire show that innovation has an adverse initial impact among those who are constrained in their ability to profit from it, that is, people with lower levels of skill and initial investments.23 However, some dispute that global integration unequivocally leads to growing income inequality. Some studies, for example, appear to show that “rising imports from developing countries are associated with declining income inequality in advanced countries.”24 This finding refers specifically to the effect of trade openness. It also serves as evidence that thoughtfully managed integration has the potential to bring about decreasing inequality and the aforementioned improvements in living standards, especially when the detrimental effects of financial integration can be contained.25 TABLE 7.1 WAGE DIFFERENTIALS, SKILLED VERSUS UNSKILLED LABORERS (US$), 2009 Notes: Food prices are estimated from a basket of 39 food products with weights reflecting West European consumption patterns.


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

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, disruptive innovation, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, starchitect, stem cell, Steve Jobs, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game

” — 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.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

The former was introduced after a deep financial crisis had hit the country; the latter was initially introduced to compensate for the revenue loss due to the reduction or the elimination of import duties. These developments would have important economic ramifications in future years. Perhaps not unrelated to these developments, and indicating how the world was changing at that time, in 1912 an Italian statistician, Corrado Gini, had proposed a way to measure income inequality in countries. The use of the so-called Gini coefficient, which soon became a popular statistic, may indicate that income inequality had become a serious social concern by that time. Workers’ associations and labor unions were being created in various countries and were pushing for more rights and better working conditions for workers. Some of the labor unions would acquire increasing political and economic power with the passing of time, especially, but not only, in Europe.

Desiderio, Giancristiano, 2003, Morte (senza nostalgia) dell’intellettuale (Rome: Editoriale Pantheon). Dixit, Avinash K., 1996, The Making of Economic Policy (Cambridge MA: MIT Press). Dollar, D. and A. Kray, 2002, “Growth Is Good for the Poor,” Journal of Economic Growth 7 (4), pp. 195–225. Dorn, Florian, 2016, “On Data and Trends in Income Inequality,” CESifo DICE REPORT Journal for Institutional Comparisons 14 (4) (Winter), pp. 54–64. Drennan, Matthew P., 2015, Income Inequality: Why It Matters and Why Most Economists Didn’t Notice (New Haven, CT: Yale University Press). Bibliography 407 Dudley, Susan E., 2013, “OMB’s Reported Benefits of Regulation: Too Good to Be True?” Regulation 36 (2) (Summer), pp. 26–30. Duesenberry, James S., 1952, Income, Saving and the Theory of Consumer Behavior (Cambridge, MA: Harvard University Press).

See also Stabilization policies Coxe, Tench, 357–58 Credit, ease and cheapness of, 107–9 Criminal law, 95–96, 100 Criminal organizations, 97–98 “Crony capitalism,” 27, 70, 111–12, 137, 343 Cross-border externalities, 185–86 Cryan, John, 364 Current fashionable thinking, 10 Deaton, Angus, 46, 48, 227, 264 Debt. See Sovereign debt Deconstruction of administrative state, 86 Defense spending lobbyists and, 178–79 as public good, 175–78 in US, 178 Deficits, 72 430 Index Democracy income inequality and, 400 income redistribution and, 223 legal rules and, 134 regulations and, 134 welfare policies and, 384 Demsetz, Harold, 151 Denmark executive compensation in, 364 ex post income distribution in, 118 income redistribution in, 210 marginal tax rates in, 376 public spending in, 122 taxation in, 371, 381 Dependency, income redistribution and, 209–10 Dependent workers income inequality and, 221, 316, 387 increase in, 384–85 marginal tax rates for, 373 regulations and, 23 in US, 250 Depreciation, 308 Deregulation overview, 87–88 economic freedom and, 86 income redistribution and, 197 potential for future crises and, 108, 109 in US, 82 Deutsche Bank, 364 Dickens, Charles, 358–59 Direct government intervention, 32–33, 36, 230 Discretion, 71, 151–52 Dishonesty, effect on market, 79, 83 Djokovic, Novak, 351–53 Dorfman, Robert, 3 Drones as externality, 165 Drucker, Peter, 82 Duesenberry, James R., 3, 319 Du Pont, Pierre, 307 Dutch Republic, welfare policies in, 50 Dynamic scoring, 76 Eastern Europe Gini coefficient in, 317 laissez faire in, 35 taxation in, 381–82 Easy credit, 107–9 Eckstein, Otto, 2–5 Economic aristocracy, 117–18 Economic freedom deregulation and, 86 economic planning and, 159 income redistribution and, 159–60 regulations, effect of, 130–31 Economic growth.


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The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite by Daniel Markovits

"Robert Solow", 8-hour work day, activist fund / activist shareholder / activist investor, affirmative action, Anton Chekhov, asset-backed security, assortative mating, basic income, Bernie Sanders, big-box store, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, carried interest, collateralized debt obligation, collective bargaining, computer age, corporate governance, corporate raider, crony capitalism, David Brooks, deskilling, Detroit bankruptcy, disruptive innovation, Donald Trump, Edward Glaeser, Emanuel Derman, equity premium, European colonialism, everywhere but in the productivity statistics, fear of failure, financial innovation, financial intermediation, fixed income, Ford paid five dollars a day, Frederick Winslow Taylor, full employment, future of work, gender pay gap, George Akerlof, Gini coefficient, glass ceiling, helicopter parent, high net worth, hiring and firing, income inequality, industrial robot, interchangeable parts, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, Kodak vs Instagram, labor-force participation, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass incarceration, medical residency, minimum wage unemployment, Myron Scholes, Nate Silver, New Economic Geography, new economy, offshore financial centre, Paul Samuelson, payday loans, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, purchasing power parity, rent-seeking, Richard Florida, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, school choice, shareholder value, Silicon Valley, Simon Kuznets, six sigma, Skype, stakhanovite, stem cell, Steve Jobs, supply-chain management, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, Thomas Davenport, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, traveling salesman, universal basic income, unpaid internship, Vanguard fund, War on Poverty, Winter of Discontent, women in the workforce, working poor, young professional, zero-sum game

,” Reuters, September 11, 2015, accessed November 18, 2018, http://time.com/money/4031222/child-prodigy-cost/. training their children: Kornrich and Furstenberg, “Investing in Children.” expenditure on education: Mark Aguiar and Mark Bils, “Has Consumption Inequality Mirrored Income Inequality?,” American Economic Review 105, no. 9 (September 2015): 2725–56, 2746, 2753. Hereafter cited as Aguiar and Bils, “Has Consumption Inequality Mirrored Income Inequality?” Aguiar and Bils study rising consumption inequality between 1980 and 2010 and report that over the course of these three decades, consumption inequality increased by a little more than 30 percent, a rise that roughly equaled the increase of income inequality over the same period. They also break down rising consumption inequality across categories of consumption and report that by 2008–10, education expenditures had become the single most income elastic expenditure category.

funding for rising consumption: For a more detailed discussion, backed by data, see Chapter 8. between the 50th and 75th percentiles: Drennan, Income Inequality, 41; Bricker et al., “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin 98, no. 2 (June 2012): 55, http://federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf. See also Robert Hockett and Daniel Dillon, “Income Inequality and Market Fragility: Some Empirics in the Political Economy of Finance” (unpublished manuscript, January 21, 2013), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2204710. Hereafter cited as Hockett and Dillon, “Income Inequality and Market Fragility.” Debt payments unsurprisingly rose alongside debt for the middle class, reaching roughly a fifth of income for the bottom 90 percent by 2010.

Between 1970 and 2000, the percentage of couples (both without and with children) who jointly worked over a hundred hours per week increased by roughly half. The same period naturally produced a reciprocal divergence in time allocated to work’s mirror image, leisure: the gap between hours spent in leisure by those at the 90th and the 10th percentiles of the leisure distribution increased by fourteen hours per week between 1965 and 2003. Rising income inequality coincides with rising inequality in labor and a mirror-image trend in leisure. Moreover, income inequality and the time divide turn out to be closely correlated, and indeed intertwined, so that the same people who capture rising incomes also provide rising labor (and enjoy falling leisure). The increase in long work hours has been concentrated among highly paid and highly educated workers and the increase in leisure among low-paid, less educated workers.


pages: 304 words: 80,143

The Autonomous Revolution: Reclaiming the Future We’ve Sold to Machines by William Davidow, Michael Malone

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, agricultural Revolution, Airbnb, American Society of Civil Engineers: Report Card, Automated Insights, autonomous vehicles, basic income, bitcoin, blockchain, blue-collar work, Bob Noyce, business process, call centre, cashless society, citizen journalism, Clayton Christensen, collaborative consumption, collaborative economy, collective bargaining, creative destruction, crowdsourcing, cryptocurrency, disintermediation, disruptive innovation, distributed ledger, en.wikipedia.org, Erik Brynjolfsson, Filter Bubble, Francis Fukuyama: the end of history, Geoffrey West, Santa Fe Institute, gig economy, Gini coefficient, Hyperloop, income inequality, industrial robot, Internet of things, invention of agriculture, invention of movable type, invention of the printing press, invisible hand, Jane Jacobs, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, license plate recognition, Lyft, Mark Zuckerberg, mass immigration, Network effects, new economy, peer-to-peer lending, QWERTY keyboard, ransomware, Richard Florida, Robert Gordon, Ronald Reagan, Second Machine Age, self-driving car, sharing economy, Shoshana Zuboff, Silicon Valley, Simon Kuznets, Snapchat, speech recognition, Stuxnet, TaskRabbit, The Death and Life of Great American Cities, The Rise and Fall of American Growth, the scientific method, trade route, Turing test, Uber and Lyft, uber lyft, universal basic income, uranium enrichment, urban planning, zero day, zero-sum game, Zipcar

Household Incomes: A 51-Year Perspective,” Advisor Perspectives, October 16, 2018, https://www.advisorperspectives.com/dshort/updates/2017/09/19/u-s-household-incomes-a-50-year-perspective (accessed June 27, 2019). 20. Chad Stone et al., “A Guide to Statistics on Historical Trends in Income Inequality,” Center on Budget and Policy Priorities, December 11, 2018, https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality (accessed June 27, 2019). 21. Jeff Guo, “Income Inequality Today May Be Higher Today Than in Any Other Era,” Washington Post, July 1, 2016, https://www.washingtonpost.com/news/wonk/wp/2016/07/01/income-inequality-today-may-be-the-highest-since-the-nations-founding/?utm_term=.0759a7e38717 (accessed June 27, 2019); and “GINI Index for the United States,” Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/SIPOVGINIUSA (accessed June 27, 2019). 22.

In 1935, when Congress passed the National Labor Relations Act (NLRA) to protect workers’ rights to collective bargaining, there were about 3 million union members in the United States.35 By 1940, union membership had grown to around 14 million, topping out at around 22 million in 1980.36 At one point, unions represented more than 30 percent of the nation’s wage and salary workers.37 During their heyday, unions pushed hard for health care and retirement benefits, establishing the benefit patterns that spread throughout industry. For a time—almost half a century—the good job defined workers’ identities, provided them with self-esteem and a gateway to the middle class, and played an important role in reducing income inequality.38 A product of social phase change, the good job has been with us for less than seventy-five years. As we discuss in chapter 6, the new economic and work structures that have been unleashed by the Autonomous Revolution pose an existential threat to it. For all our leaders’ efforts to bring them back, good jobs are rapidly disappearing—and income inequality has returned to levels that haven’t been seen since the Gilded Age. The steam engine and electricity also triggered structural transformations driven by thought. The commercial successes of railroads and manufacturing businesses did much to reinforce the free-market ideas of the eighteenth-century economist Adam Smith.

“Labor Unions in the United States,” Wikipedia, https://en.wikipedia.org/wiki/Labor_unions_in_the_United_States#/media/File:United_States_union_membership_and_inequality,_top_1%25_income_share,_1910_to_2010.png (accessed June 26, 2019). 37. Ibid., https://en.wikipedia.org/wiki/Labor_unions_in_the_United_States#/media/File:Union_membership_in_us_1930-2010.png (accessed June 26, 2019). 38. “Income Inequality in the United States,” Inequality.org, https://inequality.org/facts/income-inequality/ (accessed June 26, 2019). 39. Jennifer 8. Lee, “When Horses Posed a Public Health Hazard,” City Room (blog), New York Times, June 9, 2008, https://cityroom.blogs.nytimes.com/2008/06/09/when-horses-posed-a-public-health-hazard/?_r=0 (accessed June 26, 2019). 40. Sam Bass Warner, Jr., Streetcar Suburbs (Cambridge, Mass.: Harvard University Press, 1978), 1. 41.


pages: 370 words: 102,823

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

balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, business cycle, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, G4S, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, mass incarceration, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, Paul Samuelson, 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).


pages: 223 words: 10,010

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

"Robert Solow", 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 cycle, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, Everybody Ought to Be Rich, 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, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, 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.’


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

President Roosevelt began enforcing them vigorously in 1937–1938, and regulators frowned on most mergers that increased market share. That changed in the early 1980s when the government stopped enforcing antitrust laws and the US corporate sector started the first of a series of merger waves. Each economic boom has led to greater market power for corporations. It is unsurprising that income inequality then starts to rise again in the 1980s. When markets have become more concentrated after merger waves, income inequality has risen. When antitrust laws have been vigorously enforced, income inequality has been lower (Figure 10.7). Figure 10.7 Income Inequality in the United States versus Antitrust Enforcement SOURCE: Einer Elhauge, “Horizontal Shareholding,” Harvard Law Review 129, no. 5 (March 2016). The increase in inequality started after the antitrust revolution under President Ronald Reagan. Sam Peltzman, an economist at the University of Chicago, found that that concentration, which had been unchanged over the previous decades, began rising at the same time that merger policy changed.

Everyone should be concerned about the concentration of economic and political power in the hands of very few. In the following pages, we'll review the consequences of concentration in turn: higher prices, fewer startups, lower productivity, lower wages, higher income inequality, less investment, and the withering of American towns and smaller cities. Lower Wages and Greater Income Inequality Almost all the focus in industrial concentration has been on profits, productivity, and investment, but the biggest impact has been on wages. Workers have systematically lost power versus large companies that now dominate industries. Dozens of studies now document how industrial concentration is driving income inequality. The smoking gun, however, has been missing. Researchers had the intuition but could not prove that monopsonies, particularly at the local level, affected consumer wages.

., 49 Hale, Robert Lee, 92 Haltiwanger, John, 50 Hanauer, Nick, 231–232 Hansen, Alvin, 56 Hayek, Friedrich, 153, 171, 234, 238 Health expenditure, life expenditure (contrast), 132f Health insurance, oligopolies, 30–31 HealthTrust, market dominance, 130 Hedge fund managers, training, 15 Hell's Cartel (Jeffreys), 147 Herfindahl-Hirschman Index (HHI), 33, 243 Hierarchy of needs, 76f High-income inequality, 215 High speed Internet, monopolies/local monopolies, 116–117 Hitler, Adolf (accession), 148–149 H.J. Heinz Company, 3G/Buffett purchase, 3–4 Hoffer, ERic, 230 Horizontal shareholding, 209 disallowance, 246–247 problems, 200 Hospitals, mergers (impact), 43, 129 Housing costs, increase, 114 Hull, Cordell, 150 Hurricane Maria, impact, 60 Huxley, Aldous, 113 I IG Farben dissolution, 148 economic power, 147 “marriage,” 149 Immelt, Jeffrey, 211 Income distribution, union membership (contrast), 79f inequality (United States), 214f, 215–217 Income inequality, 36 increase, 37–40 Industry consolidation, timeline, 162f Inequality causes, 217 concentrated industries, impact, 225–226 income inequality, 37–40, 214f, 225f increase (Gini coefficients), 220f Information superhighway, Google dominance, 108 Initial public offerings (IPOs), 107 collapse, 11f Innovation, monopoly power deterrence, 54 Innovator's Dilemma, The, (Christensen), 55 Instagram, Facebook acquisition, 91 Instant Articles (Facebook), 102 Intaler, market dominance, 130 Intellectual property exploitation, 173 protection, 69–70 Intel, market domination, 121 Interest rates, increase, 64 Internal equity, 206 International Monetary Fund (IMF), developed country analysis, 216 Internet giants, avoidance, 247–248 platforms, common carriage rules (creation), 245 Intuit, market dominance, 125–126 Investment gap, 57–58 profitability, contrast, 57f reduction, 56–57 Invisible hand (Smith), 38 iPhone, Silicon Valley metaphor, 114 Ireland-Smith, Renee, 61 Irish Potato Famine, 59 IRS Restructuring and Reform Act, 126 J Jackson, Thomas Penfield, 94 Jefferson, Thomas, 50 Jeffreys, Diarmuid, 147 Jelinek, Craig, 77 Jevons' Paradox, 18 Jevons, William Stanley, 18 Job Creation and Destruction (Haltiwanger), 50 Jobs creation, 50, 74–75 reduction, 45–47 Jobs, Steve, 67–68 John D.


pages: 419 words: 109,241

A World Without Work: Technology, Automation, and How We Should Respond by Daniel Susskind

3D printing, agricultural Revolution, AI winter, Airbnb, Albert Einstein, algorithmic trading, artificial general intelligence, autonomous vehicles, basic income, Bertrand Russell: In Praise of Idleness, blue-collar work, British Empire, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, computer age, computer vision, computerized trading, creative destruction, David Graeber, David Ricardo: comparative advantage, demographic transition, deskilling, disruptive innovation, Donald Trump, Douglas Hofstadter, drone strike, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, future of work, gig economy, Gini coefficient, Google Glasses, Gödel, Escher, Bach, income inequality, income per capita, industrial robot, interchangeable parts, invisible hand, Isaac Newton, Jacques de Vaucanson, James Hargreaves, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joi Ito, Joseph Schumpeter, Kenneth Arrow, Khan Academy, Kickstarter, low skilled workers, lump of labour, Marc Andreessen, Mark Zuckerberg, means of production, Metcalfe’s law, natural language processing, Network effects, Occupy movement, offshore financial centre, Paul Samuelson, Peter Thiel, pink-collar, precariat, purchasing power parity, Ray Kurzweil, ride hailing / ride sharing, road to serfdom, Robert Gordon, Sam Altman, Second Machine Age, self-driving car, shareholder value, sharing economy, Silicon Valley, Snapchat, social intelligence, software is eating the world, sovereign wealth fund, spinning jenny, Stephen Hawking, Steve Jobs, strong AI, telemarketer, The Future of Employment, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, Travis Kalanick, Turing test, Tyler Cowen: Great Stagnation, universal basic income, upwardly mobile, Watson beat the top human players on Jeopardy!, We are the 99%, wealth creators, working poor, working-age population, Y Combinator

More specifically, rising income inequality comes from increasingly unequal returns both on human capital and on traditional capital. Let us take each of those in turn. INEQUALITY IN LABOR INCOME Many people own little besides their human capital, the various skills they have acquired during their lives. Their paychecks are therefore their main source of income. Indeed, in many countries salaries and wages make up about three-quarters of the total income in the economy.19 It should therefore come as no surprise that much of the general rise in income inequality from before is rooted in a rise in labor income inequality in particular. In other words, inequality is rising because workers are being paid more and more unequally for their efforts.20 One way to see that labor income inequality is rising is to compare different income deciles.

See OECD, “Growing Income Inequality in OECD Countries: What Drives It and How Can Policy Tackle It?” (2011). 20.  See OECD, “Promoting Productivity and Equality: A Twin Challenge,” chap. 2 of OECD Economic Outlook 2016, vol. 1 (2016). On p. 69, the authors note how “inequality in the distribution of labour income has accounted for most of the increase in income inequality.” Also see International Labour Organization, Global Wage Report 2014/2015 (Geneva: International Labour Office, 2015), where they note that the OECD report “Divided We Stand: Why Inequality Keeps Rising” (2011) “documented how in developed economies, in the decades before the crisis, greater wage inequality had been the single most important driver of income inequality.” 21.  See OECD, “Growing Income Inequality in OECD Countries”; and Anthony B.

In the United States, for example, from 1981 to 2017, the income share of the top 0.1 percent increased more than three and a half times from its already disproportionately high level, and the share of the top 0.01 percent rose more than fivefold.16 The three measures of income inequality do diverge sometimes, of course, and it is possible to point to particular instances where some measurement departs from an upward trend. The Gini coefficient in the UK, for instance, has not really risen for twenty-five years.17 But it is rare to find a country where none of the three measurements show rising inequality; in the UK, as Figure 8.3 shows, the income share of the 1 percent has soared. And when all the measures, applied to lots of different countries, are taken together, the big picture is clear: in the most prosperous parts of the world, we are seeing a move toward societies with greater income inequality. Figure 8.3: Income Shares of the Top 1 Percent from 1981 to 2016 (or Latest)18 Why is income inequality rising, though? The short answer is that valuable capital is being shared out in an increasingly unequal way.


pages: 198 words: 52,089

Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It by Richard V. Reeves

affirmative action, Affordable Care Act / Obamacare, assortative mating, Bernie Sanders, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, circulation of elites, cognitive dissonance, desegregation, Donald Trump, Downton Abbey, full employment, ghettoisation, glass ceiling, helicopter parent, Home mortgage interest deduction, housing crisis, income inequality, knowledge economy, land value tax, longitudinal study, mortgage tax deduction, obamacare, Occupy movement, plutocrats, Plutocrats, positional goods, race to the bottom, randomized controlled trial, unpaid internship, upwardly mobile, War on Poverty, We are the 99%, working-age population, zero-sum game

William Gale, Melissa Kearney, and Peter Orszag, “Would a Significant Increase in the Top Income Tax Rate Substantially Alter Income Inequality?” Brookings, September 2015 (www.brookings.edu/wp-content/uploads/2016/06/would-top-income-tax-alter-income-inequality.pdf). 12. Pablo Mitnik, Erin Cumberworth, and David Grusky, “Social Mobility in a High-Inequality Regime,” The Annals of the American Academy of Political and Social Sciences 663, no. 1 (January 2016): pp. 140–84. 13. It is worth noting, however, that there have also been income gains in the bottom 40 percent and the “middle” 40 percent. They have just been very much more modest than for those of us at the top. See Gary Burtless, “Income Growth and Income Inequality: The Facts May Surprise You,” Brookings, January 6, 2014 (www.brookings.edu/opinions/income-growth-and-income-inequality-the-facts-may-surprise-you/). 14. Supplement information provided in Congressional Budget Office (CBO), “The Distribution of Household Income and Federal Taxes, 2013,” publication 51361, June 8, 2016 (https://www.cbo.gov/publication/51361). 15.

The gap between the top fifth—those with household incomes of $112,000 or more in 201410—and the 80 percent below them is the ‘Great Divide’ in both the American economy and in American society. Let’s look at income first. While there is plenty of disagreement about the extent and causes of income inequality, one thing is absolutely clear and uncontested: it is the result of the top pulling away. As Bill Gale, Melissa Kearney, and Peter Orszag put it, “The high level of U.S. income inequality is characterized by a wide divergence in income between higher-income households and those at the middle and below.”11 Over the last three or four decades, income inequality has increased in the United States, but only at the top. There has been no increase in inequality in the bottom 80 percent of the population. The break point is around the eightieth percentile, as David Grusky confirmed in a recent comprehensive study.

Raj Chetty’s team, working with the highest quality data, concluded that “[relative] social mobility has remained stable over the second half of the twentieth century in the United States.”12 On the other side of the argument, scholars like Bhashkar Mazumder, an economist at the Chicago Fed, are busy producing evidence that relative mobility rates began to decline at some point in the 1970s, at around the same time inequality started to rise.13 The idea that rising income inequality will mean lower rates of intergenerational mobility is intuitively persuasive. As Sawhill puts it: “When the rungs of the income ladder get too far apart, it is harder to climb.”14 In a 2012 speech, the economist Alan Krueger coined a vivid phrase for this relationship between the gap between rich and poor and the lack of mobility: “The Great Gatsby Curve.”15 Kreuger cited work from economist Miles Corak showing that nations with higher income inequality seemed to have lower rates of intergenerational mobility.16 A lot of ink has been spilled and a lot of regressions have been run by economists attempting to prove or disprove this hypothesis.17 On balance, the thesis has to be described as not proven, but not not proven either.


pages: 345 words: 92,849

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

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, creative destruction, 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, wealth creators, women in the workforce, working poor, zero-sum game

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.


pages: 267 words: 79,905

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

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, longitudinal study, 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, spread of share-ownership, 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).


pages: 414 words: 119,116

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

active measures, 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, longitudinal study, 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, twin studies, 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: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, market bubble, market clearing, market fundamentalism, means of production, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, working-age population

., 276, 381 and election (2000), 387 on health care, 47 as movement conservative, 299, 301 and national security, 306 and taxes, 215–16, 229, 299 Bush, Jeb, 60, 381 Bush (W.) administration: authoritarianism of, 301 bait-and-switch tactics of, 378–79, 387 compared to that of Trump, 9, 13 corruption of, 343 disdain for rule of law, 301 dishonesty of, 9, 25, 26–27, 93, 343, 377–78, 389 functions outsourced by, 299–300 general incompetence of, 300 and income distribution, 271 and Iraq war, 13, 26, 27, 299, 343, 381 reliance on elite consensus, 14 on Social Security privatization, 14–15, 22–24, 25–27, 28–29, 32, 302, 306, 361, 377, 378 tax cuts by, 16–17, 20, 26, 50 torture authorized by, 300 voting rights curtailed by, 300 business decisions, 227–28 California: health care in, 77 housing bubble in, 84 taxes in, 216, 229 Canada: health care in, 36, 45, 47, 48–49 imports from, 253, 255 unions in, 290 Cantor, Eric, 302–4, 386 cap-and-trade system, 339 Capital Asset Pricing Model (CAPM), 135–36 capital gains: on houses, 87, 274 and income inequality, 273–74 inflation component of, 273 capitalism, voter confusion about, 320 capital market, 228 Capitol Hill Baby-Sitting Co-op, 137–38 carbon emissions, tax on, 339 Carter, Jimmy, 276 Cato Institute, 22, 23, 317, 320 caution, risk of, 104, 106, 107, 116–17 Cavuto, Neil, 44 Census data, 262–65, 263 capital gains omitted from, 264 Current Population Survey, 263, 264 and income distribution, 265–66, 266 top-coding, 264, 265 Center for a Responsible Federal Budget (CRFB), 193 central banks, 103–4, 124, 128, 133, 181, 182, 409–10 centrists, 308 belief in symmetry between left and right, 28, 29, 309 double standards of, 208–9 influence of, 28 and public opinion, 298, 306 Century Foundation, 22 CEOs, compensation for, 259, 262, 265 Chandler, Raymond, The Simple Art of Murder, 327 Charity Watch, 388 Chávez, Hugo, 324 Cheney, Dick, 300, 381 Chicago School, 131, 143–44 child care, proposals on, 210, 211, 212 Chile, retirement system in, 22, 23 China: economy of, 324 U.S. trade with, 252, 254, 255 cholera, 81 Civil Rights Act (1964), 53 civil rights movement, 346 classless society, myth of, 285 climate change, 327–28 and alternative energies, 340 and corruption, 337 deniers of, 329–31, 332–34, 335–37, 365 and fossil fuels, 333, 336 global temperatures in, 330 greenhouse gases as a cause of, 330, 335, 339–40 and Green New Deal, 328, 338–40 “hockey stick” graph on, 328, 336 politicization of, 4 positive incentives in, 340 transition industries in, 340 and tropical storms, 330 Climategate, 336 Clinton, Bill: Gingrich’s attacks on, 362 and health care (1993), 35, 37, 50, 378 and income inequality, 271 smear tactics against, 380 and taxes, 7, 215 Clinton, Hillary: and election (2016), 376, 388–89 and health care, 50, 51–52 and income inequality, 291 smear tactics against, 380 Trump vs., 336, 343 Clinton Foundation, 388 “Closing the Skills Gap” (Dimon and Seltzer), 166–68 Coal and Steel Community (1952), 175 coal-fired power plants, 331 coal mining, 289, 340 Cochrane, John H., 131, 138, 143 cockroach ideas, 329 Cohen, Michael, 359 Cohn, Jonathan, 300 coins: gold and silver, 411, 412 college graduates, earnings of, 282, 283 Collins, Susan, 360 Comey, James, 336, 343 Coming Apart: The State of White America, 1960–2010 (Murray), 285–86 Commission on Economic Security (1934), 26 Common Market (1959), 175 Commonwealth Fund, 48 competition: imperfect, 400 perfect, 402 “confidence fairy,” belief in, 158, 160, 161 Congressional Budget Office (CBO), 19, 29, 54, 59, 195–96 budget and economic outlook of, 115–16 Green Book of, 265 and income inequality, 265–66, 266, 272–74, 285 and Ryan plan, 201, 202 Conscience of a Conservative, The (Goldwater), 300 conservatism: ambition of practitioners, 151 bad faith of, 7, 8, 10, 75, 149–51, 332–33 and bipartisanship, 198 compassionate conservatism, 378 confusion about socialism in, 323 democracy rejected by, 369 disinterest in good government, 300 and income inequality, 261–62, 266, 271–75 and Keynesian economics, 124 moral and intellectual decline of, 262 movement conservatism, 8, 297–98, 299–301, 302–4, 307, 343, 368 Orwellian instincts in, 281 permanent rule by, 13 Republican, see Republican Party taking credit for growth, 275–76 uses and abuses of statistics by, 262 wing-nut welfare as safety net for, 303 conservative professional economists, 149–51 conspiracy theories, 150, 337, 343, 345–46, 365 Constitution, U.S., 301 containerization, 289 Cornyn, John, 346 corporate profits, 228, 232–33 corporate taxes: avoidance vs. evasion of, 349 cuts in, 201, 202, 218, 221, 222, 227, 229, 230, 231–33, 232, 351 and stock buybacks, 227, 230 corporations: “bringing money home,” 230 cooking their books, 228, 230–31, 231 global, 231–32 profits to foreign nationals, 232–33 and trade war, 371 unrestricted power for, 318 corruption: and Bush administration, 343 and climate change, 337 in Europe, 358 in financial services, 92, 93 in highly unequal societies, 283, 324, 349–50, 358 and Republican Party, 335–37, 338, 343, 358 in trade policy, 246, 247, 254, 255 of Trump administration, 70, 246, 331, 338, 343, 349, 350 “Cost of Bad Ideas, The” (Krugman), 123–25 Council of Economic Advisers, and CEA calculation, 271–72 Cox, Christopher, 93 credit, 89, 90, 104 “Cruelty Caucus, The” (Krugman), 65–66 Cruz, Ted, 57, 225 Cruz amendment, 69 cryptocurrencies, 411–14 Crystal, Graef, 265 In Search of Excess, 262 Cuccinelli, Ken, 336 currency, 412–14 fiat, 412, 414 optimum currency areas, 177 Customs and Border Protection, 371 debt: and austerity policies, 97–99, 163–65, 203–4, 207–8 fear of, 107, 116 and G.D.P., 154, 204–5, 205 interest rates on, 204, 211 magic threshold of, 158, 385 overrated as issue, 194, 206, 208 problematic, 153 and sustainable growth rate, 153–54, 204 and taxes, 154, 222–23, 224–26 tipping point of, 165 and total wealth, 154 Trump’s SOTU on, 207–9 winter of, 203–6 “debt scolds,” 204, 205, 206 “deficit scolds,” 194, 207, 209 deficit spending, 153, 218 deleveraging, 97 DeLong, Brad, 131, 143–44, 270, 316, 407 democracy: threats in Europe to, 188, 189, 344, 346, 358, 359 threats in U.S. to, 366, 367–69 Democratic Party: basic values of, 366 center-left position of, 28, 306, 310 and civil rights, 310 future plans for, 338 and Green New Deal, 338–40 and health care, 36, 55, 77, 78 House majority of, 338 impact in state governments, 77, 78 as loose coalition of interest groups, 297, 368 and midterm elections, 76, 194, 338, 344, 367 policy analysis by, 73 social democratic aspect of, 313–14, 321 and Social Security, 29, 30 subpoena power of, 338 De-Moralization of Society (Himmelfarb), 285–86 Denmark, economy of, 184, 239, 313, 317, 319–21, 323 deregulation, 370, 371, 409 derivatives, 135 “Developing a Positive Agenda” (Krugman), 35–37 Dew-Becker, Ian, 283 Diamond, Peter, 234–35, 236 diminishing marginal utility, 235 Dimon, Jamie, 166 dishonesty, power of, 324 “Dismal Science, The” (Krugman), 393–94 Dixit, Avinash K., 396–98, 405 dollar, international value of, 228 Donors Trust, 333 “Don’t Blame Robots for Low Wages” (Krugman), 260, 288–90 dot-com bubble, 90 double talk, political, 222, 225–26 Dow 36,000 (Gleason and Hassett), 84, 86 Draghi, Mario, 181–83 dumping, and tariffs, 252 Duncan, Greg, 277 economic analysis, importance of, 383–84, 386, 400 economic freedom, 317–18, 317 economic geography, 398–99, 400, 403 economic growth: (1982–1984), 215 long-term, 275–76 post–World War II, 219, 234 so-so, 315 taking credit for, 275–76 and taxes, 236–37, 236 economic models: Arrow-Debreu model, 402 CAPM, 135–36 Heckscher-Ohlin, 400–401, 403 importance of, 400 as metaphors, 400, 402 minimalist, 403 monopolistic competition models, 396–98 and neoclassical theory, 140 purposes of, 112 economic policy, failure of, 407 economics: behavioral, 146 easy questions in, 6 golden era of, 130–31 Keynesian, see Keynesian economics mathematics in, 131 monetary, 176 “neoclassical,” 132, 133, 139–40, 147 and politics, 149–51 “positive” vs.

., 131, 138, 143 cockroach ideas, 329 Cohen, Michael, 359 Cohn, Jonathan, 300 coins: gold and silver, 411, 412 college graduates, earnings of, 282, 283 Collins, Susan, 360 Comey, James, 336, 343 Coming Apart: The State of White America, 1960–2010 (Murray), 285–86 Commission on Economic Security (1934), 26 Common Market (1959), 175 Commonwealth Fund, 48 competition: imperfect, 400 perfect, 402 “confidence fairy,” belief in, 158, 160, 161 Congressional Budget Office (CBO), 19, 29, 54, 59, 195–96 budget and economic outlook of, 115–16 Green Book of, 265 and income inequality, 265–66, 266, 272–74, 285 and Ryan plan, 201, 202 Conscience of a Conservative, The (Goldwater), 300 conservatism: ambition of practitioners, 151 bad faith of, 7, 8, 10, 75, 149–51, 332–33 and bipartisanship, 198 compassionate conservatism, 378 confusion about socialism in, 323 democracy rejected by, 369 disinterest in good government, 300 and income inequality, 261–62, 266, 271–75 and Keynesian economics, 124 moral and intellectual decline of, 262 movement conservatism, 8, 297–98, 299–301, 302–4, 307, 343, 368 Orwellian instincts in, 281 permanent rule by, 13 Republican, see Republican Party taking credit for growth, 275–76 uses and abuses of statistics by, 262 wing-nut welfare as safety net for, 303 conservative professional economists, 149–51 conspiracy theories, 150, 337, 343, 345–46, 365 Constitution, U.S., 301 containerization, 289 Cornyn, John, 346 corporate profits, 228, 232–33 corporate taxes: avoidance vs. evasion of, 349 cuts in, 201, 202, 218, 221, 222, 227, 229, 230, 231–33, 232, 351 and stock buybacks, 227, 230 corporations: “bringing money home,” 230 cooking their books, 228, 230–31, 231 global, 231–32 profits to foreign nationals, 232–33 and trade war, 371 unrestricted power for, 318 corruption: and Bush administration, 343 and climate change, 337 in Europe, 358 in financial services, 92, 93 in highly unequal societies, 283, 324, 349–50, 358 and Republican Party, 335–37, 338, 343, 358 in trade policy, 246, 247, 254, 255 of Trump administration, 70, 246, 331, 338, 343, 349, 350 “Cost of Bad Ideas, The” (Krugman), 123–25 Council of Economic Advisers, and CEA calculation, 271–72 Cox, Christopher, 93 credit, 89, 90, 104 “Cruelty Caucus, The” (Krugman), 65–66 Cruz, Ted, 57, 225 Cruz amendment, 69 cryptocurrencies, 411–14 Crystal, Graef, 265 In Search of Excess, 262 Cuccinelli, Ken, 336 currency, 412–14 fiat, 412, 414 optimum currency areas, 177 Customs and Border Protection, 371 debt: and austerity policies, 97–99, 163–65, 203–4, 207–8 fear of, 107, 116 and G.D.P., 154, 204–5, 205 interest rates on, 204, 211 magic threshold of, 158, 385 overrated as issue, 194, 206, 208 problematic, 153 and sustainable growth rate, 153–54, 204 and taxes, 154, 222–23, 224–26 tipping point of, 165 and total wealth, 154 Trump’s SOTU on, 207–9 winter of, 203–6 “debt scolds,” 204, 205, 206 “deficit scolds,” 194, 207, 209 deficit spending, 153, 218 deleveraging, 97 DeLong, Brad, 131, 143–44, 270, 316, 407 democracy: threats in Europe to, 188, 189, 344, 346, 358, 359 threats in U.S. to, 366, 367–69 Democratic Party: basic values of, 366 center-left position of, 28, 306, 310 and civil rights, 310 future plans for, 338 and Green New Deal, 338–40 and health care, 36, 55, 77, 78 House majority of, 338 impact in state governments, 77, 78 as loose coalition of interest groups, 297, 368 and midterm elections, 76, 194, 338, 344, 367 policy analysis by, 73 social democratic aspect of, 313–14, 321 and Social Security, 29, 30 subpoena power of, 338 De-Moralization of Society (Himmelfarb), 285–86 Denmark, economy of, 184, 239, 313, 317, 319–21, 323 deregulation, 370, 371, 409 derivatives, 135 “Developing a Positive Agenda” (Krugman), 35–37 Dew-Becker, Ian, 283 Diamond, Peter, 234–35, 236 diminishing marginal utility, 235 Dimon, Jamie, 166 dishonesty, power of, 324 “Dismal Science, The” (Krugman), 393–94 Dixit, Avinash K., 396–98, 405 dollar, international value of, 228 Donors Trust, 333 “Don’t Blame Robots for Low Wages” (Krugman), 260, 288–90 dot-com bubble, 90 double talk, political, 222, 225–26 Dow 36,000 (Gleason and Hassett), 84, 86 Draghi, Mario, 181–83 dumping, and tariffs, 252 Duncan, Greg, 277 economic analysis, importance of, 383–84, 386, 400 economic freedom, 317–18, 317 economic geography, 398–99, 400, 403 economic growth: (1982–1984), 215 long-term, 275–76 post–World War II, 219, 234 so-so, 315 taking credit for, 275–76 and taxes, 236–37, 236 economic models: Arrow-Debreu model, 402 CAPM, 135–36 Heckscher-Ohlin, 400–401, 403 importance of, 400 as metaphors, 400, 402 minimalist, 403 monopolistic competition models, 396–98 and neoclassical theory, 140 purposes of, 112 economic policy, failure of, 407 economics: behavioral, 146 easy questions in, 6 golden era of, 130–31 Keynesian, see Keynesian economics mathematics in, 131 monetary, 176 “neoclassical,” 132, 133, 139–40, 147 and politics, 149–51 “positive” vs.

.: on Affordable Care Act, 65, 68, 77 Kavanaugh appointment to, 345, 346, 352 moral authority destroyed, 345, 360 partisanship in, 346 sustainable growth rate, 153–54, 204 Sweden, economy of, 239, 323 Switzerland, health care in, 37 system overhaul, 210, 212 tanning parlors, tax on, 211 tariffs, 244, 246–48, 251, 252–53, 254–56 taxes: carbon tax, 339 corporate, see corporate taxes cutting, 8, 16–17, 19, 20, 116–17, 199, 201, 215–17, 218–20, 224–26, 227–29, 230–33, 231–33, 232, 236–37, 306–7, 351, 361, 370, 371 and debt, 154, 222–23, 224–26 economic effects of, 7, 222–23, 224–26, 233, 236–37 incentive effects of, 154 and income inequality, 238–39 low, 315 on middle class, 221–23 and monopoly power, 236 narrow-gauge, 211 optimal top rates of, 234–35 on payroll, 212 political trade-offs in, 153 on pollution, 339 progressive taxation, 238–40, 323 raising, 185, 196, 199, 219, 229, 380 tariffs, 244, 246–48, 251, 252–53, 254–56 temporary breaks, 222 top marginal income tax rates, 236–37, 236 Trump’s frauds, 348–50 value-added, 154, 212 on the wealthy, see wealthy on working class, 20, 221–23 tax evasion, 349–50, 413, 414 tax liabilities, 414 tax loopholes, 93, 349 Tax Policy Center, 196, 202, 283 tax reform, 26, 198–99 Tea Party, 53–54, 303 technology, and income inequality, 260, 288–90 Tennessee, health care in, 68 tethering, 413–14 Thatcher, Margaret, 22, 23, 128 “That Eighties Show” (Klugman), 124 “Theoretical Framework for Monetary Analysis, A” (Friedman), 144 Thompson, Fred, 47, 52 tobacco companies, 333, 334 Toles, Tom, 333 torture, 300 totalitarianism, 324 trade theory, 399–400, 401, 403 trade war, 353, 361, 371–72 see also international trade transcription costs, 411–14 transportation, greenhouse gases from, 339–40 Treasury, U.S.: on income gains, 279–81 Office of Tax Analysis, 278 partisan functions of, 26 and Social Security, 16 Trichet, Jean-Claude, 161 “Triumph of Macroeconomics, The” (Krugman), 103–5 Trotsky, Leon, 324 trucking industry, 290 Trump, Donald: attacks on media by, 347 attitude toward truth, 364–66 belligerent ignorance of, 246, 307, 337, 345, 346–47, 352 campaigning, 309, 370 contempt for rule of law, 252, 256, 347 corruption of, 335–37, 338, 343, 349, 350, 368, 389 and cronyism, 256, 343 as deal-maker, 348–50 election of (2016), 13, 343, 372, 375, 387–89 family history of, 348–49 foreign dictators admired by, 346–47, 365, 371 humiliating others, 352–53 and inequality, 260, 291 and international trade, 245, 246, 247–48, 249, 252–53, 254–56, 353, 361 laziness of, 352 as liar, 348, 353, 364, 365 on manhood, 370, 371, 372 on neo-Nazis as “very fine people,” 365 and populism, 351–53 and racism, 246, 310, 360 and Republican Party, 335–37, 359, 372 scandals about, 388–89 and socialism, 322–23 State of the Union address (2019), 207–9, 322 supporters scammed by, 353, 372, 389 and taxes, 216, 221–23, 224–26, 227–29, 230–33, 306–7, 308, 350, 361, 371 tax returns of, 359 tough-guy posturing by, 334, 346–47, 370–72 and 2020 election, 227, 347, 361 and the wall, 370, 371 Trump, Fred (father), 348 Trump administration: anti-science views of, 332 as anti-worker, 351–53 appointments to, 352 bad faith of, 151, 332, 365 charlatans and cranks in, 149, 151, 329, 331, 333 climate change deniers in, 329–31, 332–34, 335–37 and collapse of freedom, 187 compared to that of G.


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

Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, creative destruction, 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, 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, zero-sum game

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.


pages: 322 words: 84,580

The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All by Martin Sandbu

"Robert Solow", Airbnb, autonomous vehicles, balance sheet recession, bank run, banking crisis, basic income, Berlin Wall, Bernie Sanders, Boris Johnson, Branko Milanovic, Bretton Woods, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, centre right, collective bargaining, debt deflation, deindustrialization, deskilling, Diane Coyle, Donald Trump, Edward Glaeser, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, future of work, gig economy, Gini coefficient, hiring and firing, income inequality, income per capita, industrial robot, intangible asset, job automation, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liquidity trap, longitudinal study, low skilled workers, manufacturing employment, Martin Wolf, meta analysis, meta-analysis, mini-job, mortgage debt, new economy, offshore financial centre, oil shock, open economy, pattern recognition, pink-collar, precariat, quantitative easing, race to the bottom, Richard Florida, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, social intelligence, TaskRabbit, total factor productivity, universal basic income, very high income, winner-take-all economy, working poor

For reasons to doubt Wood’s estimate, see Sandbu, “In Some Places.” 14. The evidence is reviewed by Elhanan Helpman, “Globalisation and Wage Inequality,” Journal of the British Academy 5 (July 2017): 125–62, https://doi.org/10.5871/jba/005.125. See also Philipp Heimberger, “Does Economic Globalisation Affect Income Inequality? A Meta-analysis” (Vienna Institute for International Economic Studies Working Paper 165, October 2019), https://wiiw.ac.at/does-economic-globalisation-affect-income-inequality-a-meta-analysis-p-5044.html. This metastudy summarises 123 peer-reviewed articles on globalisation’s effect on income inequality. It finds a small positive relationship—smaller with trade integration than with financial globalisation—in both poor and rich countries, which suggests that any inequality effect of trade integration is similar to that caused by technological advances pushing up the need for skilled labour. 15.

The lowered tail reflects sluggish incomes for the poorest. But the politically most explosive part of the graph is the low base of the trunk. It shows that those around the eightieth to ninetieth percentile of the world income distribution—roughly, the bottom half of the old industrialised West—saw the fruits of globalisation pass them by.3 Three main facts lay behind this stagnation. One was a steep increase in income inequality in Western countries in the 1980s. This was not reversed in the decades that followed, and in some places it got worse. A second phenomenon (and part of the reason for the first) was that midrange labour incomes fell behind the growth in labour productivity.4 In other words, the gains from higher productivity disproportionately flowed to the owners of capital or to the very high paid.5 And third, labour productivity growth itself slowed down sharply.

Governments adopted policies to remove the economic risk of unemployment, accident, ill health, and old age that individuals and families had previously borne on their own shoulders. Together these constituted the new welfare states. (In the United States, the government stayed out of health care provision for able-bodied adults—partly as a result of the unions’ desire to keep it within the purview of collective bargaining—but treated employer-paid health insurance favourably in the tax code.) FIGURE 4.1. Income inequality in four major economies over time. The charts show Gini coefficients of overall inequality of equivalised disposable household income (US: gross household income; UK: after-tax income of tax units) and shares of the top 1 per cent of tax units (individuals in France and post-1991 UK) in gross income excluding capital gains. Source: Anthony Atkinson, Joe Hasell, Salvatore Morelli, and Max Roser, The Chartbook of Economic Inequality, 2017, https://www.chartbookofeconomicinequality.com.


pages: 421 words: 110,272

Deaths of Despair and the Future of Capitalism by Anne Case, Angus Deaton

Affordable Care Act / Obamacare, basic income, Bertrand Russell: In Praise of Idleness, business cycle, call centre, collapse of Lehman Brothers, collective bargaining, Corn Laws, corporate governance, correlation coefficient, crack epidemic, creative destruction, crony capitalism, declining real wages, deindustrialization, demographic transition, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Elon Musk, falling living standards, Fellow of the Royal Society, germ theory of disease, income inequality, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, labor-force participation, low skilled workers, Martin Wolf, Mikhail Gorbachev, obamacare, pensions crisis, randomized controlled trial, refrigerator car, rent-seeking, risk tolerance, shareholder value, Silicon Valley, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, universal basic income, working-age population, zero-sum game

But those in despair are in despair because of what is happening to their own lives and to the communities in which they live, not because the top 1 percent got richer. Income inequality is different in different places—cities and states—across the country. At times in the past, mortality rates were higher and life expectancy lower in states with higher income inequality. But the relationship is much weaker today. Historically, the states in the South with high mortality—West Virginia, Alabama, Kentucky, Mississippi, Arkansas, Oklahoma, Louisiana, and Tennessee—had higher levels of income inequality than the majority of states, in most cases because they had large African American populations, who were relatively poor, which drove up overall income inequality, and who had relatively high mortality, which drove up overall mortality. States in the central plains and in most of the West had more homogeneous populations and lower mortality rates.

We have much to say about inequality in this book, especially in the chapters to come. We will argue that deaths of despair and income inequality are indeed closely linked, but not, as is often argued, with a simple causal arrow running from inequality to death. Instead, it is the deeper forces of power, politics, and social change that are causing both the epidemic and the extreme inequality. Inequality and death are joint consequences of the forces that are destroying the white working class. We resist the notion that income inequality is like pollution in the air, or deadly radiation, so that living in a more unequal society is something that sickens everyone, rich and poor alike. For one thing, the huge expansion of income inequality in the US came after 1970, precisely during the period when mortality was falling rapidly and life expectancy rising rapidly (see figure 1.1).

Wilkinson’s theory has a lot to recommend it, especially its focus on social as opposed to individual circumstance. But here we are interested in whether it can help account for mortality in America today, and whether income inequality is linked to the epidemic of deaths of despair. We agree that the increase in American inequality since 1970 is indeed linked to increases in deaths of despair, not directly—as in “inequality makes us all sick”—but because in the US the rich got richer at the expense of the rest of America—“reverse Robin Hood” in action. For twenty to thirty years, while income inequality rose, mortality declined, but eventually, after 1990, we began to see an increase in deaths of despair among the less educated. We will argue that this is the result not of the increasing prosperity of those in the top 1 percent but instead of what has been happening to the white working class itself.


pages: 580 words: 168,476

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

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, 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, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, 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%, wealth creators, women in the workforce, zero-sum game

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).


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End This Depression Now! by Paul Krugman

airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, business cycle, 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, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, 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.


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23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

"Robert Solow", affirmative action, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

Increased trade liberalization and increased foreign investment – or at least the threat of them – have also put downward pressure on wages. As a result, income inequality has increased in most rich countries. For example, according to the ILO (International Labour Organization) report The World of Work 2008, of the twenty advanced economies for which data was available, between 1990 and 2000 income inequality rose in sixteen countries, with only Switzerland among the remaining four experiencing a significant fall.1 During this period, income inequality in the US, already by far the highest in the rich world, rose to a level comparable to that of some Latin American countries such as Uruguay and Venezuela. The relative increase in income inequality was also high in countries such as Finland, Sweden and Belgium, but these were countries that previously had very low levels of inequality – perhaps too low in the case of Finland, which had an even more equal income distribution than many of the former socialist countries.

THING 13 1 The sixteen countries where inequality increased are, in descending order of income inequality as of 2000, the US, South Korea, the UK, Israel, Spain, Italy, the Netherlands, Japan, Australia, Canada, Sweden, Norway, Belgium, Finland, Luxemburg and Austria. The four countries where income inequality fell were Germany, Switzerland, France and Denmark. 2 L. Mishel, J. Bernstein and H. Shierholz, The State of Working America, 2008/9 (Economic Policy Institute, Washington, DC, 2009), p. 26, table 3. 3 According to the OECD (Organization for Economic Development and Cooperation), before taxes and transfers, the US, as of mid 2000s, had a Gini coefficient (the measure of income inequality, with 0 as absolute equality and 1 as absolute inequality) of 0.46. The figures were 0.51 for Germany, 0.49 for Belgium, 0.44 for Japan, 0.43 for Sweden and 0.42 for the Netherlands.

Index active economic citizenship xvi, xvii Administrative Behaviour (Simon) 173–4 Africa see Sub-Saharan Africa AIG 172–3 Air France 131 AOL 132–3 apartheid 214–16 Argentina education and growth 181 growth 73 hyperinflation 53–4 Austria geography 121 government direction 132 protectionism 70 balance of payments 97–100, 101 Baldursson, Fridrik 235 Bangladesh entrepreneurship 159–60 and microfinance 161–2, 163, 164 Bank of England 252 (second) Bank of the USA 68 Bank for International Settlements (BIS) 262 bankruptcy law 227–8 Barad, Jill 154 Bard College 172 Bateman, Milford 162 Baugur 233 Baumol, William 250 Bebchuk, Lucian 154 behaviouralist school 173–4 Belgium ethnic division 122 income inequality 144, 146 manufacturing 70, 91 R&D funding 206 standard of living 109 Benin, entrepreneurship 159 Bennett, Alan 214 Besley, Tim 246 big government 221–2, 260–61 and growth 228–30 see also government direction; industrial policy BIS (Bank for International Settlements) 262 Black, Eugene 126 Blair, Tony 82, 143, 179 borderless world 39–40 bounded rationality theory 168, 170, 173–7, 250, 254 Brazilian inflation 55 Britain industrial dominance/decline 89–91 protectionism 69–70 British Academy 246–7 British Airways 131 brownfield investment 84 Brunei 258 Buffet, Warren 30, 239 Bukharin, Nikolai 139 Bunning, Senator Jim 8 Burkina Faso (formerly Upper Volta) 121, 200 Bush, George W. 8, 158, 159, 174 Bush Sr, George 207 business sector see corporate sector Cameroon 116 capital mobility 59–60 nationality 74–5, 76–7 capitalism Golden Age of 142, 147, 243 models 253–4 capitalists, vs. workers 140–42 captains of industry 16 Carnegie, Andrew 15 Case, Steve 132–3 Cassano, Joe 172–3 CDOs (collateralized debt obligations) 238 CDSs (credit default swaps) 238 CEO compensation see executive pay, in US Cerberus 77–8 Chavez, Hugo 68 chess, complexity of 175–6 child-labour regulation 2–3, 197 China business regulation 196 communes 216 economic officials 244 industrial predominance 89, 91, 93, 96 as planned economy 203–4 PPP income 107 protectionism and growth 63–4, 65 Chocolate mobile phone 129 Chrysler 77–8, 191 Chung, Ju-Yung 129 Churchill, Winston 253 climate factors 120–21 Clinton, Bill 143 cognitive psychology 173–4 collateralized debt obligations (CDOs) 238 collective entrepreneurship 165 communist system 200–204 Concorde project 130–31 conditions of trade 5 Confucianism 212–13 Congo (Democratic Republic) 116, 121 consumption smoothing 163 cooperatives 166 corporate sector importance 190–91 planning in 207–9 regulation effect 196–8 suspicion of 192–3 see also regulation; transnational corporations Cotton Factories Regulation Act 1819 2 credit default swaps (CDSs) 238 Crotty, Jim 236–8 culture issues 123, 212–13 Daimler-Benz 77–8 Darling, Alistair 172 de-industrialization 91 balance of payments 97–100, 101 causes 91–6 concerns 96–9 deflation, Japan 54 deliberation councils 134 Denmark cooperatives 166 protectionism 69 standard of living 104, 106, 232–3 deregulation see under regulation derivatives 239 Detroit car-makers 191–2 developing countries entrepreneurship and poverty 158–60 and free market policies 62–3, 71–3, 118–19, 261–2 policy space 262–3 digital divide 39 dishwashers 34 distribution of income see downward redistribution of income; income irregularity; upward redistribution of income domestic service 32–3 double-dip recession xiii downward redistribution of income 142–3, 146–7 Dubai 235 Duménil, Gérard 236 East Asia economic officials 249–50 educational achievements 180–81 ethnic divisions 122–3 government direction 131–2 growth 42, 56, 243–4 industrial policy 125–36, 205 École Nationale d’Administration (ENA) 133 economic crises 247 Economic Policy Institute (EPI) 144, 150 economists alternative schools 248–51 as bureaucrats 242–3 collective imagination 247 and economic growth 243–5 role in economic crises 247–8 Ecuador 73 Edgerton, David 37 Edison, Thomas 15, 165, 166 education and enterprise 188–9 higher education effect 185–8 importance 178–9 knowledge economy 183–5 mechanization effect 184–5 outcome equality 217–18 and productivity 179–81 relevance 182–3 Elizabeth II, Queen 245–7 ENA (École Nationale d’Administration) 133 enlightened self-interest 255–6 entrepreneurship, and poverty 157–8 and collective institutions 165–7 as developing country feature 158–60 finance see microfinance environmental regulations 3 EPI (Economic Policy Institute) 144, 150 equality of opportunity 210–11, 256–7 and equality of outcome 217–20, 257 and markets 213–15 socio-economic environment 215–17 equality of outcome 217–20 ethnic divisions 122–3 executive pay and non-market forces 153–6 international comparisons 152–3 relative to workers’ pay 149–53, 257 US 148–9 fair trade, vs. free trade 6–7 Fannie Mae 8 Far Eastern Economic Review 196 Federal Reserve Board (US) 171, 172, 246 female occupational structure 35–6 Fiat 78 financial crisis (2008) xiii, 155–6, 171–2, 233–4, 254 financial derivatives 239, 254–5 financial markets deregulation 234–8, 259–60 effects 239–41 efficiency 231–2, 240–41 sector growth 237–9 Finland government direction 133 income inequality 144 industrial production 100 protectionism 69, 70 R&D funding 206 welfare state and growth 229 Fischer, Stanley 54 Ford cars 191, 237 Ford, Henry 15, 200 foreign direct investment (FDI) 83–5 France and entrepreneurship 158 financial deregulation 236 government direction 132, 133–4, 135 indicative planning 204–5 protectionism 70 Frank, Robert H 151 Franklin, Benjamin 65–6, 67 Freddie Mac 8 free market boundaries 8–10 and developing countries 62–3, 71–3, 118–19, 261–2 labour see under labour nineteenth-century rhetoric 140–43 as political definition 1–2 rationale xiii–xiv, 169–70 results xiv–xv, xvi–xvii system redesign 252, 263 see also markets; neo-liberalism free trade, vs. fair trade 6–7 Fried, Jesse 154 Friedman, Milton 1, 169, 214 Galbraith, John Kenneth 16, 245 Garicano, Luis 245 Gates, Bill 165, 166, 200 General Electric (GE) 17, 45, 86, 237 General Motors Acceptance Corporation (GMAC) 194, 237 General Motors (GM) 20, 22, 45, 80, 86, 154, 190–98 decline 193–6 financialization 237 pre-eminence 191–2 geographical factors 121 Germany blitzkrieg mobility 191 CEO remuneration 152–3 cooperatives 166 emigration 69 hyperinflation 52–4 industrial policy 205 manufacturing 90 R&D funding 206 welfare state and growth 228–9 Ghana, entrepreneurship 159 Ghosn, Carlos 75–6, 78 globalization of management 75–6 and technological change 40 GM see General Motors GMAC (General Motors Acceptance Corporation) 194, 237 Golden Age of Capitalism 142, 147, 243 Goldilocks economy 246 Goodwin, Sir Fred 156 Gosplan 145 government direction balance of results 134–6 and business information 132–4 failure examples 130–31 and market discipline 44–5, 129–30, 134 share ownership 21 success examples 125–6, 131–4 see also big government; industrial policy Grameen Bank 161–4 Grant, Ulysses 67 Great Depression 1929 24, 192, 236, 249, 252 greenfield investment 84 Greenspan, Alan 172, 246 Hamilton, Alexander 66–7, 69 Hayami, Masaru 54 Hennessy, Peter 246–7 higher education 185–8 Hirschman, Albert 249 History Boys (Bennett) 214 Hitler, Adolf 54 home country bias 78–82, 83, 86–7 Honda 135 Hong Kong 71 household appliances 34–6, 37 HSBC 172 Human relations school 47 Hungary, hyperinflation 53–4 hyperinflation 52–4 see also inflation Hyundai Group 129, 244 Iceland financial crisis 232–4, 235 foreign debt 234 standard of living 104–5 ICT (Information and Communication Technology) 39 ILO (International Labour Organization) 32, 143–4 IMF see International Monetary Fund immigration control 5, 23, 26–8, 30 income per capita income 104–11 see also downward redistribution of income; income inequality; upward redistribution of income income inequality 18, 72–3, 102, 104–5, 108, 110, 143–5, 147, 247–8, 253, 262 India 99, 121 indicative planning 205 indicative planning 204–6 Indonesia 234 industrial policy 84, 125–36, 199, 205, 242, 259, 261 see also government direction Industrial Revolution 70, 90, 243 infant industry argument 66–8, 69–70, 71–2 inflation control 51–2 and growth 54–6, 60–61 hyperinflation 52–4 and stability 56–61 Information and Communication Technology (ICT) 39 institutional quality 29–30, 112–13, 115, 117, 123–4, 165–7 interest rate control 5–6 international dollar 106–7 International Labour Organization (ILO) 32, 143–4 International Monetary Fund (IMF) 54–5, 57, 66, 72, 244, 262 SAPs 118 International Year of Microcredit 162 internet revolution 31–2 impact 36–7, 38, 39 and rationality 174 investment brownfield/greenfield 84 foreign direct investment 83–5 share 18–19 invisible reward/sanction mechanisms 48–50 Ireland financial crisis 234–5 Italy cooperatives 166 emigrants to US 103 Jackson, Andrew 68 Japan business regulation 196 CEO remuneration 152–3 deflation 54 deliberation councils 134 government direction 133–4, 135, 259 indicative planning 205 industrial policy 131, 135, 242–5 industrial production 100 production system 47, 167 protectionism 62, 70 R&D funding 206 Jefferson, Thomas 67–8, 239 job security/insecurity 20, 58–61, 108–9, 111, 225–8, 247, 253, 259 Journal of Political Economy 34 Kaldor, Nicolas 249 Keynes, John Maynard 249 Kindleberger, Charles 249 knowledge economy 183–5 Kobe Steel 42–3, 46 Kong Tze (Confucius) 212 Korea traditional 211–13 see also North Korea; South Korea Koufax, Sandy 172 Kuwait 258 labour free market rewards 23–30 job security 58–60 in manufacturing 91–2 market flexibility 52 regulation 2–3 relative price 33, 34 Latin America 32–3, 55, 73, 112, 122, 140, 196–7, 211, 245, 262 Latvia 235 Lazonick, William 20 Lenin, Vladimir 138 Levin, Jerry 133 Lévy, Dominique 236 LG Group 129, 134 liberals neo-liberalism xv, 60, 73 nineteenth-century 140–42 limited liability 12–15, 21, 228, 239, 257 Lincoln, Abraham 37, 67 List, Friedrich 249 London School of Economics 245–6 LTCM (Long-Term Capital Management) 170–71 Luxemburg, standard of living 102, 104–5, 107, 109, 232–3, 258 macro-economic stability 51–61, 240, 259, 261 Madoff, Bernie 172 Malthus, Thomas 141 managerial capitalism 14–17 Mandelson, Lord (Peter) 82–3, 87 manufacturing industry comparative dynamism 96 employment changes 91–2 importance 88–101, 257–9 productivity rise 91–6, 184–5 relative prices 94–5 statistical changes 92–3 Mao Zedong 215–16 Marchionne, Sergio 78 markets and bounded rationality theory 168, 173–6, 177, 254 conditions of trade 5 and equality of opportunity 213–15 failure theories 250 financial see financial markets government direction 44–5, 125–36 government regulation 4–6, 168–9, 176–7 participation restrictions 4 price regulations 5–6 and self-interest 44–5 see also free market Marx, Karl 14, 198, 201, 208, 249 Marxism 80, 185, 201–3 mathematics 180, 182–3 MBSs (mortgage-backed securities) 238 medicine’s popularity 222–4 Merriwether, John 171 Merton, Robert 170–71 Michelin 75–6 microfinance critique 162 and development 160–62 Microsoft 135 Minsky, Hyman 249 Monaco 258 morality, as optical illusion 48–50 Morduch, Jonathan 162 mortgage-backed securities (MBSs) 238 motivation complexity 46–7 Mugabe, Robert 54 NAFTA (North American Free Trade Agreement) 67 National Health Service (UK) 261 nationality of capital 74–87 natural resources 69, 115–16, 119–20, 121–2 neo-liberalism xv, 60, 73, 145 neo-classical school 250 see also free market Nestlé 76–7, 79 Netherlands CEO remuneration 152–3 cooperatives 166 intellectual property rights 71 protectionism 71 welfare state and growth 228–9 New Public Management School 45 New York Times 37, 151 New York University 172 Nissan 75–6, 84, 135, 214 Nobel Peace Prize 162 Prize in economics 170, 171–2, 173, 208, 246 Nobel, Alfred 170 Nokia 135, 259–60 North American Free Trade Agreement (NAFTA) 67 North Korea 211 Norway government direction 132, 133, 205 standard of living 104 welfare state and growth 222, 229 Obama, Barack 149 OECD (Organization for Economic Cooperation and Development) 57, 159, 229 Oh, Won-Chul 244 Ohmae, Kenichi 39 Opel 191 Opium War 9 opportunities see equality of opportunity Organization for Economic Cooperation and Development (OECD) 57, 159, 229 organizational economy 208–9 outcomes equality 217–20 Palin, Sarah 113 Palma, Gabriel 237 Park, Chung-Hee 129 Park, Tae-Joon 127–8 participation restrictions 4 Perot, Ross 67 Peru 219 PGAM (Platinum Grove Asset Management) 171 Philippines, education and growth 180, 181 Phoenix Venture Holdings 86 Pigou, Arthur 250 Pinochet, Augusto 245 PISA (Program for International Student Assessment) 180 Plain English Campaign 175 planned economies communist system 200–204 indicative systems 204–6 survival 199–200, 208–9 Platinum Grove Asset Management (PGAM) 171 Pohang Iron and Steel Company (POSCO) 127–8 pollution 3, 9, 169 poor individuals 28–30, 140–42, 216–18 Portes, Richard 235 Portman, Natalie 162 POSCO (Pohang Iron and Steel Company) 127–8 post-industrial society 39, 88–9, 91–2, 96, 98, 101, 257–8 Poverty Reduction Strategy Papers (PRSPs) 118 see also SAPs PPP (purchasing power parity) 106–9 Preobrazhensky, Yevgeni 138–40, 141 price regulations 5–6 stability 51–61 Pritchett, Lant 181 private equity funds 85–6, 87 professional managers 14–22, 44–5, 166, 200 Program for International Student Assessment (PISA) 180 protectionism and growth 62–3, 72–3 infant industry argument 66–8, 69–70, 71–2 positive examples 63–5, 69 PRSPs see Poverty Reduction Strategy Papers purchasing power parity (PPP) 106–9 R&D see research and development (R&D) Rai, Aishwarya 162 Rania, Queen 162 rationality see bounded rationality theory RBS (Royal Bank of Scotland) 156 real demand effect 94 regulation business/corporate 196–8 child labour 2–3, 197 deregulation 234–8, 259–60 legitimacy 4–6 markets 4–6, 168–9, 176–7 price 5–6 Reinhart, Carmen 57, 59 Renault 21, 75–6 Report on the Subject of Manufactures (Hamilton) 66 The Rescuers (Disney animation) 113–14 research and development (R&D) 78–9, 87, 132, 166 funding 206 reward/sanction mechanisms 48–50 Ricardo, David 141 rich individuals 28–30, 140–42 river transport 121 Rogoff, Kenneth 57, 59 Roodman, David 162 Roosevelt, Franklin 191 Rover 86 Royal Bank of Scotland (RBS) 156 Rubinow, I.M. 34 Ruhr occupation 52 Rumsfeld, Donald 174–5 Rwanda 123 Santander 172 SAPs (Structural Adjustment Programs) 118, 124 Sarkozy, Nicolas 90 Scholes, Myron 170–71 Schumpeter, Joseph 16, 165–7, 249 Second World War planning 204 (second) Bank of the USA 68 self-interest 41–2, 45 critique 42–3 enlightened 255–6 invisible reward/sanction mechanisms 48–50 and market discipline 44–5 and motivation complexity 46–7 Sen, Amartya 250 Senegal 118 service industries 92–3 balance of payments 97–100, 101 comparative dynamism 94–5, 96–7 knowledge-based 98, 99 Seychelles 100 share buybacks 19–20 shareholder value maximisation 17–22 shareholders government 21 ownership of companies 11 short-term interests 11–12, 19–20 shipbuilders 219 Simon, Herbert 173–6, 208–9, 250 Singapore government direction 133 industrial production 100 PPP income 107 protectionism 70 SOEs 205 Sloan Jr, Alfred 191–2 Smith, Adam 13, 14, 15, 41, 43, 169, 239 social dumping 67 social mobility 103–4, 220 socio-economic environment 215–17 SOEs (state-owned enterprises) 127, 132, 133, 205–6 South Africa 55, 121 and apartheid 213–16 South Korea bank loans 81 economic officials 244 education and growth 181 ethnic divisions 123 financial drive 235 foreign debt 234 government direction 126–9, 133–4, 135, 136 indicative planning 205 industrial policy 125–36, 205, 242–5 inflation 55, 56 job insecurity effect 222–4, 226, 227 post-war 212–14 protectionism 62, 69, 70 R&D funding 206 regulation 196–7 Soviet Union 200–204 Spain 122 Spielberg, Steven 172 Sri Lanka 121 Stalin, Josef 139–40, 145 standard of living comparisons 105–7 US 102–11 Stanford, Alan 172 state owned enterprises (SOEs) 127, 132, 133, 205–6 steel mill subsidies 126–8 workers 219 Stiglitz, Joseph 250 Structural Adjustment Programs (SAPs) 118, 124 Sub-Saharan Africa 73, 112–24 culture issues 123 education and growth 181 ethnic divisions 122–3 free market policies 118–19, 262 geographical factors 121 growth rates 73, 112, 116–19 institutional quality 123 natural resources 119–20, 121–2 structural conditions 114–16, 119–24 underdevelopment 112–13, 124 Sutton, Willie 52 Sweden 15, 21–2 CEO remuneration 152 income inequality 144 industrial policy 205 industrial production 100 per capita income 104 R&D funding 206 welfare state and growth 229 Switzerland CEO remuneration 152–3 ethnic divisions 122 geography 121 higher education 185–6, 188 intellectual property rights 71 manufacturing 100, 258 protectionism 69, 71 standard of living 104–6, 232–3 Taiwan business regulation 196 economic officials 244 education and growth 180 government direction 136 indicative planning 205 protectionism 69, 70 Tanzania 116 TARP (Troubled Asset Relief Program) 8 tax havens 258 technological revolution 31–2, 38–40 telegraph 37–8 Telenor 164 Thatcher, Margaret 50, 225–6, 261 Time-Warner group 132–3 TIMSS (Trends in International Mathematics and Science Study) 180, 183 Toledo, Alejandro 219 Toyota and apartheid 214 production system 47 public money bail-out 80 trade restrictions 4 transnational corporations historical debts 80 home country bias 78–82, 83, 86–7 nationality of capital 74–5, 76–7 production movement 79, 81–2 see also corporate sector Trends in International Mathematics and Science Study (TIMSS) 180, 183 trickle-down economics 137–8 and upward distribution of income 144–7 Trotsky, Leon 138 Troubled Asset Relief Program (TARP) 8 2008 financial crisis xiii, 144, 155–6, 171–2, 197–8, 233–4, 236, , 238–9, 245–7, 249, 254 Uganda 115–16 uncertainty 174–5 unemployment 218–19 United Kingdom CEO remuneration 153, 155–6 financial deregulation 235–6, 237 NHS 261 shipbuilders 219 see also Britain United Nations 162 United States economic model 104 Federal Reserve Board 171, 172, 246 financial deregulation 235–8 immigrant expectations 103–4 income inequality 144 inequalities 107–11 protectionism and growth 64–8, 69 R&D funding 206 standard of living 102–11 steel workers 219 welfare state and growth 228–30 United States Agency for International Development (USAID) 136 university education effect 185–8 Upper Volta (now Burkina Faso) 200 upward redistribution of income 143–4 and trickle-down economics 144–7 Uruguay growth 73 income inequality 144 USAID (United States Agency for International Development) 136 vacuum cleaners 34 Venezuela 144 Versailles Treaty 52 Vietnam 203–4 Volkswagen government share ownership 21 public money bail-out 80 wage gaps political determination 23–8 and protectionism 23–6, 67 wage legislation 5 Wagoner, Rick 45 Wall Street Journal 68, 83 Walpole, Robert 69–70 washing machines 31–2, 34–6 Washington, George 65, 66–7 Welch, Jack 17, 22, 45 welfare economics 250 welfare states 59, 110–43, 146–7, 215, 220, 221–30 and growth 228–30 Wilson, Charlie 192, 193 Windows Vista system 135 woollen manufacturing industry 70 work to rule 46–7 working hours 2, 7, 109–10 World Bank and free market 262 and free trade 72 and POSCO 126–8 government intervention 42, 44, 66 macro-economic stability 56 SAPs 118 WTO (World Trade Organization) 66, 262 Yes, Minister/Prime Minister (comedy series) 44 Yunus, Muhammad 161–2 Zimbabwe, hyperinflation 53–4


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

"Robert Solow", 3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, assortative mating, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, computer age, creative destruction, debt deflation, deskilling, disruptive innovation, diversified portfolio, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Fractional reserve banking, Freestyle chess, full employment, Goldman Sachs: Vampire Squid, Gunnar Myrdal, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kenneth Arrow, Khan Academy, knowledge worker, labor-force participation, liquidity trap, low skilled workers, low-wage service sector, Lyft, manufacturing employment, Marc Andreessen, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, Paul Samuelson, performance metric, Peter Thiel, plutocrats, Plutocrats, post scarcity, precision agriculture, price mechanism, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Rodney Brooks, Sam Peltzman, 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, The Future of Employment, Thomas L Friedman, too big to fail, Tyler Cowen: Great Stagnation, uber lyft, 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.


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Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

The way to help the worst off was to expand the economy, he concluded, and the wealthy were best placed to make that happen.4 Converging, diverging, or ever-fixed? Debates over the likely path of income inequality raged on, but in 1955 the story took a crucial turn, quite literally. When Simon Kuznets – the brilliant inventor of national income accounting – gathered together long-run trend data on incomes in the US, UK and Germany, he was taken aback by what he found. In all three countries, income inequality measured before tax had been falling at least since the 1920s, and even possibly before the First World War. Contrary to Pareto’s static social pyramid, Kuznets believed he had uncovered a different law: a social rollercoaster ride on which income inequality first rose, then levelled out, and eventually fell again, all while the economy grew. It was an intriguing finding, but it jarred with his intuitive understanding of the Success to the Successful trap.

Out of their earnings, the remittances they send to their families back home are now the single largest source of external finance in many low-income countries, outstripping both ODA and foreign direct investment. Those worker remittances constitute around 25% of GDP in countries like Nepal, Lesotho and Moldova, and are a vital source of resilience during domestic economic and humanitarian crises.87 That makes migration one of the most effective ways of reducing global income inequality. But its long-term success hinges on preventing wide income inequalities within the host countries themselves, and on building community connections and social capital. Without these, local communities that have been left behind economically often resort to blaming immigrants, instead of welcoming the diversity and dynamism that their presence can bring. High-income countries have often justified their meagre record on ODA by arguing that, rather than being well spent, too much aid gets embezzled by corrupt leaders or wasted on poorly designed projects.

., Sussex: IDS, available at: http://www.ids.ac.uk/files/dmfile/Wp394.pdf 4. Persky, J. (1992) ‘Retrospectives: Pareto’s law’, Journal of Economic Perspectives 6: 2, pp. 181–192. 5. Kuznets, S. (1955) ‘Economic growth and income inequality’, American Economic Review, 45: 1, pp. 1–28. 6. Kuznets, S. (1954) Letter to Selma Goldsmith, US Office of Business Economics, 15 August 1954, Papers of Simon Kuznets, Harvard University Archives, HUGFP88.10 Misc. Correspondence, Box 4. http://asociologist.com/2013/03/21/on-the-origins-of-the-kuznets-curve/ 7. Kuznets, S. (1955) ‘Economic growth and income inequality’, American Economic Review, 45: 1, pp. 1–28. 8. Lewis, W. A. (1976) ‘Development and distribution’, in Cairncross, A. and Puri, M. (eds), Employment, Income Distribution, and Development Strategy: Problems of the Developing Countries.


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Listen, Liberal: Or, What Ever Happened to the Party of the People? by Thomas Frank

Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, American ideology, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Burning Man, centre right, circulation of elites, Clayton Christensen, collective bargaining, Credit Default Swap, David Brooks, deindustrialization, disruptive innovation, Donald Trump, Edward Snowden, Fall of the Berlin Wall, financial innovation, Frank Gehry, full employment, George Gilder, gig economy, Gini coefficient, income inequality, Jaron Lanier, Jeff Bezos, knowledge economy, knowledge worker, Lean Startup, mandatory minimum, Marc Andreessen, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, McMansion, microcredit, mobile money, moral panic, mortgage debt, Nelson Mandela, new economy, obamacare, payday loans, Peter Thiel, plutocrats, Plutocrats, Ponzi scheme, post-industrial society, postindustrial economy, pre–internet, profit maximization, profit motive, race to the bottom, Republic of Letters, Richard Florida, ride hailing / ride sharing, Ronald Reagan, sharing economy, Silicon Valley, Steve Jobs, Steven Levy, TaskRabbit, Thorstein Veblen, too big to fail, Travis Kalanick, Uber for X, union organizing, urban decay, women in the workforce, Works Progress Administration, young professional

Put it a different way: what does it mean when the dominant constituency of the left party in a two-party system is a high-status group rather than the traditional working class? One thing we know for sure that it means is soaring inequality. When the left party in a system severs its bonds to working people—when it dedicates itself to the concerns of a particular slice of high-achieving affluent people—issues of work and income inequality will inevitably fade from its list of concerns. We know this, for starters, because this is exactly what has happened. Issues of income inequality have been recontextualized so thoroughly in our time that certain Democrats even have trouble understanding what their forebears of the 1930s and ’40s meant when they talked about the subject. For our modern liberals, it is obvious that careers should be open to talent and it is an outrage when barriers of any kind prevent the able from rising to the top.

They have stubbornly refused to change course when every sign said turn: when it would have been good policy to turn, when it would have been overwhelmingly popular to turn, when the country expected them to turn, when it was fully within their power to steer in a different direction. Yes, I know, Democrats are the good guys, or rather the less bad guys. Many individual Democrats get enthusiastic, five-star approval ratings from me; many more are completely without blame in the narrative that follows. And it is largely thanks to the Democrats that mainstream pundits now feel it’s OK to talk about inequality at all. But as things have grown worse, income inequality has become an increasingly awkward issue for them. It just doesn’t come naturally in the way that, say, talking about marriage equality now does. Looking back over their actual record, one starts to suspect that there’s a better chance the party will resolve to kick Wyoming out of the union than to do something meaningful to halt the country’s economic breakdown. This is not because they are incompetent or because sinister Republicans keep thwarting the righteous liberal will.

It was one of the themes of his 2008 stump speech, when he talked so inspiringly about “the politics of addition, not the politics of division.” What was shocking about all this was to realize that Obama believed these clichés. Consensus, bipartisanship, the “center”: those were the things this admirable and intelligent man was serious about—the kind of stale, empty verbiage favored by Beltway charlatans on the Sunday talk shows. The other things Obama used to say—like when he connected deregulation, corruption, and income inequality in his Cooper Union speech in 2008—those things were just to reel in the suckers. The suckers being the people who could hear the pillars of their middle-class world snapping. The suckers being the people who could see that the system was crumbling and thought maybe we ought to do something about it. What I realized in the instant when I heard that phrase was that this man, in whom I and so many others had placed such faith, was in fact another ordinary consensus Democrat with ordinary consensus ideas.


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Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

"Robert Solow", agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

Ultimately, this has led to a position whereby today the key dividing line in many advanced economies is not earnings, but ownership of property. Firstly, however, we give an overview of recent empirical trends and examine competing and more traditional explanations for this growing inequality. 6.2 Trends in economic inequality Income inequality Income inequality refers to the extent to which income is distributed in an uneven manner among a population. Over the past three decades income inequality has risen across much of the developed world, reaching record highs in some countries. One way of describing the distribution of income is to compare the ratio of the average income of the richest 10% to the average income of the poorest 10%. Today in OECD countries the richest 10% of the population now earns 9.6 times the income of the poorest 10%.

However, in the late 1980s the cost of renting increased sharply relative to incomes, whereas the cost of owning with a mortgage remained broadly stable (Belfield et al., 2014). As a result, the cost of housing has increased disproportionately for those in rented accommodation, which tend to be households on lower incomes.5 This has had the effect of exacerbating inequalities in ultimate spending power and living standards. Figure 6.8 shows the Gini coefficient for income inequality both before and after housing costs. It shows that income inequality was largely unaffected by housing costs during the 1960s and 1970s, but from 1979 onwards there has been a growing divergence between the two measures. This indicates that over the past thirty years housing costs have become a significant contributor towards widening gaps in ultimate spending power and, therefore, living standards. Research from the Resolution Foundation has shown that between 2002 and 2015 rising housing costs more than outweighed the modest income gains made for the bottom 56% of working age households (Clarke et al., 2016).

Wilkinson and Pickett (2010) find a significant correlation between income inequality and many different factors of health and social malaise among twenty-three developed countries and among US states.6 They conclude that inequality and social stratification lead to higher levels of psychosocial stress and status anxiety, which in turn can lead to depression, dependency, less community life, parenting problems and stress-related diseases. These negative impacts do not just accrue to those on low incomes, they show that inequality has negative consequences for everyone. Although Wilkinson and Pickett’s empirical work has been subject to some criticism (see Snowdon, 2010; Saunders, 2011), there is a strong consensus in the broader academic literature in support of a correlation between income inequality and health and social problems.


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

Amazon Mechanical Turk, Black Swan, brain emulation, Brownian motion, business cycle, Cass Sunstein, choice architecture, complexity theory, computer age, computer vision, computerized trading, 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, Johannes Kepler, John Markoff, Khan Academy, labor-force participation, Loebner Prize, low skilled workers, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, microcredit, Myron Scholes, Narrative Science, Netflix Prize, Nicholas Carr, P = NP, 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: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

There is a large gap between urban and rural incomes, or urban households earning three times as much as rural ones. The coast also outpaces the interior in terms of wealth. But the pattern of inequality is moderating. Income inequality reached a peak in 2008 and has since declined. Nonetheless, China, like other emerging nations, is a society that has become very unequal in many respects within a short period of time. Why has inequality risen over the past century? One of the reasons for high inequality in countries like China is that, as countries industrialize and urbanize, they grow more quickly. Those who move into industry and cities earn more than those who don’t, so income inequality tends to increase with economic development. But countries can reduce income inequality through redistributive policies. Without the social welfare system, inequality would be much higher in the US, the UK and much of the rest of Europe.

Krugman also points out that this comparison is a static one: you can measure how two people with two different levels of income act at any given point in time, but it’s harder to predict how a person’s spending would change if incomes were raised. Stiglitz and Krugman may disagree over how much a role inequality plays in the slow recovery, but they agree that high levels of income inequality are a problem for economic as well as social reasons. Income inequality has been problematic for a long time. Inequality fell after the Gilded Age and the Roaring Twenties, especially during the 1950s and 1960s when per capita GDP, which is a measure of average income, grew well during what’s called the Golden Age of economic growth. But beginning in the 1970s, the income gap ceased narrowing, and then started expanding sharply after 1980, until now when America has become more unequal than ever before.

France French Revolution inequality Physiocrats and Trier Freddie Mac free market capitalism see also capitalism competition see competition see also free trade free trade and competition see competition in corn see also Corn Laws regional and bilateral agreements and theory of comparative advantage free trade agreements (FTAs) Friedman, David Friedman, Janet Friedman, Milton and the 2008 financial crisis Capitalism and Freedom and the Federal Reserve Free to Choose and Goldwater and the Great Depression John Bates Clark Medal and Keynes libertarian views life and times of A Monetary History of the United States, (with Schwartz) and monetary policy and Nixon Nobel Prize and Pinochet/Chile political influence and prediction and quantitative easing and Reagan and Stigler and Thatcher A Theory of the Consumption Function Two Lucky People Tyranny of the Status Quo Volker Lectures Friedman, Rose, née Director Frisch, Ragnar Fuji Furman, Jason Galbraith, John Kenneth gas industry General Electric (GE) German Historical School of economics Germany and China competitiveness and wages and the Great Depression industrialization/Industrial Revolution inequality manufacturing and Marshall and Marx productivity and wage growth retained cash of companies reunification and wages trade and the Treaty of Versailles wage stagnation worker representation gilts Glass–Steagall Act global macroeconomic imbalances globalization backlash and deindustrialization and emerging economies future of and inequality losers from and low wages and prosperity and specialization and trade gold and the dollar standard Goldwater, Barry Google Android government administration government bonds see also gilts government regulation government spending deficit spending and employment and Keynes see also fiscal policy: Keynes’ fiscal activism public investment/spending see public investment; public spending Gramm–Leach–Bliley Act Great Britain see Britain/UK Great Depression (1930s) Black Thursday Black Tuesday and the Federal Reserve Fisher and risk of repeating the 1930s and Friedman and ‘Great Contraction’ and Keynesian revolution/economics as a liquidity crisis and unemployment and US GDP Greece see also euro crisis gross domestic product (GDP) debt-to-GDP ratio emerging economies and world GDP and government spending investment as share of Japan per capita trade-to GDP ratios US 2015 GDP US decline with Great Depression world GDP growth of economies see economic growth Guillebaud, Claude Haberler, Gottfried Hansen, Alvin Hardenberg, Karl August von Harris, Seymour Harrison, George Hausmann, Ricardo Hayek, Friedrich and the 2008 global financial crisis and the backlash against globalization business cycle theory and capitalism in Collectivist Economic Planning The Constitution of Liberty The Denationalization of Money The Fatal Conceit and the IEA influence and Keynes Law, Legislation and Liberty life and times of Nobel Prize ‘Paradox of Saving’ path to fame political philosophy presidency of Mont Pelerin Society Prices and Production Pure Theory of Capital The Road to Serfdom and Schumpeter The Sensory Order and spontaneous order and Thatcher Hayek, Hella Hazard, Caroline Hazard, Margaret see Fisher, Margaret Hazard, Rowland Hegel, Georg Wilhelm Hicks, John R. higher education Holland Hong Kong Hoover, Herbert housing market Huawei human capital Hume, David hyperinflation hysteresis imports inclusive growth income inequality Index Number Institute (INI) Index Visible Company indexation schemes India individualism Indonesia industrialization and agriculture in China Industrial Revolution reindustrialization Second Industrial Revolution and the workers’ movement see also deindustrialization inequality and capitalism in China drivers of and globalization growing Hayek and global inequality income inequality and Marshall reasons for rising inequality over past century and skill-biased technical change in South Africa and tax and technological change US and welfare systems inflation and central bank regimes and debt indexation hyperinflation and savings stagflation and wages information and communications technology (ICT) smartphones and improvements in technology see also smartphones/mobile phones Information Technology and Innovation Foundation (US) infrastructure investment innovation and challenge of staying on top China’s challenge as engine of economic growth industry-specific Schumpeterian ‘creative destruction’ and Institute of Economic Affairs (IEA) institutions and economic development Myanmar and North self-perpetuation of and technological progress Vietnam’s institutional challenge intangible investments interest rates and the 2008 financial crisis and the Great Depression investment and low rates negative and stocks International Labour Organization (ILO) International Monetary Fund (IMF) International Working Men’s Association (IWMA) internet investment and aggregate demand in economy capital investment with fixed returns foreign (direct) growth through in human capital infrastructure see infrastructure investment investment banks/banking Keynes’ view of investors and low interest rates low investment following financial crises private and productivity public see public investment R&D see research and development investment Robinson on capital accumulation from as share of GDP ‘socializing investment’ and tax UK foreign investment after Brexit Ireland UK exports to Israel iTunes Japan ‘Abenomics’ economic growth economic stagnation GDP ‘lost decades’ manufacturing national debt productivity real estate crash in 1990s robotics as second largest economy stagnant median wages temporary workers wage growth Jevons, W.


pages: 459 words: 123,220

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

assortative mating, business cycle, 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, jobless men, longitudinal study, low skilled workers, manufacturing employment, mass incarceration, meta analysis, meta-analysis, mortgage tax deduction, new economy, Occupy movement, Ralph Waldo Emerson, randomized controlled trial, school choice, selection bias, 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.


pages: 409 words: 125,611

The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, Plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

A 2011 study by the Organization for Economic Cooperation and Development found that income inequality first started to rise in the late ’70s and early ’80s in America and Britain (and also in Israel). The trend became more widespread starting in the late ’80s. Within the last decade, income inequality grew even in traditionally egalitarian countries like Germany, Sweden, and Denmark. With a few exceptions—France, Japan, Spain—the top 10 percent of earners in most advanced economies raced ahead, while the bottom 10 percent fell further behind. But the trend was not universal, or inevitable. Over these same years, countries like Chile, Mexico, Greece, Turkey, and Hungary managed to reduce (in some cases very high) income inequality significantly, suggesting that inequality is a product of political and not merely macroeconomic forces.

I reflected on the inadequacy of the Obama stimulus further in another op-ed, “Stimulate or Die,” Project Syndicate, August 6, 2009. 17. I wrote about this in the context of the East Asian crisis in my Globalization and Its Discontents (New York: W. W. Norton, 2002); Jason Furman (later one of my successors as chairman of the Council of Economic Advisers) and I showed that there was a regular pattern to this, in our 1998 paper “Economic Consequences of Income Inequality,” in Income Inequality: Issues and Policy Options (Proceedings of a Symposium at Jackson Hole, Wyoming) (Kansas City, MO: Federal Reserve Bank of Kansas City, 1998), pp. 221–63. THE ECONOMIC CONSEQUENCES OF MR. BUSH* WHEN WE LOOK BACK SOMEDAY AT THE CATASTROPHE that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties.

The fact that those born into the bottom of the economic pyramid are condemned to never reach their potential reinforces the correlation between inequality and slower long-term economic growth.19 That these dimensions of inequality are related suggests that focusing on one dimension at a time may underestimate the true magnitude of societal inequalities and provide an inadequate basis for policy. For example, health inequality is both a cause and consequence of income inequality. Inequalities in education are a primary determinant of inequalities in income and opportunity. In turn, as we have emphasized, when there are distinct social patterns of these multiple inequalities (for example, those associated with race or ethnicity), the consequences for society (including social instability) are increased. MEASURING THE GOAL We propose that the following goal—call it “Goal Nine”—be added to revisions and updates of the original eight: Eliminate extreme inequality at the national level in every country. For this goal, we propose the following targets: • By 2030, reduce extreme income inequalities in all countries such that the post-tax income of the top 10 percent is no more than the post-transfer income of the bottom 40 percent


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, Bernie Madoff, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, minimum wage unemployment, moral hazard, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, shareholder value, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

If society collectively wants more of one good (greater income equality) it must give up some other good (the size of the ‘economic pie’).13 The research we’ve described suggests that the real equity–efficiency trade-off may look something like Figure 9.4. Over a wide range of income inequality, there is essentially no relationship between equity and efficiency, as reflected by the growth rate. Beyond that range, for degrees of equality or inequality not actually observed, the empirical evidence doesn’t say anything directly. So is the trade-off featured in the textbooks really a myth? Perhaps it’s about Observed income inequality somewhere within this range ? ? Index of income inequality declines in this direction figure 9.4 The equity–growth trade-off 212 Equity Questions for your professor: What is the evidence for a significant equity–efficiency trade-off? If there is a significant trade-off, why haven’t the high-tax welfare states in Europe experienced low growth and low average living standards compared with lower-tax countries?

The vertical axis shows the percentage shares of total household income that various groupings of households have. In this example, the poorest 50 per cent of households have 20 per cent of total income. If household incomes were equally distributed, those households would have 50 per cent of total income, the amount shown on the 45-degree line. The gap between the points showing actual household incomes (called the Lorenz curve) and this reference line indicates the nature and extent of income inequality. Income inequality is usually summarized in a single number to aid in comparing inequality over time and across countries. One simple way is to calculate the ratio of the shares of total income held by the top 10 or 20 per cent of 198 Country Top 10% to bottom 10% Top 20% to bottom 20% Gini coefficient 8.1 4.5 6.2 6.1 5.6 5.5 6.9 6.9 9.2 7.8 9.4 9.1 8.2 9.4 8.8 10.3 12.5 11.6 13.8 12.5 15 15.9 24.6 4.3 3.4 4 3.9 3.8 3.8 4.3 4.4 5.1 4.7 5.5 5.6 4.9 5.6 5.6 6 7 6.5 7.2 6.8 8 8.4 12.8 0.247 0.249 0.250 0.258 0.269 0.269 0.283 0.291 0.309 0.316 0.326 0.327 0.330 0.343 0.345 0.347 0.352 0.360 0.360 0.362 0.385 0.408 0.461 8.6 12.7 17.8 21.6 48.3 33 51.3 33.1 63.8 5.6 7.6 9.7 12.2 16 15.7 21.8 17.9 25.3 0.368 0.399 0.437 0.469 0.482 0.549 0.570 0.578 0.586 Some OECD countries Denmark Japan Sweden Norway Finland Hungary Germany Austria Netherlands Korea, South Canada France Belgium Ireland Poland Spain Australia Italy United Kingdom New Zealand Portugal United States Mexico Some non-OECD countries India Russia Nigeria China (excluding Hong Kong) Venezuela Chile Brazil South Africa Colombia Note: Values are for income or expenditure shares.

The most commonly used measure that summarizes the entire income distribution is the Gini ­coefficient. This is the ratio of the area between the Lorenz curve and the 199 9  |  Government, taxation table 9.2 Measures of income inequality 45-degree line (marked ‘A’ in Figure 9.1) and the entire area under the 45-degree line (A + B in the figure). So the Gini coefficient = A/(A + B). It’s zero if income is equally distributed; it’s 1 if one household has everything. Table 9.2 also shows estimates of the Gini coefficient for a selection of countries. With the exception of India, the developing countries shown have much higher income inequality than the developed countries. Among the OECD countries, there is considerable variation in inequality, with the United States being the most unequal. The distribution of wealth This is typically ignored in the texts, but note the differences between wealth and income.


pages: 273 words: 87,159

The Vanishing Middle Class: Prejudice and Power in a Dual Economy by Peter Temin

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, anti-communist, Bernie Sanders, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, clean water, corporate raider, Corrections Corporation of America, crack epidemic, deindustrialization, desegregation, Donald Trump, Edward Glaeser, Ferguson, Missouri, financial innovation, financial intermediation, floating exchange rates, full employment, income inequality, intangible asset, invisible hand, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, manufacturing employment, Mark Zuckerberg, mass immigration, mass incarceration, means of production, mortgage debt, Network effects, New Urbanism, Nixon shock, obamacare, offshore financial centre, oil shock, plutocrats, Plutocrats, Powell Memorandum, price stability, race to the bottom, road to serfdom, Ronald Reagan, secular stagnation, Silicon Valley, Simon Kuznets, the scientific method, War on Poverty, Washington Consensus, white flight, working poor

Piketty supported capital taxation at very low rates as a result of these considerations and to make tax avoidance harder. Older people today recall the years between the end of the Second World War and the start of income inequality in the 1970s and 1980s. It was a period of rapid economic growth, partly in recovery from the world war, and with a growing middle class. People living then thought of these years as normal, but Piketty asserted that these years were highly unusual in the history of the past two centuries—and even beyond. While there is no inevitable winner in the race between the interest rate and the growth rate, the interest rate normally wins. I used the Lewis model and Piketty’s data as frameworks for the analysis of income inequality in this book. Piketty appealed to “fundamental laws of economics” to structure the data in his book, and I compare the models of inequality used by Piketty and in this book to clarify my arguments.

Lewis and Solow were working within a Keynesian framework in which capital referred to the means of production: factories and machines are the prime examples. Simon Kuznets, a third Nobel Laureate in economics, also was focused on economic growth in the 1950s. Using the data available to him, he formulated what came to be called the Kuznets Curve that asserted that income inequality would first rise and then fall during economic growth. He was reacting to the declining income inequality he observed around him and a political-economic view that richer countries would choose policies that increased equality. Piketty argued that Kuznets was living in a very unusual economic period during the years after the Second World War. Only in that period, Piketty observed, was the growth rate of income higher than the interest rate, promoting equality.

Since then, the American economy reverted to its more usual pattern where the interest rate is larger than the growth rate. I argued on different grounds that the “golden age of economic growth” was unusual, that it was a protracted recovery from the preceding thirty years of war and depression. Either way, the rapid growth of income inequality in the United States since the 1970s contradicted Kuznets’ optimistic view.4 Piketty and I defined capital in very different ways. Piketty equated capital and wealth, including the value of both public and private financial assets in his definition of capital. He was interested in gathering data on income inequality over several centuries, and he restricted his data on wealth to assets traded on markets. He then could sum varied forms of capital at market prices to get national capital stocks by adding their prices. Piketty drew on a literature that argued for the role of finance in economic growth.


pages: 362 words: 83,464

The New Class Conflict by Joel Kotkin

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Bob Noyce, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, creative destruction, crony capitalism, David Graeber, deindustrialization, don't be evil, Downton Abbey, Edward Glaeser, Elon Musk, energy security, falling living standards, future of work, Gini coefficient, Google bus, housing crisis, income inequality, informal economy, Internet of things, Jane Jacobs, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John von Neumann, Joseph Schumpeter, Kevin Kelly, labor-force participation, low-wage service sector, Marc Andreessen, Mark Zuckerberg, mass affluent, McJob, McMansion, medical bankruptcy, Nate Silver, New Economic Geography, new economy, New Urbanism, obamacare, offshore financial centre, Paul Buchheit, payday loans, Peter Calthorpe, plutocrats, Plutocrats, post-industrial society, RAND corporation, Ray Kurzweil, rent control, rent-seeking, Report Card for America’s Infrastructure, Richard Florida, Silicon Valley, Silicon Valley ideology, Steve Jobs, technoutopianism, The Death and Life of Great American Cities, Thomas L Friedman, too big to fail, transcontinental railway, trickle-down economics, Tyler Cowen: Great Stagnation, upwardly mobile, urban planning, urban sprawl, War on Poverty, women in the workforce, working poor, young professional

.], “David Stockman Explains the Keynesian State-Wreck Ahead—Sundown In America,” Zero Hedge (blog), October 5, 2013, http://www.zerohedge.com/news/2013-10-05/david-stockman-explains-keynesian-state-wreck-ahead-sundown-america; Hibah Yousuf, “Obama Admits 95% of Income Gains Gone to Top 1%,” CNN Money, September 15, 2013, http://money.cnn.com/2013/09/15/news/economy/income-inequality-obama; Alexander Eichler, “Consumption Inequality Keeping Up With Rising Income Inequality: Study,” Huffington Post, April 10, 2012, http://www.huffingtonpost.com/2012/04/10/consumption-inequality-income_n_1413454.html; Alexander Eichler, “Income Inequality Worse under Obama than George W. Bush,” Huffington Post, April 11, 2012, http://www.huffingtonpost.com/2012/04/11/income-inequality-obama-bush_n_1419008.html; Richard Fry and Paul Taylor, “A Rise in Wealth for the Wealthy; Declines for the Lower 93%,” report, Pew Research Social & Demographic Trends, April 23, 2013, http://www.pewsocialtrends.org/files/2013/04/wealth_recovery_final.pdf. 17.

New York’s middle class has been in decline for decades, and as early as 1989 its economy was declared to be “hollow in the middle.”22 The most profound level of inequality and bifurcated class structure is found in the densest and most influential urban environment in North America—Manhattan. In 1980, Manhattan ranked seventeenth among the nation’s more than 3,000 counties in income inequality; by 2007 it ranked first, with the top fifth of all households earning 52 times that of the lowest fifth, a disparity roughly comparable to that of Namibia.23 Manhattan’s GINI index now stands higher than that of South Africa before the apartheid-ending 1994 election. If Manhattan were a country, it would rank sixth highest in income inequality in the world out of more than 130 for which the World Bank reports data.24 Amid the upper-tier affluence, in part due to the impact of bailouts of the great financial institutions concentrated in the city, New York’s wealthiest one percent earn a third of the entire city’s personal income—almost twice the proportion for the rest of the country.25 This makes all the more understandable how, despite the city’s relatively strong recovery from both 9/11 and the recession, the strident populist campaign of Mayor Bill de Blasio was so strongly supported.26 The same patterns can be seen, albeit to a lesser extent, in other major cities, notes a recent analysis of 2010 Census data by the Brookings Institution.

Census Bureau, “Educational Attainment by State: 1990 to 2009”; Hans Johnson and Ria Sengupta, “Closing the Gap: Meeting California’s Need for College Graduates,” report, Public Policy Institute of California, April 2009, http://www.ppic.org/content/pubs/report/R_409HJR.pdf. 57. Center for Economic Research and Forecasting, California Lutheran University, “The United States and California Economic Forecast,” September 2009, http://www.clucerf.org/forecasts/2009/09; Brad Plumer, “Watch the Growth of U.S. Income Inequality with This Animated Map,” Wonkblog (blog), Washington Post, September 19, 2013, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/19/watch-the-growth-of-u-s-income-inequality-with-this-animated-map; Sarah Bohn and Eric Schiff, “The Great Recession and Distribution of Income in California,” report, Public Policy Institute of California, December 2011, http://www.ppic.org/content/pubs/report/R_1211SBR.pdf. 58. Wendell Cox, “California Declares War on Suburbia II: The Cost of Radical Densification,” New Geography, April 18, 2012, http://www.newgeography.com/content/002781-california-declares-war-suburbia-ii-the-cost-radical-densification. 59.


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

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, corporate raider, creative destruction, 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, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, 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, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, 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, Vilfredo Pareto, 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).


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The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

There is a large gap between urban and rural incomes, or urban households earning three times as much as rural ones. The coast also outpaces the interior in terms of wealth. But the pattern of inequality is moderating. Income inequality reached a peak in 2008 and has since declined. Nonetheless, China, like other emerging nations, is a society that has become very unequal in many respects within a short period of time. Why has inequality risen over the past century? One of the reasons for high inequality in countries like China is that, as countries industrialize and urbanize, they grow more quickly. Those who move into industry and cities earn more than those who don’t, so income inequality tends to increase with economic development. But countries can reduce income inequality through redistributive policies. Without the social welfare system, inequality would be much higher in the US, the UK and much of the rest of Europe.

Krugman also points out that this comparison is a static one: you can measure how two people with two different levels of income act at any given point in time, but it’s harder to predict how a person’s spending would change if incomes were raised. Stiglitz and Krugman may disagree over how much a role inequality plays in the slow recovery, but they agree that high levels of income inequality are a problem for economic as well as social reasons. Income inequality has been problematic for a long time. Inequality fell after the Gilded Age and the Roaring Twenties, especially during the 1950s and 1960s when per capita GDP, which is a measure of average income, grew well during what’s called the Golden Age of economic growth. But beginning in the 1970s, the income gap ceased narrowing, and then started expanding sharply after 1980, until now when America has become more unequal than ever before.

A best-selling book on the topic of inequality is by the French economist Thomas Piketty. Its popularity reflects a widespread concern that inequality is as high now in America as the Gilded Age of the late nineteenth century. A recent economics Nobel laureate, Joseph Stiglitz, has even pointed to inequality as one of the causes of the slow recovery after the Great Recession. So, how would Marshall view the worsening of income inequality which is often perceived as an indictment of capitalism? Are capitalist economies inevitably unequal? Concerns over economic growth have certainly heated up since the 2008 global financial crisis, which was the worst economic downturn since the Great Depression of the 1930s. America was the epicentre, and Britain was deeply affected. Years later, there are still high levels of debt and less than robust economic growth.


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

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, business cycle, 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, fixed income, 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, longitudinal study, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, 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.


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

Affordable Care Act / Obamacare, back-to-the-land, barriers to entry, basic income, 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, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, mass incarceration, minimum wage unemployment, moral hazard, moral panic, 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, Sam Peltzman, 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.


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

activist fund / activist shareholder / activist investor, banking crisis, basic income, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, creative destruction, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, fixed income, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, labour mobility, late capitalism, liberal capitalism, means of production, moral hazard, Myron Scholes, 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.


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Social Democratic America by Lane Kenworthy

affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, business cycle, Celtic Tiger, centre right, clean water, collective bargaining, corporate governance, David Brooks, desegregation, Edward Glaeser, endogenous growth, full employment, Gini coefficient, hiring and firing, Home mortgage interest deduction, illegal immigration, income inequality, invisible hand, Kenneth Arrow, 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: 237 words: 64,411

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

Affordable Care Act / Obamacare, Amazon Web Services, asset allocation, autonomous vehicles, bank run, bitcoin, Bob Noyce, Brian Krebs, business cycle, 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, information asymmetry, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, John Markoff, 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, The Future of Employment, 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: 598 words: 172,137

Who Stole the American Dream? by Hedrick Smith

Affordable Care Act / Obamacare, Airbus A320, airline deregulation, anti-communist, asset allocation, banking crisis, Bonfire of the Vanities, British Empire, business cycle, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, commoditize, 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, industrial cluster, informal economy, invisible hand, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, laissez-faire capitalism, late fees, Long Term Capital Management, low cost airline, low cost carrier, manufacturing employment, market fundamentalism, Maui Hawaii, mega-rich, MITM: man-in-the-middle, mortgage debt, negative equity, new economy, Occupy movement, Own Your Own Home, Paul Samuelson, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Powell Memorandum, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Bork, 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.


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

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, 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, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, 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, zero-sum game

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: 306 words: 78,893

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

"Robert Solow", accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, corporate governance, corporate raider, 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, intangible asset, 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, post-work, 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, zero-sum game

"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.


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The Ones We've Been Waiting For: How a New Generation of Leaders Will Transform America by Charlotte Alter

"side hustle", 4chan, affirmative action, Affordable Care Act / Obamacare, basic income, Berlin Wall, Bernie Sanders, carbon footprint, clean water, collective bargaining, Columbine, corporate personhood, correlation does not imply causation, Credit Default Swap, crowdsourcing, David Brooks, Donald Trump, double helix, East Village, ending welfare as we know it, Fall of the Berlin Wall, feminist movement, Ferguson, Missouri, financial deregulation, Francis Fukuyama: the end of history, gig economy, glass ceiling, Google Hangouts, housing crisis, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), job-hopping, Kevin Kelly, knowledge economy, Lyft, mandatory minimum, Marc Andreessen, Mark Zuckerberg, mass incarceration, McMansion, medical bankruptcy, move fast and break things, move fast and break things, Nate Silver, obamacare, Occupy movement, passive income, pre–internet, race to the bottom, RAND corporation, Ronald Reagan, sexual politics, Silicon Valley, single-payer health, Snapchat, TaskRabbit, too big to fail, Uber and Lyft, uber lyft, universal basic income, unpaid internship, We are the 99%, white picket fence, working poor, Works Progress Administration

While most wealthy Americans found loopholes to shrink their effective tax rates, the basic structure worked well: it paid for social welfare programs and ambitious infrastructure projects, such as the interstate highway system, while lessening income inequality in what was then the greatest economic expansion in world history. The top marginal tax rate didn’t fall below 50 percent until the late 1980s, when Ronald Reagan slashed it to 28 percent. But thanks to deregulation and privatization in the 1980s and 1990s, income inequality today is back where it was before the Great Depression. According to historian Jill Lepore, in 1928 the top 1 percent of American families earned 24 percent of all income, but income inequality shrank significantly in the 1940s—by 1944, the middle class had grown and the top 1 percent earned only about 11 percent of the total. But by 2011, Gilded Age income gaps had returned: the top 1 percent were again earning 24 percent of all income, giving the United States the highest inequality of any Western democracy.

The popular kids had flat-ironed hair and wore polo shirts from Abercrombie & Fitch, sometimes two at the same time, pink over green or green over pink. Sometimes Alexandria would go with her mother to clean rich people’s houses that were bigger and nicer, with more expensive furniture and fancier decorations. Once, her mom cleaned a woman’s home in exchange for SAT lessons for Alexandria. “I saw and interpreted a lot subconsciously about income inequality,” she said later. “We were an economic underclass. We were part of the service class.” Gabriel had once gone on a job with their mom and realized halfway through that he was cleaning the home of one of his classmates. “That was one of the first moments that I felt shame,” he remembered. Another time, Blanca was cleaning the house of an older man whose wife was in the hospital. His wife wasn’t doing well, and the old man didn’t know how to take care of the house without her.

They liked the idea of being “socially liberal but fiscally conservative.” After a decade of economic malaise in the 1970s, boomers largely embraced the exuberant materialism and cynical individualism that characterized much of the late twentieth century. They voted for Ronald Reagan (especially in 1984) and supported the tax cuts and financial deregulation that laid the groundwork for soaring income inequality. The two decades spanning the Reagan and Clinton presidencies amounted to a lurch to the right in American politics. Reagan oversaw a radical reduction in government investment, and Clinton’s “Third Way” attempted to triangulate a path forward for Democrats that prioritized market solutions over government programs and ended up boosting corporate profit more than middle-class wealth. For the boomers and Gen X, Reagan’s antigovernment conservatism and Clinton’s Third Way centrism defined the parameters of political debate for the next twenty years.


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

assortative mating, call centre, clean water, commoditize, 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, Joan Didion, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, labor-force participation, late capitalism, low skilled workers, manufacturing employment, mass immigration, McMansion, mortgage tax deduction, new economy, off grid, oil shock, PageRank, Ponzi scheme, positional goods, post-industrial society, 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.

However, in a post-industrial service economy, where most of us are working not for basic survival but to acquire an ever-expanding basket of goods and services, and where most of the highly valued prizes are inherently limited by their nature as relative status markers, then the cashier has no choice but to keep working in order to try her darndest to keep up her family’s relative income. Add in the fact that her job involves interacting with people all day long in a highly constrained way—acting pleasantly subservient is the nature of the game in the lower-wage service sector—and you start to comprehend the social nature of poverty in the post-material age. Some on the left wonder why there is not more of a backlash against the high (and rising) degree of income inequality in the United States. But it’s really not too bewildering. It’s because we are all implicated in the greatest Ponzi scheme history has ever witnessed. We all have to buy into this economic pyramid to keep it running. And since many of us enjoy decent, long-run returns on our 401(k)s and home values—while simultaneously afflicted by fraud anxiety—we tend to go along with the program and hope it all works out in the end.


pages: 375 words: 105,067

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

American ideology, asset allocation, Bernie Madoff, buy and hold, 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, longitudinal study, Mark Zuckerberg, money market fund, mortgage debt, oil shock, payday loans, pension reform, Ponzi scheme, post-work, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, Stanford marshmallow experiment, stocks for the long run, 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: 352 words: 107,280

Good Times, Bad Times: The Welfare Myth of Them and Us by John Hills

Capital in the Twenty-First Century by Thomas Piketty, credit crunch, Donald Trump, falling living standards, full employment, Gini coefficient, income inequality, income per capita, longitudinal study, mortgage debt, pension reform, plutocrats, Plutocrats, precariat, quantitative easing, Right to Buy, unpaid internship, very high income, We are the 99%, working-age population, World Values Survey

By contrast, the links between fathers and sons’ earnings are weaker in Scandinavian countries, which have had lower income inequality. Looking internationally at the countries for which comparable analysis can be made, Miles Corak and colleagues have shown that there is a general association between high income inequality and low intergenerational mobility in earnings, as shown in Figure 7.11. In the countries where income inequality was relatively low when those born in the 1960s entered the labour market, parental earnings (family income in the UK case) were half as important in explaining sons’ earnings as in the countries with high-income inequality.52 This relationship is so striking that Alan Krueger, Chairman of US President Obama’s Council of Economic Advisers, has dubbed it the ‘Great Gatsby curve’. It may be that the ‘rich are different from you and me’, as the original book’s author, F.

A second kind of explanation is that they are looking at two different things, one concerned with links between parents and children’s incomes, and the other with links between the broad kinds of occupation they have. Given that income inequality has increased within occupations as well as between them, it is perfectly possible that both observations are correct: what matters more now for your income is that your parents were well-paid white-collar workers, even if your relative chances of becoming a white-collar worker, given your parents’ broad kind of occupation and the jobs available, has not changed. It matters more in the UK (and the US) to choose the right parents The strong association between parental incomes or earnings and sons’ earnings is not only seen in the UK – it is also strong in Italy and in the US, despite the rhetoric of the US being a ‘land of opportunity’. These three countries have had high levels of income inequality. By contrast, the links between fathers and sons’ earnings are weaker in Scandinavian countries, which have had lower income inequality.

Scott Fitzgerald once (almost) wrote, and not just in that ‘they have more money’ (as Ernest Hemmingway is said to have riposted). But in an unequal society the life chances of the children of the rich are also very different. Figure 7.11: The Great Gatsby curve Source: M. Corak (2013) ‘Income inequality, equality of opportunity and intergenerational mobility’, Journal of Economic Perspectives, vol 27, no 3, Figure 1 One of the reasons for this lies in the combination of two factors. First, income inequality is associated with higher returns to education – those who are better-qualified end up with much higher earnings relative to everyone else than in societies with more equal incomes overall. And second, if incomes are unequal, better-off parents have more resources available to invest in their children’s education, so building their ‘human capital’.53 This combination feeds stronger links between parents’ and children’s earnings, and lower intergenerational mobility, as suggested in Figure 7.12.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

"Robert Solow", 23andMe, activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, cognitive bias, computer age, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial innovation, full employment, fundamental attribution error, future of work, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, job automation, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

How Intangibles Affect Income, Wealth, and Esteem Inequality So it seems that neither new technology nor globalization nor simple accumulation fully explains the current levels and types of inequality we see in developed countries. Could the rise of intangible investment provide part of the answer? Let’s look at the possible ways in which an intangible economy might result in more of the kinds of inequality that people have been observing. Intangibles, Firms, and Income Inequality First of all, let’s consider the ways in which the rise of intangible investment could have driven the increase in income inequality that has arisen from differences between firms. As we have seen in chapter 4, some of the key characteristics of intangibles are scalability and spillovers. So in a world where intangible investment is very important, we would expect to see the best firms, firms that own valuable, scalable intangibles and that are good at exacting the spillovers from other businesses, being highly productive and profitable, and their competitors losing out.

Data show that in developed economies labor income is typically about 65–75 percent of total national income (also called GDP), the rest being capital income. The annual return on wealth is around 6–8 percent, so total wealth is about 400 percent of GDP/total income. How can wealth be so much larger than GDP? Wealth is a stock and is accumulated over potentially many years of building assets. GDP/income is an annual flow. Finally, as the Institute for Fiscal Studies notes, wealth inequality is much higher than income inequality. The wealthiest 10 percent of households hold 50 percent of the wealth. The least wealthy 25 percent of households hold almost no wealth at all. The Gini coefficient, which is a summary measure for how unequal a distribution is, ranges from 0 to 1, where a measure of 0 is equality and 1 is where only one person accounts for the entire measure. The Gini coefficient is 0.64 for wealth and 0.34 for net income (Crawford, Innes, and O’Dea 2016).

Figure 6.1, showing data for the United States, is representative of many, but not all, countries: in 1979, college-educated men earned around $17,000 more than those with only high school educations; by 2012 that gap was almost $35,000 (adjusted for inflation). Figure 6.1. Inequality in median annual earnings between high school and college graduates, United States (in constant 2012 dollars). Source: Autor (2014). But this is not just a case of graduates doing well. The power of the Occupy Wall Street movement’s slogan “the One Per Cent” was that it crystallized in people’s minds that income inequality today seems to be fractal. The incomes of the richest 1 percent, the richest 0.1 percent, and the richest 0.01 percent have risen by even more dizzying levels (see below). And as development economist Branko Milanović pointed out, this is part of a global phenomenon: over the past two decades, incomes have risen sharply for most people in the world, in particular people in big, once-poor countries like China (Milanović 2005).


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Rule Britannia: Brexit and the End of Empire by Danny Dorling, Sally Tomlinson

3D printing, Ada Lovelace, Alfred Russel Wallace, anti-communist, anti-globalists, Big bang: deregulation of the City of London, Boris Johnson, British Empire, centre right, colonial rule, Corn Laws, correlation does not imply causation, David Ricardo: comparative advantage, deindustrialization, Dominic Cummings, Donald Trump, Edward Snowden, en.wikipedia.org, epigenetics, Etonian, falling living standards, Flynn Effect, housing crisis, illegal immigration, imperial preference, income inequality, inflation targeting, invisible hand, knowledge economy, market fundamentalism, mass immigration, megacity, New Urbanism, Nick Leeson, North Sea oil, offshore financial centre, out of africa, Right to Buy, Ronald Reagan, Silicon Valley, South China Sea, sovereign wealth fund, spinning jenny, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas Malthus, University of East Anglia, We are the 99%, wealth creators

page_id=6678 or https://www.newstatesman.com/politics/uk/2018/07/peak-inequality 22 Hazeldine, T. and Rashbrooke, M. (2017) ‘The New Zealand rich list twenty years on’, New Zealand Economic Papers, doi: 10.1080/00779954.2017.1354907, https://www.tandfonline.com/eprint/EjSVceMfvCAqq2p8ZWMY/full 23 Byrne, L. (2018) ‘Inclusive Growth’, 4 April, London: House of Commons Library Research, https://www.inclusivegrowth.co.uk/house-commons-library-research/ 24 Dorling, D. (2018) Do We Need Income Inequality?, Cambridge: Polity Press. 25 Byrne, L. (2018) ‘Inclusive Growth’, op. cit. 26 OECD (2018) ‘Income inequality’, doi: 10.1787/459aa7f1-en. At that point the only OECD country with rising inequality reported from 2016 onwards was Sweden (with an income inequality Gini of 0.282 which is still very low). Iceland, Israel, Italy, Korea, Lithuania, the Netherlands and Switzerland peaked in 2014. Most other OECD countries peaked before then, except for the UK in 2015 and the USA in 2013. The statistics showing income inequality now falling in most non-OECD countries are given in Dorling, D. (2017) The Equality Effect, op. cit. 27 Jones, R. (2018) ‘Au pair shortage sparks childcare crisis for families’, The Guardian, 9 June, https://www.theguardian.com/money/2018/jun/09/au-pair-shortage-prompts-crisis-for-families?

In fact, the depressing statistics make hope even more feasible, because they suggest that the continued amassing of wealth by the already wealthy is near impossible without the almost total acquiescence of well over 99 per cent of the rest of the population. In short – just how stupid are we? But we don’t just have to rely on the collective intelligence of the 99 per cent to hope things can get better. In recent years, income inequalities have fallen in both a majority of OECD countries and a majority of countries worldwide.26 Wealth inequalities tend to lag behind income inequalities, so that, although wealth inequalities will continue to rise for a few years to come, unless the current trend for falling income inequality is reversed, we should expect wealth inequalities in future to fall too. The introduction of more wealth taxes would greatly speed up that process, however. In London in 2018 it was already being reported that the exceedingly rich were having trouble getting servants.

When the average educational score of people aged 16–24 in each country is compared to income inequality in that country, the results reveal that economic inequality harms thinking ability across entire populations. Inequality brings out the worst in us. The USA is the only other large rich nation that is more economically unequal than the UK, and it shows. In the United States, by the year 2015, the best-off tenth of households enjoyed an average annual income of $439,883 a year, some 18.75 times more than the $23,460 a year that the average of the poorest tenth of households survived on each year. Racism allows this inequality to be tolerated. Vastly disproportionate numbers of poorer children in the USA are not white and they perform worst of all in OECD international tests. The USA now has the worst level of income inequality in the rich world, and produces the least-able children by international measures for wealthy countries.


Basic Income And The Left by henningmeyer

basic income, Bernie Sanders, centre right, eurozone crisis, income inequality, John Maynard Keynes: technological unemployment, labour market flexibility, land value tax, means of production, mini-job, moral hazard, precariat, quantitative easing, Silicon Valley, the market place, Tobin tax, universal basic income

Similarly, had the UK’s QE been diverted to pay every British resident a basic income, everybody could have received about £50 a week for two years. Income inequality would have been reduced, economic security improved, domestic growth boosted. Instead, asset bubbles have grown, notably in the property market, along with personal debt, homelessness and resort to food banks. As cuts to 42 43 social spending mount, the politicians and financial establishment should not be surprised if the anger turns on them. An alternative approach is needed desperately. A pilot scheme would give policymakers a wonderful opportunity to see if it would work. It is not as if feeding the bankers has done more than restore bankers’ bonuses to disgusting heights. 7 WHY THE UNIVERSAL BASIC INCOME IS NOT THE BEST PUBLIC INTERVENTION TO REDUCE POVERTY OR INCOME INEQUALITY BY VICENTE NAVARRO (24 MAY 2016) There is no uniform interpretation of Universal Basic Income (UBI).

The tries with lower inequalities have been those — like 48 49 the Scandinavian countries belonging to the social derived from labour at the cost of the percentage democratic tradition — that have achieved the said derived from capital – as most progressive parties reduction through fiscal and redistributive policies are already doing. and through labour market interventions. A final observation: the growing weakness of labour The most important variables in the reduction of explains the large deterioration of the labour income inequalities are political and are based, market, with a third of the labour force (almost half again, on the status of capital-labour relations in in Southern Europe) in precarious work, one of the each country. In countries where labour is weak, major reasons for the growth of poverty and of inequalities are large. This is the reason why income income inequalities. To believe that UBI is the solu‐ inequalities have been growing as dramatically in tion (or part of the solution) to what has been called many countries, on both sides of the northern the ‘precariat’ is to ignore the active causes of the Atlantic (North America and Europe): labour has deterioration of the labour market, causes that been increasingly weak.

Basic Income And the Left: A European Debate 2. How To Combat Inequalities Produced By Global Capitalism 3. Basic Income And Social Democracy 4. Why Basic Income Can Never Be A Progressive Solution - A Response To Van Parijs 5. The Euro-Dividend 6. Basic Income Pilots: A Better Option Than Quantitative Easing 7. Why The Universal Basic Income Is Not The Best Public Intervention To Reduce Poverty Or Income Inequality 8. The Worldwide March To Basic Income: Thank You Switzerland! 9. Universal Basic Income: A Disarmingly Simple Idea – And Fad 10. Unconditional Basic Income Is A Dead End 11. Basic Income Is A Tonic Catalyser: A Response To Anke Hassel 12. Basic Income And Institutional Transformation 13. No Need For Basic Income: Five Policies To Deal With The Threat Of Technological Unemployment 14. Citizen’s Income: Both Feasible And Useful 15.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

Strangelove character (i) driverless vehicles (i), (ii), (iii), (iv) drones, and regulation (i) Drucker, Peter (i), (ii) drugs see pharmaceutical sector dual class stock structures (i) Dutch disease (i) Dutch tulip mania (i) dynamism see discriminate dynamism theory; economic dynamism East Asia, trade and value chains (i) Ebenezer Scrooge character (i) eccentricity (i), (ii), (iii), (iv), (v) see also culture of individualism; dissent economic dynamism and capitalism (i), (ii), (iii) and innovation (i), (ii), (iii) and market contestability (i) economic growth compound growth (i) and productivity (i), (ii) and regulatory complexity/uncertainty (i) see also GDP (gross domestic product) Economic Policy Institute (Washington, DC) (i) The Economist on global corporations (i) on new technology and social dislocation (i) on pensioners vs. working-age households incomes (i) “Planet of the Phones” (i) on share buybacks (i) economy “bazaar economy” (Hans-Werner Sinn) (i) data economy (i) knowledge-based economy (i) “new economy” (i) and technology (i), (ii), (iii) see also economic dynamism; economic growth; financial economy; GDP (gross domestic product) EFAMA, on asset management industry (i) Einstein, Albert (i), (ii) electronic devices (i) electronic wallets (i) embedded liberalism (i) emerging markets (i), (ii), (iii), (iv), (v) employment protection legislation (i) see also labor; unemployment Energy Policy and Conservation Act (EPCA, US) (i) energy sector and antitrust laws (i) and innovation (i) and regulation (i), (ii) renewable/green energy: and regulation in Europe (i), (ii); and sunk costs (i) Engels, Friedrich, Communist Manifesto (Marx and Engels) (i), (ii) Enlightenment (i), (ii) Enron (i) entrepreneurs vs. bureaucrats (i), (ii) vs. managerialists (i) and passion vs. market complexity (i), (ii) Schumpeter on (i) tech entrepreneurs (i) see also entrepreneurship entrepreneurship aging trend (i), (ii) and capitalism (i), (ii) and dual class stock structures (i) and equity financing (i) and globalization (i), (ii) and innovation (i), (ii) and organizational diversification (i) vs. planning machines (i), (ii) and precautionary regulations (i) and size of firms (i) and strategy (i) and uncertainty (i) see also culture of experimentation; culture of individualism; entrepreneurs; start-ups equity vs. debt funding (i), (ii), (iii), (iv), (v), (vi), (vii) and institutional investors (i) and retirement savings (i), (ii) Ericsson (i), (ii) Ericsson, John (i) Europe asset management industry (i) big firms’ relative importance (i) capital expenditure (capex) (i), (ii)n39 corporate renewal levels (i) corporate savings (i) debt vs. equity financing (i) energy sector and antitrust laws (i) German-Central European supply chain (i) higher- vs. lower-income countries (i) labor, and tax (i) labor markets: low rates of flexibility (i); and lower productivity (i) mergers and acquisitions (i) pensions (i) productivity (i), (ii), (iii); total factor productivity (TFP) growth (i) R&D spending (i), (ii) regulation: compliance officers and Basel III (i); deregulation trend (i); index of regulatory freedom (i), (ii); index of regulatory trade barriers (i), (ii); medical devices (i); occupational/professional standards (i); technological platforms (i) services and globalization (i) trade: and big business (i); index of regulatory trade barriers (i), (ii); and value chains (i) see also eurozone; European Union European Food Safety Authority (EFSA) (i) European Union biofuels regulations (i) cadmium exemption issue (i), (ii) capitalist ownership and dual class stocks (i) chemicals regulations (i), (ii) exports to China (i) financial regulations (i), (ii); banks and Basel III rules (i), (ii) genetically modified organisms (GMOs) regulations (i), (ii), (iii) GM potato regulations (i) Leave campaign and older generation (UK) (i) nanotechnology regulations (i), (ii) precautionary principle (i) R&D scoreboards (i), (ii) Single Market (i) see also eurozone; Europe eurozone Germany and “sick man of the euro” label (i) pensions (i) see also Europe; European Union experimentation, culture of (i), (ii) see also entrepreneurs; entrepreneurship external capital markets (i), (ii), (iii), (iv), (v) Fabian Society (i) Facebook (i), (ii), (iii), (iv) failure failing companies and planning (i) formula of failure (i) and innovation process (i) Fairchild Semiconductor (i) FDI (foreign direct investment) (i), (ii), (iii) Federal Deposit Insurance Corporation (i) Federal Express (FedEx) (i), (ii) Feldstein, Martin (i) Fernald, John (i) fiduciary duties and laws (i) financial capitalism (i), (ii), (iii), (iv) see also financial economy financial crisis (2007) and aspirations (i) and financial regulations (i), (ii), (iii) and globalist worldview (i) and rich people vs. capitalists issue (i) and sovereign wealth funds (i) and stock markets (i) and Wall Street (i), (ii) see also Great Recession financial economy and gray capitalism (i), (ii), (iii) vs. real economy (i), (ii), (iii) financial institutions and financial regulations (i), (ii) and globalization (i) SIFIs (systemically important financial institutions) (i) see also banks financial regulations (i), (ii), (iii), (iv) financial sector growth of and productivity (i) financial services, and globalization (i) financial skills, vs. business-building skills (i) Financial Times on compliance officers (i) on French ban on Mercedes-Benz cars (i) Fink, Lawrence (i) Finland dependence on larger enterprises (i) Nokia story (i) firm boundaries and competition (i), (ii) and corporate managerialism (i), (ii), (iii), (iv), (v), (vi), (vii) and globalization (i) and innovation (i), (ii), (iii) and market concentration (i) and multinationals (i), (ii) and pharmaceutical sector (i) and R&D (i), (ii) and specialization (i), (ii), (iii), (iv), (v) see also firms firms entry-and-exit rates (i), (ii), (iii), (iv) high-growth firms (i) home-market firms vs. multinationals (i) interfirm vs. intrafirm trade (i) joint-stock companies (i), (ii) as logistics hubs (i), (ii) role of in the economy (i) start-ups (i), (ii), (iii), (iv), (v) unicorns (i) see also big firms; corporate size; firm boundaries; multinational (global) companies first-mover advantage (i) Food and Drug Administration (FDA, US) (i), (ii), (iii) food retailing, and globalization (i) Ford, Henry (i), (ii) Ford, Martin, The Rise of the Robots (i), (ii) foreign direct investment (FDI) (i), (ii), (iii) Fortune 500 companies (i) Foster, George (i) Foxconn (i) France ban on Mercedes-Benz cars (i) CAC 40 index (i) corporate renewal levels (i) dependence on larger enterprises (i) dirigisme (i) exports to China (i) and globalization (i) productivity, decline in and labor market rules (i) profit margins (i) public debt (i) R&D spending (i) regulation: index of regulatory freedom (i), (ii); index of regulatory trade barriers (i), (ii); medical devices (i); taxi services (i) trade: and big business (i); index of regulatory trade barriers (i), (ii) Fraser Institute, index of regulatory freedom (i), (ii) free-market capitalism (i) free speech, and academia (i) freedom (i), (ii), (iii) see also culture of individualism; dissent; eccentricity French Mississippi finance bubble (i) Frey, Carl Benedikt (i) Friedman, Milton (i) Fukuyama, Francis, The End of History and the Last Man (i) future, the (and how to prevent it) capitalist decline and pessimism (i) from corporate globalism to global corporatism (i) rise of regulatory uncertainty (i) “silver tsunami” for cash and pensions (i) state of Western economies and future imperfect (i) suggested steps to prevent the future: agency and economic history (i); boosting market contestability (i); nurturing culture of dissent and eccentricity (i); severing gray capital–corporate ownership link (i) Future Perfect, A (Micklethwait and Wooldridge) (i) G7 (Group of Seven) countries, labour productivity (i), (ii) Galbraith, John Kenneth, The New Industrial State (i), (ii), (iii), (iv), (v), (vi) Gallup, job satisfaction survey (i) Galston, William (i) Gates, Bill (i) GATT (General Agreement on Tariffs and Trade) (i) see also World Trade Organization (WTO) GDP (gross domestic product) and business investment (i), (ii), (iii) China’s (2014) (i), (ii) declining trend (i), (ii) and financial sector growth (i) GDP statistics issues (i) and global trade (i) and globalization (i) ICT hardware investment as share of (i), (ii) labor’s share of (i) and pensions (i) and R&D spending (i), (ii) and robots (i) Gekko character (Wall Street movie) (i) General Electric (GE) (i), (ii) generations boomer (or baby boomer) generation (i), (ii), (iii), (iv) The Clash of Generations (Kotlikoff and Burns) (i) EU Leave campaign and older generation (UK) (i) and income inequality (i) technology-frustrated generation (i) genetically modified (GM) potato, and EU regulation (i) genetically modified organisms (GMOs), and EU regulation (i), (ii), (iii) geographical zoning laws (i) Germany aging population (i) business investment declining trend (i) car industry: French ban on Mercedes-Benz cars (i); and value chains (i) corporate profit margins (1990–2014) (i), (ii), (iii), (iv) corporate renewal levels (i) DAX 30 index (i) dependence on larger enterprises (i) exports to China (i) German-Central European supply chain (i), (ii) and globalization (i), (ii), (iii), (iv) income inequality and generations (i) pensions (i) productivity: decline in and labor market rules (i); and wages (i) regulation: bureaucracy brake (i); deregulated vs. regulated sectors 148–9 index of regulatory freedom 151, (i); index of regulatory trade barriers 152, (i); medical devices (i); taxi services (i) “sick man of the euro” (i) trade: index of regulatory trade barriers (i), (ii); and value chains (i) Gerschenkron, Alexander (i), (ii) Gerstner, Louis (i) Ghosh, Shikhar (i) Gilder, George (i) global firms see multinational (global) companies global trade and containerization (i) expansion phases (i) and globalization, 2nd phase of (i) growth statistics (i) and market contestability (i) and multinationals (i), (ii) regionalization of Asia’s trade growth (i) regulatory trade barriers (i), (ii), (iii) see also mercantilism; protectionism; trade “Globalise or Fossilise!”

Whatever the political color of the revolts, Western politics has expanded from redistribution to retribution, and those supporting that shift typically blame foreigners, multinationals, politicians, or simply “the establishment,” for having changed society beyond recognition. Poor economic expectations have fueled the suspicion that the “elite” has prospered at the expense of workers, and – unfortunately – there is some truth in that view. Periods of falling economic dynamism tend to raise income inequality, and the past decades are no exception. The economy that has evolved over that time has gradually depressed the economic and life opportunities for many people, and it is their political reaction that is now all too visible in Western politics. There is a larger drama behind that change. The Western economic principle is no longer capitalism – at least, not in the way we used to think about it.

(Figure 8.4 tracks a similar development of labor’s share of net income and the full compensation, or real product compensation, to labor). All things taken together, the gap between productivity and compensation growth between 1970 and 2000 generally does support the thesis of a dramatic decoupling. There is a decoupling but, unsurprisingly, it emerged recently and is concentrated in the 2000s, and especially the post-2008 period.60 That result confirms what previous research has shown. Similarly, other approaches to income inequality, such as household income structured on age and cohort, show that household income followed the expected track up to the 2000s but then deteriorated.61 A different version of the argument suggests that labor’s share of total income has fallen, and, as a consequence, labor compensation has not kept pace with productivity, however muted the latter has been. When this form of decoupling is associated with the past decade rather than previous ones, it prompts people to suggest that the villains are robots and machines, or the falling relative cost of investment goods, to be more precise.62 Perhaps there is something to that story that is true, or will be in the future,63 but there is not a longer trend either in the US or across advanced economies.


pages: 437 words: 115,594

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

"Robert Solow", 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, creative destruction, 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 pandemic, global supply chain, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, land reform, low skilled workers, M-Pesa, megacity, Mikhail Gorbachev, Nelson Mandela, off grid, 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, standardized shipping container, 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: 523 words: 111,615

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

"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, 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, different worldview, disintermediation, Edward Glaeser, endogenous growth, 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, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), 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, zero-sum game

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: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, plutocrats, Plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk-adjusted returns, Ronald Reagan, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, Westphalian system

Noncooperative partners should be left to their own devices. Viewed from the longer perspective of debt expansion since the 1990s, the financial collapse in 2008 was symptomatic of a more malign condition. Public policy used credit expansion and asset bubbles to substitute for sustainable growth. Workers did not share in the higher returns to capital from globalization. The resulting income inequality is more than a moral issue. Income inequality hurts consumption, and by extension investment, leaving net exports (and associated currency wars) and government spending (and associated debt) as the only growth engines. Deflation is the elite’s deepest secret fear. Alan Greenspan’s much-criticized too-low-for-too-long interest rate policy from 2002 to 2005 was an effort to fend off deflation that appeared in 2001.

In the United States, median household income: Justin Fox, “Where Median Incomes Have Fallen the Most,” Bloomberg, August 19, 2016, accessed August 25, 2016, www.bloomberg.com/view/articles/2016-08-19/where-median-incomes-have-fallen-the-most. A McKinsey Global Institute study: Richard Dobbs, Anu Madgavkar, James Manyika, Jonathan Woetzel, Jacques Bughin, Eric Labaye, and Pranav Kashyap, “Poorer Than Their Parents? A New Perspective on Income Inequality,” McKinsey Global Institute, July 2016, accessed August 9, 2016, www.mckinsey.com/global-themes/employment-and-growth/poorer-than-their-parents-a-new-perspective-on-income-inequality, Preface, viii. The McKinsey study highlights: Ibid. “Success in conducting a business enterprise”: Schumpeter, Capitalism, Socialism and Democracy, 388. And Schumpeter perfectly anticipated: Ibid., 386. Schumpeter summarized the endgame: Ibid., 398. His description of Russia: Ibid., 404. Finally, Schumpeter foresaw: Ibid., 401–2.

During the 1997–98 global financial crisis, riots in Indonesia and Korea left many dead. There was literally blood in the streets. Since the 2008 financial crisis, there have been violent protests in Greece, Spain, and Cyprus that have resulted in a few deaths. Surveys show Americans are far less trusting of government, banks, and media than they have ever been. Political polarization in America has grown to extreme levels. Income inequality has reached levels not seen since 1929. A sense of shared purpose in presidential leadership is gone. In the next crisis, as confiscatory solutions are employed, the popular response is less likely to be passive acceptance and more likely to involve resistance. Elites are prepared for this also. Mount Weather, Virginia, and Raven Rock Mountain, Pennsylvania, are two of the most important government sites most Americans have never heard of.


pages: 493 words: 98,982

The Tyranny of Merit: What’s Become of the Common Good? by Michael J. Sandel

affirmative action, Affordable Care Act / Obamacare, anti-communist, Berlin Wall, Bernie Sanders, Boris Johnson, Capital in the Twenty-First Century by Thomas Piketty, centre right, coronavirus, COVID-19, Credit Default Swap, Deng Xiaoping, Donald Trump, ending welfare as we know it, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, global supply chain, helicopter parent, High speed trading, immigration reform, income inequality, Khan Academy, laissez-faire capitalism, meta analysis, meta-analysis, Nate Silver, new economy, obamacare, Occupy movement, plutocrats, Plutocrats, Ronald Reagan, smart grid, Steve Jobs, Steven Levy, the market place, The Wealth of Nations by Adam Smith, Washington Consensus

Although the U.S. remains a much wealthier country per capita than China, today’s generation of Chinese young people is richer than their parents’ generation. 41 More surprising is the fact that, according to the World Bank, levels of income inequality in China are about the same as in the U.S. Moreover, China now has greater intergenerational mobility than the U.S. This means that in the U.S., the land of opportunity, how much you make is more closely tied to where you started out than it is in China. 42 When my students encounter these findings, they are disquieted. Most have an instinctive faith in American exceptionalism, in the idea that America is a place where those who work hard can get ahead. This belief in upward mobility is America’s traditional answer to inequality. Yes, America may have greater income inequality than other democracies, they reason. But here, unlike the more rigid, class-bound societies of Europe, inequality matters less, because no one is consigned to the class of his or her birth.

Christopher Hayes, an author and host of an MSNBC television program, observed that in recent years the left had had its greatest successes on issues that involved “making the meritocracy more meritocratic,” such as combating racial discrimination, including women in higher education, and advancing gay rights. But it had failed in areas “that fall outside the meritocracy’s purview,” such as “mitigating rising income inequality.” 16 Within the framework of a system that seeks equal opportunity rather than any semblance of equality in outcomes, it is inevitable that the education system will be asked to do the heavy lifting … And as inequality steadily increases, we ask more and more of the educational system, looking for it to expiate the society’s other sins. 17 Thomas Frank, an author with populist sensibilities, criticized liberals’ focus on education as the remedy for inequality: “To the liberal class, every big economic problem is really an education problem, a failure by the losers to learn the right skills and get the credentials everyone knows you’ll need in the society of the future.”

For the first time in human history the inferior man has no ready buttress for his self-regard. 12 Young anticipated that this toxic brew of hubris and resentment would fuel a political backlash. He concluded his dystopian tale by predicting that, in 2034, the less-educated classes would rise up in a populist revolt against the meritocratic elites. In 2016, as Britain voted for Brexit and America for Trump, that revolt arrived eighteen years ahead of schedule. MERITOCRACY RECONSIDERED The two societies I described above are not purely hypothetical. The income inequalities that beset them are the ones that prevail in the United States today. 13 For the most part, these inequalities are defended, when they are defended at all, on something like meritocratic grounds. No one argues that the rich should be rich because they were born to wealthy parents. Critics of inequality may complain that those who would abolish inheritance taxes, say, are implicitly endorsing hereditary privilege.


pages: 393 words: 91,257

The Coming of Neo-Feudalism: A Warning to the Global Middle Class by Joel Kotkin

Admiral Zheng, Andy Kessler, autonomous vehicles, basic income, Bernie Sanders, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Cass Sunstein, clean water, creative destruction, deindustrialization, demographic transition, don't be evil, Donald Trump, edge city, Elon Musk, European colonialism, financial independence, Francis Fukuyama: the end of history, gig economy, Gini coefficient, Google bus, guest worker program, Hans Rosling, housing crisis, income inequality, informal economy, Jane Jacobs, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Joseph Schumpeter, land reform, liberal capitalism, life extension, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, megacity, Nate Silver, new economy, New Urbanism, Occupy movement, Parag Khanna, Peter Thiel, plutocrats, Plutocrats, post-industrial society, post-work, postindustrial economy, postnationalism / post nation state, precariat, profit motive, RAND corporation, Ray Kurzweil, rent control, Richard Florida, road to serfdom, Robert Gordon, Sam Altman, Satyajit Das, sharing economy, Silicon Valley, smart cities, Steve Jobs, Stewart Brand, superstar cities, The Death and Life of Great American Cities, The Future of Employment, The Rise and Fall of American Growth, Thomas L Friedman, too big to fail, trade route, Travis Kalanick, Uber and Lyft, uber lyft, universal basic income, unpaid internship, upwardly mobile, We are the 99%, Wolfgang Streeck, women in the workforce, working-age population, Y Combinator

Graham, “The Wrong Side of ‘the Right Side of History,’” Atlantic, December 21, 2015, https://www.theatlantic.com/politics/archive/2015/12/obama-right-side-of-history/420462/. 10 OECD, “Governments must act to help struggling middle class,” October 4, 2019, https://www.oecd.org/newsroom/governments-must-act-to-help-struggling-middle-class.htm. 11 Estelle Sommeiller and Mark Price, “The new gilded age: Income inequality in the U.S. by state, metropolitan area, and county,” Economic Policy Institute, Table 10, July 19, 2018, https://www.epi.org/publication/the-new-gilded-age-income-inequality-in-the-u-s-by-state-metropolitan-area-and-county/#epi-toc-14. 12 David DeGraw, “We’re living in a system of new feudalism. Here’s how to change it,” New Statesman, October 31, 2013, http://www.newstatesman.com/2013/10/were-living-system-new-feudalism-heres-how-change-it. 13 Shannon Tiezzi, “Report: China’s 1 Percent Owns 1/3 of Wealth,” Diplomat, January 15, 2016, https://thediplomat.com/2016/01/report-chinas-1-percent-owns-13-of-wealth/; Jonathan Kaiman, “China gets richer but more unequal,” Guardian, July 28, 2014, https://www.theguardian.com/world/2014/jul/28/china-more-unequal-richer; David S.G.

Review of Finance, vol. 23:4 (July 2019), 697–743, https://academic.oup.com/rof/article/23/4/697/5477414; Mike Konczal, “There Are Too Few Companies and Their Profits Are Too High,” Nation, August 5, 2019, https://www.thenation.com/article/industry-concentration-score/. 3 Taichi Sakaiya, The Knowledge Value Revolution, trans. George Fields and William Marsh (Tokyo: Kodansha International, 1985), 152. 4 Danny Yadron, “Silicon Valley tech firms exacerbating income inequality, World Bank warns,” Guardian, January 15, 2016, https://www.theguardian.com/technology/2016/jan/14/silicon-valley-tech-irms-income-inequality-world-bank; Gemma Tetlow, “Blame Technology not Globalization for Rising Inequality, Says IMF,” Financial Times, April 11, 2017, https://www.t.com/content/cfbd0af6-1e0b-11e7-b7d3163-f5a7f229c. 5 Michael Anton, “The Frivolous Valley and Its Dreadful Conformity,” Law & Liberty, September 4, 2018, https://www.lawliberty.org/liberty-forum/the-frivolous-valley-and-its-dreadful-conformity/. 6 Kevin Starr, California: A History (New York: Modern Library, 2005), 261–67; Kevin Starr, The Dream Endures: California Enters the 1940s (New York: Oxford University Press, 1997) 42–43; Gary Brechin, Imperial San Francisco: Urban Power, Earthly Ruin (Berkeley: University of California Press, 1999), 98–99, 322–23; Leslie Berlin, “Tracing Silicon Valley’s Roots,” SFGate, September 30, 2007, https://www.sfgate.com/business/article/Tracing-Silicon-Valley-s-roots-2520298.php. 7 Ruchir Sharma, “When Will the Tech Bubble Burst?”

emc=rss&partner=rss. 7 James Galbraith, “Inequality and the 2016 Election Outcome: A Dirty Secret and a Dilemma,” New Geography, July 5, 2017, http://www.newgeography.com/content/005678-inequality-and-2016-election-outcome-a-dirty-secret-and-a-dilemma. 8 Jonathan Lansner, “California has No. 1 wage gap between middle-income pay and what wealthy earn,” Orange County Register, April 25, 2019, https://www.ocregister.com/2019/04/23/california-has-no-1-wage-gap-between-middle-income-pay-and-what-wealthy-earn/. 9 Spencer P. Morrison, “California’s Income Inequality Now Worse Than Mexico’s, Poverty Level Highest in America,” National Economics Editorial, January 17, 2018, https://nationaleconomicseditorial.com/2018/01/17/californian-income-inequality-tops-mexico/. 10 Liana Fox, “The Supplemental Poverty Measure: 2017,” U.S. Census Bureau, September 12, 2018, https://www.census.gov/library/publications/2018/demo/p60–265.html. 11 “Is California the Welfare Capital?” San Diego Union-Tribune, July 28, 2012, http://www.sandiegouniontribune.com/news/politics/sdut-welfare-capital-of-the-us-2012jul28-htmlstory.html. 12 United Way, “Struggling to Stay Afloat: The Real Cost Measure in California 2018” United Ways of California, https://www.unitedwaysca.org/realcost. 13 David Friedman and Jennifer Hernandez, “California, Greenhouse Gas Regulation, and Climate Change,” New Geography, June 25, 2018, http://www.newgeography.com/content/006014-california-greenhouse-gas-regulation-and-climate-change. 14 Sarah Bohn, Caroline Danielson, and Tess Thorman, “Child Poverty in California” Public Policy Institute of California, July 2019, http://www.ppic.org/publication/child-poverty-in-california/. 15 David Friedman and Jennifer Hernandez, California Environmental Quality Act, Greenhouse Gas Regulation, and Climate Change, Center for Demographics and Policy, Chapman University, 2015, https://www.chapman.edu/wilkinson/_iles/ghg-fn.pdf. 16 Mark Hugo Lopez and Manuel Krogstad, “Will California ever become a majority-Latino state?”


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Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, money market fund, mortgage debt, New Urbanism, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

,” FT Alphaville, March 28, 2018, https://ftalphaville.ft.com/2018/03/29/2199403/marcel-fratzscher-on-the-dark-side-of-the-german-economy-now-with-transcript/; Cathrin Schaer, “Germany’s Convoluted Property Tax Could Be Illegal,” Handelsblatt, January 16, 2018; Alena Bachleitner, “Abolishing the Wealth Tax—A Case Study of Germany” (M.Sc. thesis, University of Vienna, 2017); Dan Andrews and Aida Caldera Sánchez, “The Evolution of Homeownership Rates in Selected OECD Countries: Demographic and Public Policy Influences,” OECD Journal: Economic Studies 2011, no. 1 (2011): 8; Christian Dustmann, Bernd Fitzenberger, and Markus Zimmerman, “Housing Expenditures and Income Inequality: Shifts in Housing Costs Exacerbated the Rise in Income Inequality,” VoxEU, October 22, 2018, https://voxeu.org/article/housing-expenditures-and-income-inequality. 39. Odendahl, “Hartz Myth”; Destatis, “Collective Bargaining Coverage,” https://www.destatis.de/EN/FactsFigures/NationalEconomyEnvironment/EarningsLabourCosts/AgreedEarnings/Tables_CollectiveBargainingCoverage/CollectiveBargainingCoverage.html; Christian Dustmann et al., “From Sick Man of Europe to Economic ­Superstar: Germany’s Resurgent Economy,” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 167–88; Charlotte Bartels, “Top Incomes in Germany, 1871–2013,” World Income Database Working Paper Series, December 2017. 40.

Should Demand from Europe,” Barron’s, July 27, 2018. 64. Eurostat, “GDP and Main Components.” 65. European Commission, “VAT Rates Applied in the Member States of the European Union: Situation at 1st January 2018,” https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf; Zsolt Darvas, “EU Income Inequality Decline: Views from an Income Shares Perspective,” Bruegel, July 5, 2018, http://bruegel.org/2018/07/eu-income-inequality-decline-views-from-an-income-shares-perspective/. 66. Matthew C. Klein, “European Leaders Seem Determined to Remake the ‘Global Savings Glut’ on a Massive Scale,” FT Alphaville, November 8, 2017, https://ftalphaville.ft.com/2017/11/08/2195596/european-leaders-seem-to-determined-to-remake-the-global-savings-glut-on-a-massive-scale/.

The Dutch were willing to do this because British policies—including protective tariffs and what nowadays would be called intellectual property theft—had made investments in Britain more attractive than investments in the Netherlands and because at the time the Netherlands had a more mature economy with lower investment needs.1 Like Britain, the United States used elements of both development strategies when it industrialized in the nineteenth century. Before the Civil War, the South used an exceptionally cruel form of agrarian feudalism to produce copious volumes of cotton, tobacco, and other cash crops. Southern agricultural output was an essential input for British manufacturers and generated the bulk of America’s export earnings. The South’s social system—extreme wealth and income inequality reinforced by the brutal subjugation of the enslaved labor force—also crushed consumption. Despite generating high saving rates, the planters had little interest in economic development. Instead of buying capital goods, they spent their surpluses buying additional enslaved workers and land. Southerners nevertheless contributed to America’s industrialization because they were trapped behind high tariff barriers and were therefore forced customers of goods manufactured in the North.


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Democracy and Prosperity: Reinventing Capitalism Through a Turbulent Century by Torben Iversen, David Soskice

Andrei Shleifer, assortative mating, augmented reality, barriers to entry, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, centre right, cleantech, cloud computing, collateralized debt obligation, collective bargaining, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, deskilling, Donald Trump, first-past-the-post, full employment, Gini coefficient, hiring and firing, implied volatility, income inequality, industrial cluster, inflation targeting, invisible hand, knowledge economy, labor-force participation, liberal capitalism, low skilled workers, low-wage service sector, means of production, mittelstand, Network effects, New Economic Geography, new economy, New Urbanism, non-tariff barriers, Occupy movement, offshore financial centre, open borders, open economy, passive investing, precariat, race to the bottom, rent-seeking, RFID, road to serfdom, Robert Bork, Robert Gordon, Silicon Valley, smart cities, speech recognition, The Future of Employment, The Great Moderation, The Rise and Fall of American Growth, too big to fail, trade liberalization, union organizing, urban decay, Washington Consensus, winner-take-all economy, working-age population, World Values Survey, young professional, zero-sum game

FIGURE 5.1. The Great Gatsby curve. Notes: Intergenerational income mobility is one minus Corak’s (2013b) estimates of the elasticity between paternal earnings and a son’s adult earnings, using data on a cohort of children born during the early to mid-1960s and measuring their adult outcomes in the mid-to late 1990s. Income inequality is the Gini of disposable household income for about 1985. Sources: Intergenerational mobility is from Corak (2013b); disposable income inequality is from OECD Income Distribution Database (IDD): Gini, poverty, income. Data extracted on December 31, 2017, 13:11 UTC (GMT) from OECD.Stat. Data for Singapore is from 2000 and comes from Ministry of Finance (2015), “Income Growth, Inequality, and Mobility Trends in Singapore.” Ministry of Finance Occasional Paper. 5.1.1.

The Survival of the Danish Model: A Historical Sociological Analysis of the Danish System of Collective Agreement. Copenhagen: DJØF. Dunford, Michael, and Diane Perrons. 1994. “Regional inequality, regimes of accumulation and economic development in contemporary Europe.” Transactions of the Institute of British geographers: 163–82. Durlauf, Steven. 1996a. “A Theory of Persistent Income Inequality.” Journal of Economic Growth 1: 75–93. ———. 1996b. “Neighborhood Feedbacks, Endogenous Stratification, and Income Inequality.” In Dynamic Disequilibrium Modelling, eds. W. Barnett, G. Gandolfo, and C. Hillinger, 505–34. New York: Cambridge University Press. Durlauf, Steven, and Ananth Seshadri. 2017. “Understanding the Great Gatsby Curve.” NBER Macroeconomics Annual 32: 1–94. Ebbinghaus, Bernhard. 1995. “The Siamese Twins: Citizenship Rights, Cleavage Formation, and Party-Union Relations in Western Europe.”

New Zealand is something of an outlier with a drop in the YD/Ȳ ratio from .92 to .87 between 1985 and 2010, or about six percent. Even in this case, however, it is notable that average real incomes rose by thirty-five percent in the same period, so the middle class was much better off in 2010 than in 1985. The Gini of disposable household income in this period rose by twenty percent, according to data from Solt (2016). This highlights the general fact that while income inequality has been rising fast, the relative position of the median has been fairly stable, even in an “outlier” like New Zealand. This is also true in the case of the other negative “outlier”: Germany. Here the relative income of the median declined from .93 to .90, or about four percent from 1985 to 2010 (undoubtedly in large part because of unification); yet the mean income rose by more than fifty percent.


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The Levelling: What’s Next After Globalization by Michael O’sullivan

"Robert Solow", 3D printing, Airbnb, algorithmic trading, bank run, banking crisis, barriers to entry, Bernie Sanders, bitcoin, Black Swan, blockchain, Boris Johnson, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, capital controls, Celtic Tiger, central bank independence, cloud computing, continuation of politics by other means, corporate governance, credit crunch, cryptocurrency, deglobalization, deindustrialization, disruptive innovation, distributed ledger, Donald Trump, eurozone crisis, financial innovation, first-past-the-post, fixed income, Geoffrey West, Santa Fe Institute, Gini coefficient, global value chain, housing crisis, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, liberal world order, Long Term Capital Management, longitudinal study, market bubble, minimum wage unemployment, new economy, Northern Rock, offshore financial centre, open economy, pattern recognition, Peace of Westphalia, performance metric, private military company, quantitative easing, race to the bottom, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Scramble for Africa, secular stagnation, Silicon Valley, Sinatra Doctrine, South China Sea, South Sea Bubble, special drawing rights, supply-chain management, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, tulip mania, Valery Gerasimov, Washington Consensus

Wealth of Nations However, income inequality is only half the picture. Wealth is a more important metric, because it is the key factor that motivates people’s large-scale purchasing decisions. When someone wants to buy a new car, she doesn’t necessarily think of the expected GDP growth of her country; she tends to think in terms of the stock of their wealth. Wealth inequality, compared to income inequality, is important because shifts in wealth are typically slower moving but longer lasting in their effects on consumption behavior. Arguably, income inequality can be fairly easily affected by tax policy and redistribution by governments, but wealth inequality is harder to tackle across the board. Though the likes of Piketty and Milanovic have grabbed headlines for their work on income inequality, the internationally recognized experts on wealth are Professors Tony Shorrocks and Jim Davies, who have worked at institutions such as the United Nations and the London School of Economics.20 Their research is noteworthy because, unlike the study of income inequality, the examination of wealth, and by extension wealth inequality, is hampered by the lack of detailed data across countries.

A paper by Thomas Piketty and his colleagues shows that inequality in China may be higher than thought. See Piketty, Yang, and Zucman, “Capital Accumulation, Private Property, and Inequality in China, 1978–2015.” 17. World Bank, Visualize Inequality, http://www1.worldbank.org/poverty/visualizeinequality/; OECD Data, Income Inequality, https://data.oecd.org/inequality/income-inequality.htm; Milanovic, Global Inequality. 18. E. Sommellier and M. Price, “The New Gilded Age—Income Inequality in the USA by State, Metropolitan Area and County,” Economic Policy Institute, July 19, 2018, www.epi.org/publication/the-new-gilded-age-income-inequality-in-the-u-s-by-state-metropolitan-area-and-county/. 19. World Bank Group, Poverty and Shared Prosperity 2016: Taking on Inequality, World Bank, October 2, 2016, https://openknowledge.worldbank.org/handle/10986/25078. 20. Shorrocks and Davies’s book Personal Wealth from a Global Perspective is the key text on wealth data.

New Parties in Government: In Power for the First Time. Routledge, 2008. Diamond, L. “Facing Up to the Democratic Recession.” Journal of Democracy 26, no. 1 (January 2015): 141–155. Dobbs, R., A. Madgavkar, J. Manyika, J. Woetzel, J. Bughin, E. Labaye, and P. Kashyap. “Poorer Than Their Parents? A New Perspective on Income Inequality.” McKinsey Global Institute. July 2016. https://www.mckinsey.com/featured-insights/employment-and-growth/poorer-than-their-parents-a-new-perspective-on-income-inequality. Downing, T. 1983: The World at the Brink. Little, Brown, 2018. Drezner, D. The Ideas Industry. Oxford University Press, 2017. Eagleton, T. The New Politics of Class: The Political Exclusion of the British Working Class. Oxford University Press, 2016. Easterlin, R. “Explaining Happiness.” Proceedings of the National Academy of Sciences 100, no. 19 (September 16, 2003): 11176–11183.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

In 1973, the top 1 percent of households received 7.4 percent of total household income. By the end of the century, their portion had more than doubled.6 In Great Britain as well, the average working family lost buying power between 1974 and 1979. Income inequality did not increase at first—but only because the Labour Party government’s anti-inflation program clamped down tightly on pay raises for highly paid workers. Workers earning above certain limits had their pay capped, and at some points the top earners were barred from receiving any raises at all. Incomes inevitably became more equal, until the strictures came off. When they did, in 1977, the pay of managers and professionals surged, and income inequality started to increase. Even though higher pensions and other government benefits boosted the incomes of some population groups, especially retirees and single parents, income distribution grew far more skewed in the 1980s, and would continue to grow increasingly unequal for decades beyond.7 The disparities in other wealthy countries were less stark, in most cases because government stepped in to reduce the effects of less equal wages.

ungovernability, 155–160, 161–162, 175, 178, 267; economic stagnation and, 158; labor/trade unions and, 160; late capitalism and, 160; political paralysis and, 157; small vs. large organizations and, 158–160; welfare state and, 157–158 United Kingdom, 185–186, 194, 195; privatization and, 193; welfare state in, 17 United States, 219–238; anti-inflation policy in, 53; anti-tax campaigns in, 151; automobile industry and bailouts in, 127–128; baby boom in, 22; bank failures of 1980s and 1990s in, 270; bank loans to Third World and, 241–242; banks/banking system in, 88, 94, 97 (see also banks/banking systems; Federal Reserve; Franklin National Bank and other specific US banks); budget deficits in, 47, 150, 226, 230, 234; Cold War and, 41; debt crisis in, 246, 247, 249, 251, 252, 253–254; deindustrialization in, 124; economic crisis of 1970s in, 172–176; economic forecasts in 1973 and, 65–66; economic growth in (1873–1897), 7; economic planning in, 25–26; economy at close of World War II in, 17, 18, 19; environmental protection in, 259; environmentalism in, 62; financial crisis of 2008 in, 270; Full Employment Act in, 25–26; full-employment budget in, 26; government deregulation/regulation in, 99–114; Great Depression of 1930s in, 7; income distribution in, 136, 137; income inequality in, 135; income per person in, 160, 240; income tax in, 146–147; increasing income inequality in, in mid-1970s, 139; inflation in, 52, 163, 173, 174–175, 176; labor share in, 141; manufacturing and trade with Japan in, 11, 124–127, 127–129 (see also trade below); manufacturing in, 11, 144, 157, 163, 233, 237; multifactor productivity in, 258; nuts and bolts industry in, 125–126; oil crisis of 1973 in, 1, 2, 3, 67, 68–79, 99–100, 240; oil crisis of 1979s in, 173, 174; oil prices in, 163; pollution and, 60; postwar economic boom in, 20, 21, 268–269; postwar productivity in, 22; Prebisch and, 38; productivity bust in, 258–259; productivity growth in, 264; recession following oil crisis in, 125, 133; social security in, 143–144; textile/apparel sector in, 119–120, 131; trade in, 51–52, 233 (see also manufacturing and trade above); trade sanctions against Japan by, 128–129; trade with Japan and, 119–120; ungovernability in, 155–156, 156–160; welfare state in, 18, 143–144, 144–145, 148.

Urban-born workers, likely to have attended school and to have acquired skills needed in a modern economy, supplanted the semi-literate migrants who had populated industrial cities in their parents’ generation. They were better able to exert political influence as well, winning legislation to establish social programs that supported households toward the bottom of the income scale. Hence, Kuznets theorized, when economies reached a certain stage of development, income inequality began to recede. This had been going on in England since the late nineteenth century, and in the United States and Germany since World War I. It seemed to be happening on an even larger scale after World War II.2 The notion that inequality followed a U-curve, first widening greatly but eventually becoming less extreme, was comforting to the men who set economic policy during the Golden Age.


pages: 98 words: 27,609

The American Dream Is Not Dead: (But Populism Could Kill It) by Michael R. Strain

Bernie Sanders, business cycle, centre right, creative destruction, deindustrialization, Donald Trump, feminist movement, full employment, gig economy, Gini coefficient, income inequality, job automation, labor-force participation, market clearing, market fundamentalism, new economy, Robert Gordon, Ronald Reagan, social intelligence, Steven Pinker, The Rise and Fall of American Growth, upwardly mobile, working poor

This is a standard inequality statistic that summarizes income dispersion between households for the entire distribution of income. The CBO found that income inequality between 1979 and 2006 increased by between 24 and 27 percent, depending on the definition of income. But things look very different between 2007 and 2016. Using market income, inequality has only grown by 2 percent. Using income after taxes and transfers, inequality has actually decreased by 7 percent (figure 12). FIGURE 12. GINI COEFFICIENTS. Looking at the usual weekly earnings of workers tells a similar story. Between 2007 and 2019, the ratio of the 90th percentile of weekly earnings to the 10th percentile—a more conceptually straightforward measure of the rich-poor gap—increased by only 1 percent. So even if you believe that income inequality is one of the most serious challenges facing the United States, at least over the past decade or so, there seems to be a lot more heat than light.

Very recently, the public debate has become interested in wealth inequality, in addition to income inequality. I focus on inequality of income here for a few reasons. It has received the most attention during the post-Great Recession period—much more than wealth inequality. It is the more relevant measure for assessing disparities in the ability of different groups to consume and to save. It is hard to know what to make of changes in wealth inequality over time. To see why, consider this example: Expanded social insurance and safety net programs for lower- and middle-income households reduce the need for those households to accumulate assets. This exacerbates wealth inequality because it increases the gap in asset holdings between high-wealth and low-wealth households. Or consider that innovation can increase wealth inequality while reducing income inequality. In addition, wealth inequality is a difficult metric because it is much harder to measure wealth than to measure income.

For households in the middle and those nearer the bottom, income growth over the past three decades can’t be reasonably described as stagnant. Instead, solid annual increases have accumulated to produce meaningful growth in the flow of resources generated by market activities that typical households can use for spending and saving. WHAT ABOUT INEQUALITY? Something interesting has been happening with income inequality—the gap between the rich and the poor—that is worth mentioning: it has stopped growing and might even be declining. There are many ways to measure inequality, of course. You have to define income, decide on adjustments that need to be made to the data, and pick a statistic to measure inequality. Do you care about worker wages, household labor market earnings, or household income? How do you adjust for household size and inflation?


pages: 181 words: 50,196

The Rich and the Rest of Us by Tavis Smiley

affirmative action, Affordable Care Act / Obamacare, back-to-the-land, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Corrections Corporation of America, Credit Default Swap, death of newspapers, deindustrialization, ending welfare as we know it, F. W. de Klerk, fixed income, full employment, housing crisis, Howard Zinn, income inequality, job automation, liberation theology, Mahatma Gandhi, mass incarceration, mega-rich, Nelson Mandela, new economy, obamacare, Occupy movement, plutocrats, Plutocrats, profit motive, Ralph Waldo Emerson, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, traffic fines, trickle-down economics, War on Poverty, We are the 99%, white flight, women in the workforce, working poor

As the politicians they elected predict a doomed “entitlement nation” and boast of shredding the poor’s safety nets, the former middle class tries to reconcile these contradictions by clinging to the belief that this is a temporary destination, that somehow “they” are still better than “those people.” How do we get folk to understand that there is no “they,” there is no “them”? Too many Americans are falling through gaping holes scissored out of America’s safety net. Income inequality is real. There is an institutionalized divide between the wealthy and the poor, so that what we now have are the rich and the rest of us. We are at a critical turning point in America, and we are obsessed with the ambitious goal of changing how we think about, talk about, and act on the issue of poverty and the poor. This book is an unapologetic affirmation of the rising tide of restlessness the world over.

Stern, who wrote “Poverty in Twentieth-Century America,” provide an extensive history of poverty in America.7 They introduce social reformer Robert Hunter’s 1904 study, Poverty, that “estimated that half the population of New York City lived in absolute poverty—a number that seems neither an exaggeration nor unrepresentative of other large cities.”8 In the early 1900s, “new immigrants and African-Americans” disproportionately represented the masses of “the poor.” Still, because of “intermittent participation in the workforce,” Katz and Stern noted that about four out of every ten American workers earned poverty wages. Income inequality and poverty worsened between 1896 and 1914 due to cost-of-living increases and declines in the wages of the working poor. Malnourishment and diseases were common. The “real story of widespread, grinding rural poverty,” Katz and Stern noted, “began in the 1920s and continued through the Great Depression.”9 Between the years 1900 and 1920, public opinion about the poor began an incremental shift.

Then, King said, came the buildup in Vietnam: “I watched this program broken and eviscerated, as if it was some idle political plaything of a society gone mad on war, and I knew that America would never invest the necessary funds or energies in rehabilitation of its poor so long as adventures like Vietnam continued to draw men and skills and money like some demonic destructive suction tube.”66 Anytime you seriously dissect the issue of poverty, you have to talk about wealth and income inequality. A productive discussion about poverty must lead to common-sense conversations about wise investments in education, housing, health care, job training, and other efforts that increase poor people’s access to resources of all kinds. We have no choice but to talk about the military industrial complex and its ties to huge private-sector monopolies and war barons who produce weaponry and employ privatized security personnel at salaries that far exceed what we pay government military personnel for the same services.


pages: 1,261 words: 294,715

Behave: The Biology of Humans at Our Best and Worst by Robert M. Sapolsky

autonomous vehicles, Bernie Madoff, biofilm, blood diamonds, British Empire, Broken windows theory, Brownian motion, car-free, clean water, cognitive dissonance, corporate personhood, corporate social responsibility, Daniel Kahneman / Amos Tversky, delayed gratification, desegregation, different worldview, double helix, Drosophila, Edward Snowden, en.wikipedia.org, epigenetics, Flynn Effect, framing effect, fudge factor, George Santayana, global pandemic, hiring and firing, illegal immigration, impulse control, income inequality, John von Neumann, Loma Prieta earthquake, long peace, longitudinal study, loss aversion, Mahatma Gandhi, meta analysis, meta-analysis, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mouse model, mutually assured destruction, Nelson Mandela, Network effects, out of africa, Peter Singer: altruism, phenotype, placebo effect, publication bias, RAND corporation, risk tolerance, Rosa Parks, selective serotonin reuptake inhibitor (SSRI), self-driving car, Silicon Valley, social intelligence, Stanford marshmallow experiment, Stanford prison experiment, stem cell, Steven Pinker, strikebreaker, theory of mind, transatlantic slave trade, traveling salesman, trickle-down economics, twin studies, ultimatum game, Walter Mischel, wikimedia commons, zero-sum game

Put simply, cultures with more income inequality have less social capital.35 Trust requires reciprocity, and reciprocity requires equality, whereas hierarchy is about domination and asymmetry. Moreover, a culture highly unequal in material resources is almost always also unequal in the ability to pull the strings of power, to have efficacy, to be visible. (For example, as income inequality grows, the percentage of people who bother voting generally declines.) Almost by definition, you can’t have a society with both dramatic income inequality and plentiful social capital. Or translated from social science–ese, marked inequality makes people crummier to one another. This can be shown in various ways, studied on the levels of Westernized countries, states, provinces, cities, and towns. The more income inequality, the less likely people are to help someone (in an experimental setting) and the less generous and cooperative they are in economic games.

., Why Are Some People Healthy and Others Not? The Determinants of Health of Populations (New York: Aldine de Gruyter, 1994). 40. D. Chon, “The Impact of Population Heterogeneity and Income Inequality on Homicide Rates: A Cross-National Assessment,” Int J Offender Therapy and Comp Criminology 56 (2012): 730; F. J. Elgar and N. Aitken, “Income Inequality, Trust and Homicide in 33 Countries,” Eur J Public Health 21 (2010): 241; C. Hsieh and M. Pugh, “Poverty, Income Inequality, and Violent Crime: A Meta-analysis of Recent Aggregate Data Studies,” Criminal Justice Rev 18 (1993): 182; M. Daly et al., “Income Inequality and Homicide Rates in Canada and the United States,” Canadian J Criminology 32 (2001): 219. 41. K. A. DeCellesa and M. I. Norton, “Physical and Situational Inequality on Airplanes Predicts Air Rage,” PNAS 113 (2016): 5588. 42.

I could copy and paste the previous stretch of writing, replacing “poor health” with “high crime,” and I’d be set. Poverty is not a predictor of crime as much as poverty amid plenty is. For example, extent of income inequality is a major predictor of rates of violent crime across American states and across industrialized nations.40 Why does income inequality lead to more crime? Again, there’s the psychosocial angle—inequality means less social capital, less trust, cooperation, and people watching out for one another. And there’s the neomaterialist angle—inequality means more secession of the wealthy from contributing to the public good. Kaplan has shown, for example, that states with more income inequality spend proportionately less money on that key crime-fighting tool, education. As with inequality and health, the psychosocial and neomaterial routes synergize.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

To gain a better insight into the role of technology, offshoring, and globalization in accentuating inequality, studies such as those done by Jaumotte et al (2008), have examined survey data of the subcomponents of trade and financial globalization, including comparative analysis of exports of manufacturing versus agriculture, and portfolio debt and equity flows versus foreign direct investment (FDI). They found that while trade liberalization and export growth are associated with income inequality, increased financial openness was associated with higher inequality. ---------------------------------------------------------------------------------------*(An economic hypothesis which states that as an economy develops, market forces first increase and then decrease economic inequality, following a bell curve trajectory.) However, the main finding of this line of research has been that the combined contribution of these factors towards income inequality was much lower than that 86 Chapter 3 ■ Innovating Capitalism of technological change, both in developed and developing countries. While the spread of technology is by itself related to increasing globalization, the study found that technological advancement was seen to have a unique and identifiable effect on inequality, especially in terms of wages, with greater technological progress increasing the premium paid on high-skill inputs and lowering the premium paid on low-skill inputs.

It also investigates if these changes could offer sovereign states a new way to produce money and looks at alternatives other than inflation and interest rates to govern monetary policy. Finally, it reviews different scenarios of how this new structure can be used to implement innovative policies, such as overt money finance and universal basic income, which could help address issues such as income inequality and technological unemployment that currently threaten most economies. While the purpose of the book it to shed more light on the implications of the widespread use of Blockchain technology, the growing diversity within the currency space cannot be fully excluded from the discussion. As the blockchain gains more traction in formal financial circles, its first manifestation in the form of Bitcoin is increasingly being excluded from the dialogue.

When seen in conjunction with the previous statements and the topics described in Chapter 1, the net result has been the omnipresence of financialization in every fiber of industrialized societies. As per Thomas I. Palley of the Levy Economics Institute, the impacts of this change have been: 1. the elevation of the significance of the financial sector relative to the real sector 3; 2. the transfer of income from the real sector to the financial sector; 3. the increase of income inequality and contribution to wage stagnation. While it can be extrapolated that these behaviors could increasingly threaten social cohesion, it must be remembered that the cultural infringement of finance is only part of the reason behind the growth of financialization. Finance, after all, is to be looked at as a catalyst that allows for the efficient production and distribution of goods and services.


Not Working by Blanchflower, David G.

active measures, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, Boris Johnson, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clapham omnibus, collective bargaining, correlation does not imply causation, credit crunch, declining real wages, deindustrialization, Donald Trump, estate planning, Fall of the Berlin Wall, full employment, George Akerlof, gig economy, Gini coefficient, Growth in a Time of Debt, illegal immigration, income inequality, indoor plumbing, inflation targeting, job satisfaction, John Bercow, Kenneth Rogoff, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, mass incarceration, meta analysis, meta-analysis, moral hazard, Nate Silver, negative equity, new economy, Northern Rock, obamacare, oil shock, open borders, Own Your Own Home, p-value, Panamax, pension reform, plutocrats, Plutocrats, post-materialism, price stability, prisoner's dilemma, quantitative easing, rent control, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, selection bias, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Thorstein Veblen, trade liberalization, universal basic income, University of East Anglia, urban planning, working poor, working-age population, yield curve

There is evidence that individuals in Europe have a lower tendency to report themselves as happy when inequality is high, but this is not the case in the United States.43 Another analysis was recently conducted at the zip-code, MSA, and state levels of the inequality well-being relationship using data from the Gallup Healthways Well-Being Index and income inequality data from the American Community Survey.44 It found, in contrast, that the net relationship between income inequality and happiness in the United States is negative. A study that used the World Database of Happiness found a positive relationship in Latin America, Eastern Europe, and Asia but a negative one in Western Europe.45 Another study looked at the relationship between economic mobility and inequality across advanced countries.46 It found clear evidence that as inequality rises, mobility declines.

Sacerdote argues there are at least four important explanations as to why Americans feel worse off even though consumption is actually rising. First, he argues, he is examining consumption within very large sections of the income distribution and there may be specific groups (e.g., men with less than a high school education) for whom consumption is actually falling. Second, it’s possible, he argues, that the quality of some services such as public education or health care could be falling for some groups. Third, the rise in income inequality coupled with increased information flow about other people’s consumption may be making Americans feel worse off in a relative sense even if their material goods consumption is rising. Fourth, changes in family structure (e.g., the rise of single-parent households), increases in the prison population, or increases in substance addiction could make people worse off even in the face of rising material wealth.

Most of the self-proclaimed experts calling for public spending cuts missed the recession in the first place.”2 In a 2011 article I reasoned as follows: “Even though we have now moved from the acute phase of the Great Recession, which occurred in the fall of 2008, the long, dragging conditions of semi-slump and subnormal prosperity have arrived—and they aren’t going away any time soon, as Keynes warned. The whole idea of an expansionary fiscal contraction was always fanciful in the extreme; now, it’s time for a change of course—given that austerity has failed. Growth is going to be low for many years, living standards are not going to rise, and the high levels of income inequality are all likely to contribute to increasing levels of social unrest. Much, indeed, will need to be changed.”3 The Guardian editorial board in September 2009 even got in on the act but nobody much was listening. It argued that “a year on from the collapse of US investment bank Lehman Brothers and the height of the banking crisis, it does look as if the economy has avoided a rerun of the Great Depression—but it does not follow that from here on the UK is in for either a constant or a strong recovery. . . .


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

autonomous vehicles, banking crisis, Bartolomé de las Casas, basic income, 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, George Santayana, 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 Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, Kodak vs Instagram, 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, Paul Samuelson, 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 Future of Employment, 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.


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The Fourth Age: Smart Robots, Conscious Computers, and the Future of Humanity by Byron Reese

agricultural Revolution, AI winter, artificial general intelligence, basic income, Buckminster Fuller, business cycle, business process, Claude Shannon: information theory, clean water, cognitive bias, computer age, crowdsourcing, dark matter, Elon Musk, Eratosthenes, estate planning, financial independence, first square of the chessboard, first square of the chessboard / second half of the chessboard, full employment, Hans Rosling, income inequality, invention of agriculture, invention of movable type, invention of the printing press, invention of writing, Isaac Newton, Islamic Golden Age, James Hargreaves, job automation, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, lateral thinking, life extension, Louis Pasteur, low skilled workers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Mary Lou Jepsen, Moravec's paradox, On the Revolutions of the Heavenly Spheres, pattern recognition, profit motive, Ray Kurzweil, recommendation engine, Rodney Brooks, Sam Altman, self-driving car, Silicon Valley, Skype, spinning jenny, Stephen Hawking, Steve Wozniak, Steven Pinker, strong AI, technological singularity, telepresence, telepresence robot, The Future of Employment, the scientific method, Turing machine, Turing test, universal basic income, Von Neumann architecture, Wall-E, Watson beat the top human players on Jeopardy!, women in the workforce, working poor, Works Progress Administration, Y Combinator

Then he goes door to door offering to plant historically accurate shrubs and flowers in historically accurate arrangements. Someday a robot will be invented to do that, but Jerry will have retired by then. Who in the world could say Jerry is “unemployable”? He is powered by the most complex and versatile object in the known universe. 11 * * * The Big Questions Income Inequality What about income inequality? The future of income inequality is the same whether Possibility One, Two, or Three happens. Regardless of whether AI robots take all the jobs, some of the jobs, or none of the jobs, income inequality will be an ever-increasing problem. Let’s explore why. “The rich get richer and the poor get poorer” is one of our oldest clichés. Yet the data seem to bear it out. Two Italian economists compared the Florentine tax rolls of 1427 to those of today and discovered that the richest families then are still the richest now.

The big new companies of today, like Facebook and Google, have huge earnings and few employees, unlike the big companies of old, like durable-goods manufacturers, which typically needed large workforces. There is undoubtedly some truth in this view of the world. Gains in productivity created by technology don’t necessarily make it into the pockets of the increasingly productive worker. Instead, they are often returned to shareholders. There are ways to mitigate this flow of capital, which we will address in the chapter about income inequality, but this should not be seen as a fatal flaw of technology or our economy, but rather something that needs addressing head-on by society at large. Further, Robotco’s immense profits probably don’t just sit in some Scrooge McDuck kind of vault in which the executives have pillow fights using pillows stuffed with hundred-dollar bills. Instead, they are put to productive use and are in turn lent out to people to start businesses and build houses, creating more jobs.

There are more billionaires alive right now than ever before, and the percentage of them that made their own money, as opposed to inheriting it, continues to rise. How could you have started out with nothing a thousand years ago and then go on to create a billion dollars in value? But in the last decade or so, Google created seven billionaires and Facebook minted six. So in the modern age, old fortunes are preserved and new fortunes are created. That simple fact alone increases income inequality. But there is even more going on than this. It turns out that the economic benefits of new technology help the rich more than they help the poor. How? There are three different ways that economic gains from technology are distributed, and only one of them helps the poor. First, when technology is adopted by corporations, all the increases in productivity drive up the value of the company’s stock through lower costs and increased margins.


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

Affordable Care Act / Obamacare, British Empire, business cycle, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hedonic treadmill, 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, MITM: man-in-the-middle, mortgage debt, new economy, Northern Rock, obamacare, oil shock, plutocrats, Plutocrats, price stability, quantitative easing, Right to Buy, 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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Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, 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, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, 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, Vilfredo Pareto, 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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What's the Matter with White People by Joan Walsh

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, mass immigration, 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, zero-sum game

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.”


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Lab Rats: How Silicon Valley Made Work Miserable for the Rest of Us by Dan Lyons

Airbnb, Amazon Web Services, Apple II, augmented reality, autonomous vehicles, basic income, bitcoin, blockchain, business process, call centre, Clayton Christensen, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, cryptocurrency, David Heinemeier Hansson, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, full employment, future of work, gig economy, Gordon Gekko, greed is good, hiring and firing, housing crisis, income inequality, informal economy, Jeff Bezos, job automation, job satisfaction, job-hopping, John Gruber, Joseph Schumpeter, Kevin Kelly, knowledge worker, Lean Startup, loose coupling, Lyft, Marc Andreessen, Mark Zuckerberg, McMansion, Menlo Park, Milgram experiment, minimum viable product, Mitch Kapor, move fast and break things, move fast and break things, new economy, Panopticon Jeremy Bentham, Paul Graham, paypal mafia, Peter Thiel, plutocrats, Plutocrats, precariat, RAND corporation, remote working, RFID, ride hailing / ride sharing, Ronald Reagan, Rubik’s Cube, Ruby on Rails, Sam Altman, Sand Hill Road, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, six sigma, Skype, Social Responsibility of Business Is to Increase Its Profits, software is eating the world, Stanford prison experiment, stem cell, Steve Jobs, Steve Wozniak, Stewart Brand, TaskRabbit, telemarketer, Tesla Model S, Thomas Davenport, Tony Hsieh, Toyota Production System, traveling salesman, Travis Kalanick, tulip mania, Uber and Lyft, Uber for X, uber lyft, universal basic income, web application, Whole Earth Catalog, Y Combinator, young professional

Their wealth (assets minus debts) dropped 28 percent from 2001 to 2013. As a result, the middle class itself is shrinking—from 61 percent of Americans in 1971 to 50 percent in 2015, according to Pew. It took the election of Donald Trump to really wake people up. In January 2017, a few months after the election but before Trump actually took office, elites at the annual World Economic Forum in Davos were all talking about income inequality. The WEF itself cited widening income inequality as a threat to the global economy. Some saw the election of Trump as a warning that the victims of the Information Age were lashing out. “People around the world have become aware they are part of the bottom class, and they’re angry. Trump could be just the beginning,” British economist Guy Standing declared. Standing uses the term precariat to describe a new class of people who lack secure employment or predictable income, and suffer psychologically as a result.

Atlantic, January 28, 2014. https://www.theatlantic.com/business/archive/2014/01/the-internet-is-the-greatest-legal-facilitator-of-inequality-in-human-history/283422. Dean, James. “Amazon Staff ‘Chewed Up and Spat Out by a Brutal Culture.’” Times (London), August 18, 2015. https://www.thetimes.co.uk/article/amazon-staff-chewed-up-and-spat-out-by-a-brutal-culture-c3zxz2dhbmj. DeSilver, Drew. “U.S. Income Inequality, on Rise for Decades, Is Now Highest Since 1928.” Pew Research Center Fact Tank, December 5, 2013. http://www.pewresearch.org/fact-tank/2013/12/05/u-s-income-inequality-on-rise-for-decades-is-now-highest-since-1928. Elliott, Larry. “Rising Inequality Threatens World Economy, Says WEF.” The Guardian, January 11, 2017. https://www.theguardian.com/business/2017/jan/11/inequality-world-economy-wef-brexit-donald-trump-world-economic-forum-risk-report. Felton, Ryan. “U.S. Labor Agency Files Amended Complaint Against Tesla for Alleged Worker Rights Violations.”

You’ll find their stories in Part 3 of this book. I wrote this book because I believe we have reached an important turning point, one where we must make an important decision. We need to decide what the future will look like. Do we want the world to be tech-centric, or human-centric? If we stick with the tech-centric path that Silicon Valley proposes, we will end up with more of what we have now—more misery, ever-worsening income inequality, and potentially catastrophic outcomes. Or we can turn back and embrace a new kind of capitalism. We can create a human-centric future, where employees are treated with dignity and respect, and workers get a fair share of the wealth that their labor is creating. Obviously I’m rooting for the latter. Before we figure out how to get out of this mess, let’s examine how we got into it. PART I MISERY IN THE MAZE CHAPTER ONE UNHAPPY IN PARADISE The journey that led to me making ducks out of Legos began in 2013, when at age fifty-two I left the media business—not entirely of my own accord.


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