Saturday, February 13, 2016

Branko Milanovic — Inequality: the structural aspects

Despite the unprecedented attention that income and wealth inequality has received in this year’s presidential campaign in the United States and in several recent elections in Europe, one cannot but have the impression that for many centrist politicians, inequality is just a passing fad. Their belief is, I think, that once the economies return to sturdy growth of at least 2 to 3 percent per year, and unemployment falls to 5 percent (or in Europe to single digits), people will just forget all about inequality and everything will go back to where it was some twenty years ago. Nobody would care about inequality again.

This, I think, is an illusion because it disregards the structural changes in societies wrought by the long and sustained process of increase in wealth and income inequality during the past 40 years. When there are deep structural changes, reminiscent of similar processes that have played out in Latin America during most of the 20th century, aggregate indicators, such as the growth rate of the economy (which is nothing else but the growth rate of income at the mean of income distribution, that is around the 65th or 70thpercentile) lose the meaning that they normally have in economically more homogeneous societies.

I see three such structural changes: disarticulation of many Western societies, political influence of big money (plutocracy), and inequality of opportunity.….
Are the countries of the developed world being transformed into banana republics?

Global Inequality
Inequality: the structural aspectsBranko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

2 comments:

Kaivey said...

I've been looking at a lot of Steve Keen videos on economics and he is a real nice guy. He talks the talk of an economist and he's one of the best. Michael Hudson says he one of us, but he is fighting for change from the inside. A Trojan Horse.

I've looked at a lot of videos on economics and the academics have their charts, where they talk about equilibrium, inflation, deflation and whatever. When things go to equilibrium and inflation is low then it is said to be okay.

But do the charts and the maths really show what's going on? The pressure cooker at the bottom end, the low wages, the high rents, the two or three jobs just to make ends meet. The alcoholism, the drugs, the violence. The neglected children. No, as long as there is equilibrium and businesses are profitable then everything is alright.

You see, economists believe in the meritocracy, and say everyone can work their way up if they want to. And then when people are successful they are allowed to tread on everyone else below them. Grind it in, even.

And this meritocracy is imposed on the the rest of the world and is propaganda. But like all effective propaganda there is some truth to it, which they use to impose their cruelty on the poor and say it is not their fault, and that the system creates more wealth this way and so most people are better off.

Have you seen this poster?

Socialism doesn't mean taking wealth from those that work hard and giving it to those that don't. You're thinking of capitalism.

Random said...

Right nike you have discovered the central "truthiness" of economics.

A guy called JB Clark and his accomplices have eliminated from (neoclassical) Economics the concept of "land" as a particular type of capital, with a "fertility" and thus a "rent". This was done to counter arguments that "land" generates "rent" thanks to its natural, intrinsic "fertility" and this windfall should therefore be specially taxed.

Also JB Clark and his accomplices have this reduced all "capital" to a single "jelly", that is to dollars in practice, by using delusional handwaving called the "Cobb-Douglas production function", in order to "prove" the central truthiness of neoclassical Economics, that absent government regulation income is uniquely determined to productivity, which cannot be proven if there are even just 2 different types of "capital".

https://en.wikipedia.org/wiki/John_Bates_Clark

This makes contemporary Economists pretty much blind to the economics of mined energy, and of the unique advantages of extracting it in nearly ready-made form from mineral sources.

"In 1888 Clark wrote Capital and Its Earnings. Frank A. Fetter later reflected on Bates' motivation for writing this work:

The probable source from which immediate stimulation came to Clark was the contemporary single tax discussion. ... Events were just at that time crowding each other fast in the single tax propaganda. [ Henry George's ] Progress and Poverty... had a larger sale than any other book ever written by an American. ... No other economic subject at the time was comparable in importance in the public eye with the doctrine of Progress and Poverty. Capital and its Earnings "... wears the mien of pure theory .... But ... one can hardly fail to see on almost every page the reflections of the contemporary single-tax discussion. In the brief preface is expressed the hope that 'it may be found that these principles settle questions of agrarian socialism.' Repeatedly the discussion turns to 'the capital that vests itself in land,'...[6]

The foundation of Clark's further work was competition: "If nothing suppresses competition, progress will continue forever".[7] Clark: "The science adapted … is economic Darwinism. … Though the process was savage, the outlook which it afforded was not wholly evil. The survival of crude strength was, in the long run, desirable".[8] This was the fundament to develop the theory which made him famous: Given competition and homogeneous factors of production labor and capital, the repartition of the social product will be according to the productivity of the last physical input of units of labor and capital. This theorem is a cornerstone of neoclassical micro-economics. Clark stated it in 1891[9] and more elaborated 1899 in The Distribution of Wealth.[10] The same theorem was formulated later independently by John Atkinson Hobson (1891) and Philip Wicksteed (1894). The political message of this theorem is: "[W]hat a social class gets is, under natural law, what it contributes to the general output of industry."[11]"