David F. Ruccio — Tackle this!

The latest IMF Fiscal Monitor, “Tackling Inequality,” is out and it represents a direct challenge to the United States.

Occasional Links & Commentary
Tackle this!
David F. Ruccio | Professor of Economics, University of Notre Dame

Ravi Kanbur, Yue Wang, Xiaobo Zhang — The great Chinese inequality turnaround

Summary

Sharply increasing inequality became an integral part of the narrative on Chinese development since the beginning of the reform process in 1978. Over the past decade, however, many studies have argued that inequality has been plateauing, or even declining. This column uses several datasets, including household surveys and regional-level government statistics, to show evidence of a mitigation of inequality in the early 21st century, and indeed, declining rates over recent years. Possible drivers of this turnaround are urbanisation, transfer and regulation regimes, and tightening rural labour markets.…

Conclusion

Thus, transfer and regulation regimes, combined with tightening labour markets in rural areas, have acted to mitigate inequality in China. Some evidence of this is found in Tables 2 and 3, which show the income share for each of a number of income sources and the Gini coefficients of income from each source. Inequality of wage income has fallen sharply, as has inequality of transfers. These are the dominant factors in total income, so their declining inequality is the dominant factor in the inequality turnaround. Further details of these calculations and interpretations are given in Kanbur et al. (2017).

VOX.euThe great Chinese inequality turnaround
Ravi Kanbur, Yue Wang, Xiaobo Zhang

Chris Dillow — The problem of greater equality

Like GDP, Gini is only one indicator. Neither tells the full story of income and wealth distribution.

Inequality has fallen in the UK - which might be worrying.

This sounds like an odd thing to say. But it's the natural implication of what Ben Chu rightly says. He notes that whilst the Gini coefficient hasn't changed much since the early 90s, the share of income going to the top 1% has risen.

However, we can think of the Gini coefficient as a single measure of all inequalities: the gap between the top 1% and the second percentile, plus the gap between the second and third percentiles, and so on. For this reason, the same Gini coefficient can describe very different societies.

The Gini coefficient can therefore be stable if one inequality increases and another diminishes. As Ben says, inequality has risen in the sense that the top 1% has gotten relatively better off. But it follows, therefore, that some other inequality has fallen.

Stumbling and Mumbling
The problem of greater equality
Chris Dillow | Investors Chronicle

Nick Bunker — A new and useful measure of inequality

Ask most economists about the level of inequality in a country and chances are they will first point to its Gini coefficient. The statistic gives a single number that shows the level of inequality in the distribution of any kind of good. It could be income, wealth, or consumption. The “Gini” is widely cited and very useful, but a new inequality measure, the Palma index, can help complement the Gini coefficient and other measures of inequality.

WCEG
A new and useful measure of inequality
Nick Bunker | Research Associate

Wallace Turbeville — The Rising Tide: Whose Boats Benefit

The Wall Street Journal piece completely ignores the real significance of income disparity. The authors use the Gini Index, which measures high and low income differences. It concludes that certain states that pursue relatively progressive policies, such as New York, Connecticut and California, have greater disparity than other states that do not, like Wyoming, Alaska, Utah, Hawaii and New Hampshire, suggesting a causal relationship. They conveniently leave out Texas and Florida, each of which has a Gini Index almost the same as California, but which are hardly known for progressive policies....

Do you see the pattern that the authors assert? Me neither. In fact, it seems like the list consists of places in which there are large concentrations of either very wealthy people (finance, energy, wealthy retirees, entertainment) or very poor people (immigrants, minorities, rural populations) or both. 

Aside from omitting the second and fourth largest states in the union, this simple minded linkage of disparity with progressive policies is totally misleading. For one thing, it ignores that disparity can be a function of a concentration of the super rich. But, of course, there are many other flaws in their argument. The simplistic measurement of absolute disparity tells us nothing useful about the dynamics of the economy unless all income groups move in lock step with growth of the overall economy....

The authors of the Wall Street Journal piece eventually mention Texas by praising its laissez faire policies. They describe how Texas has attracted businesses from places like California by offering minimal regulation and low taxes as if this were a good thing. 

The right way to see this policy is that it encourages a race to the bottom by abdicating government’s responsibility for the general well-being of its citizens. By omitting the Gini Index data on Texas, the authors hope to skate by the obvious consequences of the wild-west policies of the Lonestar State: letting business run free and not taxing the wealthy makes the rich richer and the poor poorer and less secure.

More lying with statistics by excluding relevant data? Seem that right wing foundations and media are hiring either sub-standard economists or else propagandists. Another hit piece aimed at the discussion that Piketty has provoked?

This diversion — blame inequality on progressive policy. Talk about preaching to the choir.

Demos Policy Shop
The Rising Tide: Whose Boats Benefit
Wallace Turbeville, a former vice president of Goldman Sachs and a fellow at Demos

H. Benisty and Timiota — Medical Breakthrough: Low Dosage “Piketty” Prevents “FT” Fits (I/II)

I’ve come up with a model, which suggests that even a rather slight Piketty-esque reduction of inequality is enough to bring about enormous gains in stability. The fundamental reason is that, in this model — which is intentionally simplistic and intended only as inspiration — there’s “coupling” between the fluctuations among the fortune of the hyper-rich and the irreversible downfall of the more modest into survival-level misery. Moderating hyper-wealth is thus a need, not just a societal choice among others. 

In this model, you’ll only find very simple things: the “wealth” of individuals, who will be lucky or unlucky in their daily exchanges, and end up after a while with more or less “fortune”.

There’s also a poverty level, because one can only risk what lies above that threshold: the poor won’t risk any more than a few euros, the rich only a few millions.

Global wealth evolves with those exchanges, but I’ve chosen to put that aside, to “normalise” it as the mathematically-inclined say. This circumvents much more complex debates on demography, technology, sociology, “value creation”, etc. This only affirms that each society defines financial well-being locally, that one is only rich or poor in comparison with his neighbours.

Every day, one risks a part of his surplus (in every form, including time and effort) with varying success. This will be described as an independent random process. In principle, he exchanged with other people, and some form of compensation should exist, but that can only be true on average — and sometimes not even so, as an especially bad bet involving a huge sum of money can make everyone poorer. In contrast, one who invents something especially useful but only extracts a fraction of the societal gain (this being springtime, I’m hoping for a silent lawnmower) can make everybody substantially richer.

Blog de Paul Jorion
Medical Breakthrough: Low Dosage “Piketty” Prevents “FT” Fits (I/II), by H. Benisty (co-author with Timiota)

Medical Breakthrough: Low Dosage “Piketty” Prevents “FT” Fits (II/II), by H. Benisty (co-author with Timiota)
(h/t Yves Smith at Naked Capitalism)

John Cassidy — Inequality 101: The Picket Fence And The Staircase

I should acknowledge that many conservatives still believe that inequality isn’t anything to worry about. Some of them say that commonly used statistics, such as the ones I have cited, exaggerate the inequities in the U.S. economy. Others argue that inequality is healthy—a sign that innovation and entrepreneurship are being rewarded. Here are a couple of places where you can find out more about these viewpoints. The first is by Diana Furchtgott-Roth, of the Manhattan Institute. The second is a PBS NewsHour interview with Richard Epstein, of the law school at N.Y.U.

I don’t find these arguments convincing. In the words of the Economic Report of the President: “The confluence of rising inequality and low economic mobility over the past three decades poses a real threat to the future of the United States as a land of opportunity.

The New Yorker
Inequality 101: The Picket Fence And The Staircase
John Cassidy
(h/t Brad DeLong)

Steve Roth — Lane Kenworthy, Prosperity, and the Infinite Forms of “Redistribution”

Which brings me to another recent paper (prominently citing the previous one), that questions the Left’s rhetorical emphasis on (in)equality:

I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1 per cent’s share or the Gini coefficient. That could distract attention from more direct and effective efforts to address those problems.

Such efforts include fully universal health insurance; improvements in eligibility, duration and benefit level for various social-insurance and social-assistance programmes; wage insurance; early education; enhanced financial support for college; a minimum wage indexed to prices; an expanded earned-income tax credit indexed to average compensation; and monetary policy less tilted towards inflation avoidance.

Policy changes like these would go a long way towards improving economic security, enhancing opportunity (and mobility) and ensuring shared prosperity in the US. Inequality of political influence could be lessened via direct reforms, such as reversal of the Citizens United decision, introduction of a strong transparency rule and public funding for congressional election campaigns.

Asymptosis

Lane Kenworthy, Prosperity, and the Infinite Forms of “Redistribution”
Steve Roth

Another approach to reducing inequality rather than the global wealth tax proposed by Piketty, which everyone already agrees is going nowhere.

Noah Smith — R vs. g

In his new book, Thomas Piketty argues that R, the rate of return on capital (which is different than the safe interest rate "r") is greater than g, the rate of economic growth, and that this fact can be expected to continue into the indefinite future, resulting in an ever-rising capital share of income and an ever-falling labor share. The big question is whether R really will be greater than g into the foreseeable future.

It occurs to me that this is just the "robots vs. globalization" argument all over again....

These explanations aren't mutually exclusive, of course. But in terms of policy, if the "rise of the robots" is the biggest factor, we need to think about all kinds of difficult policy decisions and welfare arguments. But if globalization is the main reason for R>g over the last 4 decades, then all we can do - and all we should do - is wait for the big wave to end.

Why either-or and not both-and? Seems to me that both factors are operative. The result of technological innovation has been greater distributed leisure and we can expect that to continue as long as workers maintain bargaining power.

However, it is going to be along time before the global labor glut has been overcome considering the situation in most of the world. During this time — the foreseeable future — workers in emerging countries can look forward to improving job opportunities and rising wages, while workers in already developed countries can look forward to few job opportunities, job opportunities of generally lower quality, and lower pay.

In addition the rate of growth in the developed world is lagging and promises to lag for the foreseeable future, while the rate of growth in the developing world is forging ahead. However, global ownership is dominated by investors from developed countries and so the rate of capital accumulation in the developed countries can be projected to greatly exceed the growth rate.

Noahpinion
R vs. g

Noah Smith | Assistant Professor of Finance, Stony Brook University

Derek Thompson — How You, Me and Everyone Got the Top 1 Percent All Wrong

The media frenzy over inequality continues.

Atlantic Business
How You, Me and Everyone Got the Top 1 Percent All Wrong — Unveiling the real story behind the richest of the rich

Derek Thompson

On the study by Emmanuel Saez and Gabriel Zucman

House of Debt
Measuring Wealth Inequality
Atif Mian and Amir Sufi

Zero Hedge — The US Is #1 (In Global Income Inequality)

Zero Hedge
The US Is #1 (In Global Income Inequality)
Tyler Durden

Lars P. Syll — Whatever happened to the Swedish model?

Whatever happened to the Swedish model?
Lars P. Syll | Professor, Malmo University

What happened? Neoliberalism.

Michael Lind — The 1 percent wins again: The system’s so fixed that a global class war is only a dream

No, there won’t be a global campaign against global inequality. The wealthy have written the rules to guarantee it

Salon
The 1 percent wins again: The system’s so fixed that a global class war is only a dream
Michael Lind

Chris Dillow — Why Inequality Matters

I don't think that lefties are all that concerned with inequality as such. What they are concerned with privilege.  The purpose of liberal government is to eliminate privilege especially when it is not justified by circumstances. Most people have no problem with higher incomes for more competent people if the higher wages are contingent on and commensurable with difference in competency and the different to contribution that this makes.

What people object to is privilege that is incommensurable, for  example, when it is based on the luck of the draw like inherited status and wealth. However, they are more exercised when they perceive privilege to result from cronyism and corruption. I think this is where we are now in the US, the UK, and the EZ. 

This was, by the way, a chief contributing factor to the failure of communism. I have heard this from several friends from Eastern Europe that grew up under communism. They reported being taught socialism from grammar school days and were appalled when they grew up and found that the regime was anything but socialist and instead run by a gang of would-be aristocrats. Having come to the US, they are also appalled at what they see as the moral failure of so-called capitalism. They see the same type of cronyism and corruption, and they are greatly saddened that the statue of liberty wears a mask and has feet of clay.

Stumbling and Mumbling

Why Inequality Matters

Chris Dillow | Investors Chronicle

Bombshell New Book Argues That Capitalism and Democracy Don’t Mix (via Moyers & Company)

Bombshell New Book Argues That Capitalism and Democracy Don’t Mix (via Moyers & Company)

Few books have been met with as much anticipation at Thomas Picketty’s Capital in the 21st Century. A reviewer in the Journal of Economic Thinking declares it “one of the watershed books in economic thinking.” Picketty, an economist at the Paris…

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Joel Kotkin — Neither Party Dealing With More-Rigid Class Structure

Diminished prospects – what some describe as the “new normal” – now confront a vast proportion of the population, with wages falling not only for noncollege graduates but also for those with four-year degrees. Overall, median incomes for Americans fell 7 percent in the decade following 2000 and are not expected to recover, according to some economic models, until 2021.

This decline has infected the national mood. Today, more middle- and working-class Americans predict that their children will not do better than they have done.Overall, almost one-third of the public, according to Pew, consider themselves “lower” class, as opposed the middle class, up from barely one-quarter who thought so in 2008.

It’s not surprising, then, that the vast majority of Americans believe the president’s economic policy has been a dismal failure, at least for the middle and working classes. Federal Reserve monetary policy, in particular, appeared to favor the interests of the wealthy over those of the middle, yeoman class. “Quantitative easing,” notes one former high-level official, essentially constituted a “too big to fail” windfall for the largest Wall Street firms, and did little for anyone else. Faith in the economy, despite the soaring stock market and increased price of assets, has remained weak. Americans by a 2-1 margin rate the economy negatively.

These realities helped spark both the Tea Party and the Occupy movements and underpin the support for such disparate figures as Sarah Palin and Elizabeth Warren. At the same time, outrage at our current economy has undermined public esteem for almost every institution of power – from government and large corporations to banks and Wall Street – to the lowest point ever recorded.

New Geography

Neither Party Dealing With More-Rigid Class Structure

Joel Kotkin | Executive Editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register

Business Insider Here's Who Makes The Money In This Country — And Who Pays The Income Taxes

Charts. Or why the economy remains in the tank for so long with no clear prospects. It's a two-tier, have v. have-not economy typical of underdeveloped countries.

Business Insider
Here's Who Makes The Money In This Country — And Who Pays The Income Taxes

Dominic Rushe — As pay gaps widen, America’s CEOs break record as top earners take home at least $100 million each

Pay gaps within companies widen as top two earners, led by Facebook’s Mark Zuckerberg, earn billion-dollar paychecks....

All told, the top 10 CEOs in this year’s poll took home over $4.7bn between them and for the first time ever none earned less than $100m....

Overall GMI’s poll of pay and other forms of compensation for 2,259 US CEOs found an average rise of 8.47%, less than the double-digit growth they have enjoyed for the past two years. But the average hides a more complex picture. This year’s top earners far outstripped those below them by making huge fortunes cashing in share options as the stock markets bounced back.

The report further illustrates the widening gap between CEO pay and that of the average worker. According to the US census bureau, median household income, adjusted for inflation, was $51,017 in 2012, broadly unchanged from 2011. Wages for the average household have fallen about 9% from an inflation-adjusted peak of $56,080 in 1999. The census figures show a sharp recovery for those at the top of the wage scale as those at the bottom continue to see falls. 

The average pay package of an S&P 500 CEO – the US’s top 500 companies – last year was $13.7m. For those in charge of S&P small cap companies it was $3.5m....

Of the top 10 earners in 2012 all received the majority of their compensation for the year from share schemes. 

The Raw Story
As pay gaps widen, America’s CEOs break record as top earners take home at least $100 million each
Dominic Rushe, The Guardian

We are approaching, "Let them eat cake."

This is an institutional problem that is becoming a structural one. CEO compensation has now become a fad, and the result is that CEO's will compete not only to lead the pack but just to keep up. This will put even more pressure on a system that is already buckling as the middle class in developed countries slip into the lower class. Not a healthy trend for democracy and social stability.

Robert Oak — Maps of Economic Disaster

America has a problem, a big one, the middle class has been wiped out. It is economic genocide and the target is most of America. The statistics just continue to pour in on how poorly America is doing. Even as the greatmanufactured crisis is over in D.C., the political agenda once again has nothing to do with helping America's middle class. Why jobs are not job #1 by this government we do not know. To drive home just how bad it is below we should some damning maps....

The Economic Populist
Maps of Economic Disaster
Robert Oak

Yikes! This is a national emergency.

David Edwards — Maine gov. calls for tax cut over ‘concern’ millionaires are facing extinction (via Raw Story )

Maine gov. calls for tax cut over ‘concern’ millionaires are facing extinction (via Raw Story )

Maine Gov. Paul LePage (R) this week called for a tax cut for the wealthy, citing a false claim that the number of millionaires had dropped by 80 percent in the state in the last 25 years. In audio obtained by the Bangor Daily News‘ Mike Tipping,…

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