Why There Is No “Crisis of Capitalism” — Branko Milanovic

Western dissatisfaction with globalization is wrongly diagnosed as dissatisfaction with capitalism, when in fact it is the product of the uneven distribution of the gains from globalization....

ProMarket — The blog of the Stigler Center at the University of Chicago Booth School of Business

Why There Is No “Crisis of Capitalism”

Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Stone Center on Socio-economic Inequality, 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

IMF boss says raise taxes on the rich to tackle inequality— Larry Elliott

Kristalina Georgieva, the IMF’s managing director, said higher marginal tax rates for the better off were needed as part of a policy rethink to tackle inequality.

In a sign of how the IMF has moved away from the tax-cutting approach that once formed a central part of its policy advice, Georgieva said there needed to be a different approach to tackling what had become “one of the most complex and vexing challenges in the global economy”.

The IMF chief, writing in a blog, said: “Inequality of opportunity. Inequality across generations. Inequality between women and men. And, of course, inequality of income and wealth. They are all present in our societies and – unfortunately – in many countries they are growing.”

The Guardian (UK)
IMF boss says raise taxes on the rich to tackle inequality

Larry Elliott, economics editor

Kristalina Ivanova Georgieva-Kinova is a Bulgarian economist, who is the managing director of the International Monetary Fund. She worked as chief executive of the World Bank from January 2017 to 1 October 2019. She served as Acting President of the World Bank Group from 1 February 2019 to 8 April 2019. Wikipedia

Production and then distribution, or distribution and production together — Branko Milanovic

Must-read! Branko Milanovic sums up the fundamental issue affecting political economy as economics in relation to society.

Neoclassical economic is like doing engineering with a total focus on efficiency and ignoring resilience. This approach views redundancy as inefficient. This is like eliminating the emergency brake on vehicles.

An economy is the material life-support system for a society and its culture. It is the welfare and progress of the society that set the priorities.

Neoliberalism is based on the view that society does not exist. Go figure.

As Branko Milanovic points out, following the classical economists and Marx, it's the endowments, stupid. This results in market asymmetries that determine who wins and who loses, not the assumed spontaneous natural order that arises spontaneously as a result of the operation of a free market that leads to equilibrium characterized by optimality

Global Inequality
Production and then distribution, or distribution and production together
Branko 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

Economic Policy Institute — Labor Day Series

Economic Policy Institute

Black workers endure persistent racial disparities in employment outcomes

Part of the series Labor Day 2019: How Well Is the American Economy Working for Working People? Summary: Black workers are twice as likely to be unemployed as white workers overall (6.4% vs. 3.1%). Even black workers with a college degree are more likely to be unemployed than similarly educated white workers (3.5% vs. 2.2%). When they are employed, black workers with a college or advanced degree 3h

Working people have been thwarted in their efforts to bargain for better wages by attacks on unions

Part of the series Labor Day 2019: How Well Is the American Economy Working for Working People? Summary: The share of workers represented by unions has dropped by more than half since 1979—from 27.0% to 11.7% in 2018. Not coincidentally, the share of income going to the top 10% has escalated in this period—these high earners now capture nearly half of all income. The decline of unions is not beca3h

Low-wage workers are suffering from a decline in the real value of the federal minimum wage

Part of the series Labor Day 2019: How Well Is the American Economy Working for Working People? Summary: The real value of the federal minimum wage has dropped 17% since 2009 and 31% since 1968. Workers earning the federal minimum wage today have $6,800 less per year to spend on food, rent, and other essentials than did their counterparts 50 years ago. Some states have raised their minimum wages 3h

Wage growth is being held back by political decisions and the Trump administration is on the wrong side of key debates

Part of the series Labor Day 2019:The fact that the unemployment rate has averaged 3.8% over the past year (its lowest 12-month average since 1970) might make one think that times are flush for American workers and that there is widespread agreement that the U.S. economy is being well managed by elected officials. But while times are better for workers today than they were 10, five, or even three years ago, a crucial ingredient for workers’ well-being—faster-growing wage growth—still hasn’t appeared. This wage failure might be why the public seems unwilling to give President Trump (and his Republican supporters in Congress) credit as good economic managers despite today’s low unemployment rate. In fact, the president and his supporters in Congress are responsible for a number of policy decisions that will reliably harm workers’ future prospects for wage growth.1

Lars P. Syll — a primary reason for the rise of inequality

Economic liberalism expressed as "free market capitalism" aka neoliberalism is incompatible with political liberalism as liberal democracy owing to the social effects of the inequality that favoring economic liberalism in the above sense leads.

Lars P. Syll’s Blog
Economics — a primary reason for the rise of inequality
Lars P. Syll | Professor, Malmo University

Top 1% Up $21 Trillion. Bottom 50% Down $900 Billion. — Matt Bruenig

The insights of this new data series are many, but for this post here I want to highlight a single eye-popping statistic. Between 1989 and 2018, the top 1 percent increased its total net worth by $21 trillion. The bottom 50 percent actually saw its net worth decrease by $900 billion over the same period.…

People's Policy Project
Top 1% Up $21 Trillion. Bottom 50% Down $900 Billion.
Matt Bruenig

Bill Mitchell — The rich are getting richer in Australia while the rest of us mark time

Only a short blog post today – in terms of actual researched content. Plenty of announcements and news though, a cartoon, and some great music. I have been meaning to write about the household income and wealth data that the ABS released in July, which showed that real income and wealth growth over a significant period for low income families has been close to zero, while the top 20 per cent have enjoyed rather massive gains. These trends are unsustainable. A nation cannot continually be distributing income to the top earners who spend less overall while starving the lower income cohorts of income growth. A nation cannot also continually create wealth accumulation opportunities for the richest while the rest go backwards. These trends generate spending crises, asset bubbles and social instability. That is what is emerging in Australia at present.

While Bill's analysis in this post is Aussie-centric, the rationale is applicable to the whole neoliberal world. It's basically what neoliberalism is about. The contemporary difference is that now the domestic populations of the neoliberal nations are being colonized as well. Even some of the top tier that are receiving most of the benefits are getting squeamish, realizing that an unsustainable process cannot go on forever and that eventually the bill will come due.

Bill Mitchell – billy blog
The rich are getting richer in Australia while the rest of us mark time
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Climate Equity: What Is It? — Peter Dorman

The limitations of AOC-Harris become clearer when you consider what the centerpiece of any meaningful climate policy has to be: suppressing the use of fossil fuels, which will entail putting a steep price on them. (This can be done either with a permit system or taxes, quantity controls or price controls; permits are by far the better option.) We are talking hundreds of dollars per metric ton of carbon, which translates to several dollars per gallon of gas at the pump and similar added costs for heating, electricity and other energy uses and sources. Will this have a devastating effect on low income communities? Absolutely, and it will be nearly as unbearable for everyone below the top fifth or so. Fortunately, we also know the solution: rebate the carbon money back to the public, using the progressive formula of equal rebates to all households. This approach does the best possible job of protecting the living standards of the majority of the population, at the same time assuaging, as much as any program can, the fears that might make a stringent carbon policy politically unattainable.

This is not everything a carbon policy has to do, but it is the one part that is non-optional....

Econospeak

Climate Equity: What Is It?
Peter Dorman | Professor of Political Economy, The Evergreen State College

Why it’s important to pay attention to distributional consequences of economic policies — Somin Park

In the decades following the 1980s, free market policies dominated policy agendas across the world. The gains from growth, however, were not broadly shared within countries, as evidenced by the high levels of economic inequality in the United States and most other advanced economies. In a recent paper, a group of economists at the International Monetary Fund argue for a rethinking of the rules—actual or perceived—that guide economic policies, so that the distributional consequences are considered and addressed by policymakers.
In their paper, IMF economists Jonathan D. Ostry, Prakash Loungani, and Davide Furceri argue there are four primary reasons why it is critical to pay greater attention to how economic gains are shared up and down the income ladder. First, their research shows that economic inequality leads to lower and less durable growth. Even when growth is the primary goal, attention to inequality is necessary. Second, they find that economic inequality may lead to social tension and ultimately political backlash against free market policies, including globalization. Third, redistributive policies to curb excessive inequality tend to support, not slow, economic growth. And fourth, many aspects of economic inequality are the result of policy choices made by governments, meaning policymakers should factor in the distributional consequences when designing and evaluating policies.

A disproportionate focus on growth over distribution was solidified among economists during the 1980s with the consensus view that the benefits of growth would trickle down the income ladder. Governments and institutions such as the IMF dismissed questions of distribution as secondary to growth, based on their confidence in markets to reward everyone fairly and their belief that redistributive policies hurt growth.

Ostry, Loungani, and Furceri question this conventional wisdom by showing that high inequality is bad not only for social reasons but also for growth....

Based on their findings about fiscal consolidation and capital account liberalization, the authors ask “why support them if there are scarce efficiency benefits for them but palpable equity costs?” The answer is important because fiscal consolidation and capital account liberalization are two policies that have historically been at the center of the IMF’s economic reform agenda. This paper is one illustration of a shift in policy priorities at the IMF, where leaders increasingly recognize that liberalization and tight fiscal policy are not always suited for sustainable economic growth....

A cardinal rule in conventional economics is to consider only production and consumption and to ignore distribution on the assumption that the "market forces" as "the magic of the market" lead to Pareto optimal distribution (through "trickle down").  That's magical thinking. Turns out to be "black magic," too.

WCEG — The Equitablog
Why it’s important to pay attention to distributional consequences of economic policies
Somin Park | Research Assistant to the Executive Director

Sergi Basco, Martí Mestieri — The new globalisation and income inequality

Trade in intermediates (or ‘unbundling of production') and trade in capital have become increasingly important in last 25 years. This column shows that trade in intermediates generates a reallocation of capital across countries that exacerbates world inequality in both income and welfare. Unbundling of production hurts middle-income countries but helps those with high productivity. Trade in intermediates also increases within-country inequality, and this increase is U-shaped in the aggregate productivity level of the country....

There exists a general consensus among economists that globalisation is good at the world level. However, the increasing discontent with globalisation in developed countries has forced economists to better understand the mechanisms through which it affects the distribution of income between and within countries. In this column, we have discussed that in the most developed (productive) economies, the new globalisation is good at the country level but it generates a redistribution of income towards capital. Thus, the optimal policy for these countries does not seem to be to put the brakes on the emergence of global supply chains but to better redistribute income within the country. Finally, it is worth mentioning that since the new globalisation amplifies competition among countries, the returns to productivity enhancing policies (like education or infrastructure) have increased. 

VoxEU
The new globalisation and income inequality
Sergi Basco, Martí Mestieri

Bill Mitchell — The austerity attack on British local government – Part 1

On Sunday, May 12, 2019, I will be presenting a workshop in London on – Local Government Funding: Challenging the Status Quo. Basically, I will be speaking about the way in which flawed understandings of the capacities of currency-issuing governments, combined with a vicious, ideological attack on working people from a government fully invested in neoliberal transfers to the elites, have ravaged the capacity of local government in the UK to deliver essential public services. See the Events Page for more details. It is a public event and I hope people support it. To prepare for that workshop, I have been digging deeply into the data to fully acquaint myself with how the ideological austerity push has been distributed across central and local government service delivery. It is no easy task. The data is a ‘dog’s breakfast’ and coming to summary positions is quite time consuming. There are also nuances in the way local government is structured (particularly since the Thatcher years where devolution and cost-shifting was accelerated), which mean that care must be taken in making sensible comparisons. Here are some of the things I found. I have learned a lot in this process, which is a good thing. This is Part 1 of a two-part series....

Bill Mitchell – billy blog
The austerity attack on British local government – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

LarsP. Syll — Mainstream theories of income distribution

Increasing asymmetry of income and wealth, which now goes by the name "inequality" as the buzzword, arises either from the function of perfect markets or from asymmetry of power. A perfect market is one in which there is no asymmetry, that is, the agents are homogenous.

A perfect market could generate asymmetry through difference in ability that lead to differences in distribution owing based on merit and just deserts (as conventional economics assumes). However, perfect markets don't exist other than as modeling constructs. Class structure, for example, generates asymmetries. Always has and always will, to the degree that is is permitted and not compensated for.

Addressing rising inequality by addressing the causes involves addressing the asymmetries from which inequality arises. Libertarians assume that all asymmetry of power and influence is introduced by "state" (government) influence on markets. That is only partially true, however. Influence does often occur through government but this is through asymmetrical power that exists among agents, enabling capture. In addition, economies of scale produce greater efficiency but at the expense of concentration, which risks monopoly and monopsony power and monopoly and monopsony rents as a consequence. This generates "monopoly capitalism."

The upshot is that market "imperfections" lead to asymmetric power, and asymmetric power enable the extraction of economic rent as unearned gains, which in turn results in asymmetric distribution that is not based on merit and gained through competition in perfect markets.

Further elaboration of this cycle is needed to clarify for electorates what the reasons for rising inequality rather rather than appealing to models based on unrealistic assumptions that exist only in economists' brains.

This necessitates an investigation of power and its operation in a society as a social system (complex adaptive system). This was initiated by the classical economists in their investigation of economic rent, continued by Karl Marx, taken up by Veblen and the institutionalists, and subsequently shunted over to sociology ( cf. C. Wright Mills) and political science since the advent of marginalism explained economic rent away based on idealistic models of a market economy based on near perfect markets.

Conventional economists know about market imperfection, rent, rent-seeking and rent extraction but they have avoided dealing with it as a socio-economic factor. Now rising social dysfunctionality is forcing a return to investigating distribution and the causes of increasing inequality of income and wealth.

This can no longer be avoided but no one has yet grasped the "third rail" of economics — other than the Marxists and Marxians, that is, which a reason no one else dares touch it, since contemporary capitalism is based on it and argues unequal distribution is necessary because "incentive." Well then, even if this would be the actual reason, which is highly doubtful, it is a bug rather than a feature.

LarsP. Syll’s Blog
Mainstream theories of income distribution
Lars P. Syll | Professor, Malmo University

See also

Michael Roberts Blog
Invisible Leviathan – Marx’s law of value in the twilight of capitalism
Michael Roberts

Piketty, Saez & Zucman — Simplified Distributional National Accounts

Abstract:
This paper develops a simplified methodology that starts from the fiscal income top income share series and makes very basic assumptions on how each income component from national income that is not included in fiscal income is distributed. This simplified methodology has two main goals.

First and most important, it can be used to create distributional national income statistics in countries where fiscal income inequality statistics are available but where there is limited information to impute other income at the individual level. Alvaredo et al. (2016) distributional national accounts guidelines proposed a simplified methodology for countries with less data (Section 7). The methodology proposed here can be seen as an even simpler method that can be applied to countries for which fiscal income top income share statistics exist1 and for which national accounts and fiscal income aggregates are sufficiently detailed.

Second, this simplified methodology can also be used to assess the plausibility of the Piketty, Saez, and Zucman (2018) assumptions. In particular, we will show that the simplified methodology can be used to show that the alternative assumptions proposed by Auten and Splinter (2018) imply a drastic equalization of income components not in fiscal income which does not seem realistic.

WCEG

Simplified Distributional National Accounts
Thomas Piketty, Paris School of Economics;

Emmanuel Saez, University of California, Berkeley; Gabriel Zucman, University of California, Berkeley

John Quiggin — A Green New Deal?

In the specific context of a Green New Deal, the most important demand should be a reduction in working hours, with no offsetting change in wages. That amounts to taking the benefits of increased productivity, and progressive redistribution, in the form of increased leisure rather than increased consumption. It goes along with research findings suggesting that experiences, rather than material goods, are a better source of lasting happiness. To make the argument work completely, we need the further proviso that experiences arising from participation in family and community activities are more genuine than those offered by commercial providers such as tourism operators. I’d be interested to know if there is evidence on this point.

Absolutely.

John Quiggin's Blog
A Green New Deal?
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

Bill Mitchell — Inclusive growth means poverty reduction and declining income inequality

I am doing some work on the way technology can be chosen to maximise employment in the pursuit of advancing general well-being. This is in the context of some work I am doing on advancing what is known as ‘relative pro-poor growth’ strategies in Africa via employment creation programs and draws on my earlier work in South Africa on the Expanded Public Works Program. In the current work, I have been assessing ways in which the Labour Intensive Public Works program in Ghana has been deployed to serve this purpose. The problem one confronts when working as a development economist in less well-off nations is that the institutional bias promoted by the IMF and the World Bank is towards advancing, at best, what we term ‘absolute pro-poor growth’. But that sort of agenda typically fails to strengthen other aspects of a strong civil society because it is almost always accompanied by rising inequality which continues to concentrate power and influence at the top and leads to resources being disproportionately expropriated by the wealthy (and usually foreign) classes. Institutions such as democracy, justice, law and order and causes such as environmental sustainability are then compromised....

Bill Mitchell – billy blog
Inclusive growth means poverty reduction and declining income inequality
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

See also

Could this possibly be the result of natural spontaneous order resulting from market competition and personal initiative so that everyone receives their just deserts based on their productivity? Or is the result of asymmetry and bias? If the later how does that arise. Is it solely the result of government as some claim, or it is owing to the asymmetrical power that increasing wealth as ownership of real and financial assets conveys?

Michael Roberts Blog
The top 1% own 48% of all global personal wealth; 10% own 85%
Michael Roberts

Laurie Macfarlane — Why Wealth Is Determined More by Power Than Productivity

To the early classical economists, this kind of wealth – attained by simply extracting value created by others ­­– was deemed to be unearned, and referred to it as ‘economic rent’. However, ever since neoclassical economics replaced classical economics as the dominant school of thinking in the late 19th century, economic rent has been increasingly marginalised from economic discourse. To the extent that it is acknowledged, it is usually viewed as being peripheral to the story of wealth accumulation, resulting from ‘market frictions’, such as monopsony and asymmetric information, which give rise to certain instances of ‘market power’. For the most part, economists have tended to focus on the acts of saving and investment which drive the real production process. But on closer inspection, it is clear that economic rent is far from peripheral. Indeed, in many countries it has been the main story of changing wealth patterns….

All statistics tell a story, but stories can be told from different perspectives. Embedded in the definitions of all economic statistics are value judgements about what is desirable and what is undesirable, which in turn shape the way we think about the economy. At the moment, the way we measure the wealth of nations mainly reflects the fortunes of capitalists and landowners rather than workers and tenants. Britain looks wealthier than Germany on paper, but this does not reflect the lived reality for most people. While it’s important not to overstate the extent to which statistics can influence the real world, this is important for at least three reasons.

Firstly, it illustrates how seemingly objective metrics often have ideological assumptions baked into them. While there is already a well-established literature on alternatives to GDP, many economic metrics are used in economic analysis and policy appraisal without any critical appraisal of their underlying ideological assumptions. This needs to change.

Second, it highlights how paper wealth has in many places become decoupled from productive capacity, and how conflating the two can be highly misleading. This is particularly the case where zero sum rentier activity is widespread, as in the case of Britain. Such discrepancies raise the question of whether the way that we currently measure wealth is really the most sensible.

But most importantly, it illustrates that the distribution of wealth has little to do with contribution or productivity, and everything to do with politics and power. As J.W. Mason states: “It’s bargaining power, it’s politics, all the way down.”

For economists who see their discipline as a ‘value free’ science which is separate from politics, this is uncomfortable territory. But if the aim is to understand the economy as it really exists, then analysing power beyond the narrow concept of ‘market power’ is essential. Among other things, this means grappling with the power dynamics that underpin ownership and property relations, as well as those that that drive inequalities between different social groups and identities....

Evonomics
Why Wealth Is Determined More by Power Than Productivity

Laurie Macfarlane | Economics Editor at openDemocracy, Associate Fellow at the Institute for Innovation and Public Purpose at University College London and former Senior Economist at the New Economics Foundation

Thomas Piketty, Emmanuel Saez. Gabriel Zucman — Distributional National Accounts: Methods and Estimates for the United States

This article combines tax, survey, and national accounts data to estimate the distribution of national income in the United States since 1913. Our distributional national accounts capture 100% of national income, allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth. We estimate the distribution of both pretax and posttax income, making it possible to provide a comprehensive view of how government redistribution affects inequality. Average pretax real national income per adult has increased 60% from 1980 to 2014, but we find that it has stagnated for the bottom 50% of the distribution at about $16,000 a year. The pretax income of the middle class—adults between the median and the 90th percentile—has grown 40% since 1980, faster than what tax and survey data suggest, due in particular to the rise of tax-exempt fringe benefits. Income has boomed at the top. The upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000. The government has offset only a small fraction of the increase in inequality. The reduction of the gender gap in earnings has mitigated the increase in inequality among adults, but the share of women falls steeply as one moves up the labor income distribution, and is only 11% in the top 0.1% in 2014. JEL Codes: E01, H2, H5, J3....

The Quarterly Journal of Economics May 2018
Distributional National Accounts: Methods and Estimates for the United States

Thomas Piketty, Emmanuel Saez. Gabriel Zucman

John Laurits Under Fully-Automated Communism, Your Wage Is $90 Per Hour (Says Math)

There is no problem with scarcity — there is a problem with humanity’s social organization and with its institutions. There is no failure in our production of economic values — even now they are being produced to abundance (maybe even over-abundance). The math above shows that, if it could be allowed, this country can afford to pay a wage just shy of $100 to every human being who is willing to work.

It is only the obscenely wealthy whom we stretch and strain to afford…

Economic rent.

John Laurits
Under Fully-Automated Communism, Your Wage Is $90 Per Hour (Says Math)

David F. Ruccio — I ran out of words to describe how bad the recovery numbers are

Workers’ wages have been stagnant for the past decade across the 36 countries that make up the Organisation for Economic Cooperation and Development. But the problem has been particularly acute in the United States, where the “low-income rate” is high (only surpassed by two countries, Greece and Spain) and “income inequality” even worse (following only Israel).

The causes are clear: workers suffer when many of the new jobs they’re forced to have the freedom to take are on the low end of the wage scale, unemployed and at-risk workers are getting very little support from the government, and employed workers are impeded by a weak collective-bargaining system.

That’s exactly what we’ve seen in the United State ever since the crisis broke out—which has continued during the entire recovery.…

"It's the distribution, stupid."

Occasional Links & Commentary
I ran out of words to describe how bad the recovery numbers are
David F. Ruccio | Professor of Economics, University of Notre Dame

Tyler Cowen — Trump understands this, perhaps you do not

Perception about immigration.

Marginal Revolution
Trump understands this, perhaps you do not
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center