Branko Milanovic — Why inequality matters?

This is the question that I am often asked and will be asked in two days. So I decided to write my answers down.…

The reasons can be formally broken down into three groups: instrumental reasons having to do with economic growth, reasons of fairness, and reasons of politics....

Contra trickle down, on  one hand, and, more importantly, critiquing the engine that drives capitalism— profit as surplus value over subsistence. The consequence of this is paradox, which Marxians call "internal contradictions."

We have to go back to the beginning and instead of seeing high inequality as promoting investments and growth, we begin to see it, over time, as producing exactly the opposite effects: reducing investments and growth.

The is a very clear exposition of key issues affecting the capitalist model in a very short space. It suggests that capitalism cannot be fixed without altering fundamental assumptions about how it works.

Global Inequality

Why inequality matters?
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

Bill Mitchell — Running trains faster but leaving more people on the platform is nonsense

Earlier in the week I was in Britain. Walking around the streets of Brighton, for example, was a stark reminder of how a wealthy nation can leave large numbers of people behind in terms of material well-being, opportunity and, if you study the faces of the people, hope. I am used to seeing poverty and mental illness on the streets of the US cities but in Brighton, England it very visible now as Britain has struggled under the yoke of austerity. Swathes of people living from day to day without hope under the current policy structures, damaging themselves through visible alcohol and substance abuse, cold from lack of shelter and adequate clothing, and the rest of it. And then a little diversion around the City area of London, where the overcoats the men wear cost upwards of £2,000 and the faces are full of intent. Two worlds really. I was thinking about those recent experiences when I read the latest release from the IMF (September 20, 2017) – Growth That Reaches Everyone: Facts, Factors, Tools. Their analysis continues the slow move of the IMF to acknowledging, not only the reality the world faces, but also, by implication, the massive costs that this institution has inflicted on poor people around the world.

Recreating Dickensian times.

Bill Mitchell – billy blog
Running trains faster but leaving more people on the platform is nonsense
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Karoli Kuns — Reaganomics Inventor Excuses Kansas Failure, Says Tax Cuts Were 'Too Small'

Art Laffer doubles down on Kansas.

Crooks and Liars
Reaganomics Inventor Excuses Kansas Failure, Says Tax Cuts Were 'Too Small'
Karoli Kuns

Dirk Ehnts — A comment on the trickle-down economics of Arthur Laffer, 2017 Trump edition

Laffer’s trickle-down economics did not do well empirically. Whether a cut in taxes stimulates the economy is a different question, and also any changes in tax rates might be overcompensated by changes in government spending taking place simultaneously. This, I believe, was part of the bait-and-switch under Ronald Reagan (tax cuts for the rich, but huge increase in government spending on defence) and will be part of the Trump policy, too. Nothing new here.

econoblog 101
A comment on the trickle-down economics of Arthur Laffer, 2017 Trump edition
Dirk Ehnts | Lecturer at Bard College Berlin

Yanis Varoufakis — Trump: The Next Keynesian President? Don’t Bank On It

While it is impossible to predict the economic consequences of Mr Trump’s tenure, given his strategic preference for vagueness over policy detail, one thing is clear: any mention of Trump as a Keynesian president, just as in the case of Ronald Reagan, confuses “Keynesian” for “irresponsible” and generates expectations unlikely to be fulfilled.
Deficit spending can take one of three forms: tax cuts, spending increases or a combination of the two. Republicans, from Ronald Reagan to George W. Bush, and now clearly Donald Trump, favor large-scale tax cuts while concentrating additional spending on defense procurement.

If the objective is to provide a flagging economy with necessary stimulus, Republican deficit spending is a most inefficient means. John Maynard Keynes, who had no love lost for the working class, and harbored a keen interest in promoting the wellbeing of aristocratic folk like himself, nonetheless objected to large-scale tax cuts for a simple, practical reason: the trickle-down effect is a myth, to put his point in Reaganite language.

The reason that “trickle down” is a myth is that the rich are most likely to save a large part of the tax relief they receive, thus blunting its stimulus potential, or use it to go skiing in Switzerland, rather than to spend it in their demand-deprived community. This is why targeted spending on the poor was the British gentleman’s recommendation: because it stimulates demand much more efficiently.

In defense of Keynes, Varoufakis points out that Keynes was a deficit dove that recommended balancing the budget over the cycle, running deficits in bad time and surpluses in good times. This where MMT economists part company with Keynes.

Yanis Varoufakis
TRUMP: THE NEXT KEYNESIAN PRESIDENT? DON’T BANK ON IT 

Newsweek, 16 NOV 2016

Jason Hickel — To Save The Economy, We Have To Break Its One Sacred Rule

We must stop worshiping the false god of GDP growth [because "trickle down].

As Joseph Stiglitz has put it, "What we measure informs what we do. And if we’re measuring the wrong thing, we’re going to do the wrong thing."

co.exist
To Save The Economy, We Have To Break Its One Sacred Rule
Jason Hickel

ht Don Quijones at Raging Bull-Shit

David Edwards — Joe Scarborough gives up the game: After 30 years, the GOP base realized ‘it never trickles down’

MSNBC host Joe Scarborough complained on Tuesday that the Republican Party was fracturing because it had advocated economic policies benefiting the richest Americans for the last 30 years with the promise that the wealth would “trickle down” to others — but it never did.

“The problem with the Republican Party over the past 30 years is they haven’t — and I’ll say, we haven’t — developed a message that appeals to the working class Americans economically in a way that Donald Trump’s does,” the former Republican lawmaker explained. “We talk about cutting capital gains taxes that the 10,000 people that in the crowd cheering for Donald Trump, they are never going to get a capital gains cut because it doesn’t apply.”

“We talk about getting rid of the death tax,” he continued. “The death tax is not going to impact the 10,000 people in the crowd for Donald Trump. We talk about how great free trade deals are. Those free trade deals never trickle down to those 10,000 people in Donald Trump’s rallies.”

“You sound like Bernie Sanders,” NBC’s Chuck Todd pointed out.

“But herein lies the problem with the Republican Party,” Scarborough complained. “It never trickles down! Those people in Trump’s crowds, those are all the ones that lost the jobs when they get moved to Mexico and elsewhere. The Republican donor class are the ones that got rich off of it because their capital moved overseas and they made higher profits.”

Joe admits the real reason that the Donald is doing so well. Trickle down is really funnel up.

Raw Story
Joe Scarborough gives up the game: After 30 years, the GOP base realized ‘it never trickles down’

David Edwards

David F. Ruccio — Looking below the surface

What liberal mainstream economists don’t see—and don’t want the rest of us to wrap our heads and hearts around—is that growth, by itself, has only a small effect on incomes for poor and working Americans. It doesn’t raise wages, it doesn’t reduce poverty, and it doesn’t close the gap between productivity and wages. Not in any significant fashion. And it will probably make the distribution of income even more unequal than it is now. 

That’s why increasing numbers of people have become disenchanted with the “liberal fantasy” and have begun to look elsewhere—below the surface—to ask new questions about how the economy is currently organized and how it might be reorganized to actually benefit poor and working people.

The growth is good (for all) assumption is based on trickle down, and that has been shown not to work as advertised, or even much at all.

"It's the distribution, stupid."

In a system in which labor power is suppressed, for example, "to control inflation", labor share will be controlled by the ownership class that the management class serves, or are members of.

Occasional Links & Commentary
Looking below the surface
David F. Ruccio | Professor of Economics, University of Notre Dame

Bruce Webb — Republican Policy Response to Increasing Income Inequality

“Labor Share is decreasing so lets cut tax on capital to zero”.

That is it. Literally.…

Trickle down.

Angry Bear
Republican Policy Response to Increasing Income Inequality
Bruce Webb

David F. Ruccio — When people start to ask questions

When capitalism stops working for the broad middle class….  Marx starts popping up and becomes a topic of conversation.

Occasional Links & Commentary
When people start to ask questions
David F. Ruccio | Professor of Economics, University of Notre Dame

Ellen Brown — A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World

Pope Francis’ revolutionary encyclical addresses not just climate change but the banking crisis. Interestingly, the solution to that crisis may have been modeled in the Middle Ages by Franciscan monks following the Saint from whom the Pope took his name.

Pope Francis has been called “the revolutionary Pope.” Before he became Pope Francis, he was a Jesuit Cardinal in Argentina named Jorge Mario Bergoglio, the son of a rail worker. Moments after his election, he made history by taking on the name Francis, after Saint Francis of Assisi, the leader of a rival order known to have shunned wealth to live in poverty.

Pope Francis’ June 2015 encyclical is called “Praised Be,” a title based on an ancient song attributed to St. Francis. Most papal encyclicals are addressed only to Roman Catholics, but this one is addressed to the world. And while its main focus is considered to be climate change, its 184 pages cover much more than that. Among other sweeping reforms, it calls for a radical overhaul of the banking system.

Laudato Si' calls for a new approach to economics and public policy globally.

The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.

. . . A strategy for real change calls for rethinking processes in their entirety, for it is not enough to include a few superficial ecological considerations while failing to question the logic which underlies present-day culture.

Web of Debt
A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World
Ellen Brown

T is for Trickle-Down

Another entry for Michael Hudson's dictionary in progress.

Michael Hudson
T is for Trickle-Down

Bud Meyers — Timeline: Trickle-Down Economics Explained (for Beginners)

Is it passive aggression? Is it cruel antagonism? Is it overt animosity? Is it open hostility, bordering on outright hate? Or it's much less evil that; maybe it's just apathy, ignorance or indifference. Maybe it's just selfish inconsideration. But how can one ever know for sure? I'm talking about those who have political agendas that advocate for policies and laws that consistently and seriously harm millions of real living people. Not only do they promote these type of ideas, but they use deception and lies to manipulate the masses and hide their true intentions. I'm not talking about third-world dictators, but politicians in America, working on behalf of plutocrats.…

GDP per capita regardless of distribution.

The term had been first attributed to humorist Will Rogers, who said during the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy."

A bit heavily anti-GOP considering the record of the Third Way New Democrats that own the party establishment. But if the McKinley and Reagan are compared with FDR it holds to a greater degree.

The Economic Populist
Timeline: Trickle-Down Economics Explained (for Beginners)
Bud Meyers

Laura Clawson — Warren: Trickle-down 'cut the legs out from under America's middle class'

Elizabeth Warren sounding like Pope Francis.

Daily Kos
Warren: Trickle-down 'cut the legs out from under America's middle class'
Laura Clawson

Sam Pizzigati — The Flacks for Plutocrats Need a New Analogy

A rising tide lifts all boats. A growing economic pie means bigger slices for everybody. Wealth that flows to the top will always trickle down. Cheerleaders for wealth’s concentration have over the years invoked a variety of images to rationalize the ever larger fortunes of our society’s most fortunate. 

These images all rest on a single economic assumption: that letting wealth accumulate in the pockets of a few grows an economy’s capacity for investment and ultimately, as investments create jobs, leaves everybody better off. That assumption has dominated mainstream economics for generations. 

But that’s changing. Even mainline economic institutions are these days challenging the notion that good fortune for the few eventually and automatically translates into better fortune for the many. Now we have a new analysis that essentially shreds what little credibility remains from that once potent rising-tide world view.…

Milanovic and van der Weide have some thoughts of why higher income inequality so stunts income growth for a state’s poorest. They point to the phenomenon they call “social separatism.” 

In a society where the rich are grabbing incomes “significantly greater than the incomes of the middle classes,” the rich have little interest in public services. Their lives revolve around private services, everything from private schools to private country clubs. 

These wealthy, note Milanovic and van der Weide, “prefer not to invest in public goods like education, health, and infrastructure.” But these public investments — for the poor — make all the difference in the world. Paltry investments in public services translate into paltry, or worse, income growth for the poor. 

The political implication? If income inequality speeds the growth of wealthy people’s incomes, Milanovic and van der Weide wonder, how can we expect the wealthy to accept public policy changes that reduce inequality? 

We can’t, of course. Most rich will continue to claim that trickle down works, no matter how empty that claim may be. And the evidence for that emptiness is pouring from much more than academic studies. We now have, for instance, the live-action contrast of Kansas and California. 

In Kansas, an exceedingly rich people-friendly governor and legislature two years ago slashed taxes on the state’s wealthy, most notably by making business profits tax-free. 

In California, meanwhile, voters at about the same time raised tax rates on taxpayers making over $500,000 by 30 percent.

The story since then: California, notes analyst David Cay Johnston, has grown jobs “at 3.4 times the rate of Kansas.” California’s weekly wages have also grown more than weekly wages in Kansas.

"Social separatism" is class and power structure by another name, since "class" and "power" are politically incorrect terms in economics.

Inequality.org
The Flacks for Plutocrats Need a New Analogy

Sam Pizzigati | Editor, Too Much, the Institute for Policy Studies online weekly on excess and inequality

Alan Pyke — Companies Warn That Income Inequality Is Hurting Their Business

After decades as the dominant economic theory in American politics, trickle-down economics is starting to lose its grip on the debate. For evidence of that slippage, look no further than the business community’s own communications with investors. 

Two thirds of the largest retail companies in the country say falling incomes for their customers threaten their business, according to an analysis of corporate filings by economists at the Center for American Progress (CAP). That is double the proportion that cited slack earnings for the masses among their business risks in 2006. And seven out of every eight major American retail companies “cite weak consumer spending as a risk factor to their stock price,” the authors write.…

These observations are not groundbreaking as a matter of economic theory. The importance of consumer spending and demand to broad economic growth is a well-understood basic fact of how the world works. Previous CAP research has found that the median American family saw an 8 percent drop in income from 2000 to 2012 while the cost of living rose, leaving them with $5,500 less to spend on essentials like groceries and clothing each year. The lingering stagnation of the broader economy owes in large part to this long-running squeeze on the middle class, which has persisted despite decades of the trickle-down tax and spending policies that conservatives have argued for for decades.

But in political terms, the fact that the largest companies in the business of selling stuff to Americans are saying publicly that their shoppers earn too little money is a significant development. It represents a shift in the narrative within the traditional base of support for right-wing economic policy, as the CAP authors note. “If the Heritage Foundation, the U.S. Chamber [of Commerce], and other proponents of trickle-down economics refuse to believe the overwhelming academic evidence that clearly shows low consumer spending and income growth are holding the economy back, they should listen to corporate America and Wall Street,” the report says.

The formerly indefatigable American consumer throws in the towel. Exit trickle down.

Think Progress

Companies Warn That Income Inequality Is Hurting Their Business
Alan Pyke

Bill Mitchell — Large-scale employment guarantee scheme in India improving over time

Successful policy is not about how rich it makes society in general [e.g. as measured in GDP per capita] but how rich it makes the poor! I see richness in broad terms which embrace both economic and social valuations. So it is not just about how much stuff one can command ownership of. Various versions of this rule have been expounded by people over the years. 

It is anti-trickle down and all the neo-liberal hype that justified transferring real income and wealth to the top-end-of-town, via deregulation etc and then claiming it would eventually enrich the lower income groups and poor as a result of the increased endeavour at the top that was claimed to engender. A total lie.

Bill Mitchell – billy blog
Large-scale employment guarantee scheme in India improving over timeBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Matt Bruenig — Why Grow The Pie?

After all, what is meant to be the value of a bigger pie? Surely it is that people get more stuff. But a bigger pie doesn't actually mean everyone gets more stuff. Only a specific widespread distribution of the increase in the pie does that. And, if you've paid any attention to the market distribution trends over the last half-century, you know that only non-market distributive institutions are able to ensure that specific distribution results.

So "fighting over the pie"—which means fighting over how to construct our distributive institutions—is the only way that a bigger pie gets funneled into something that's useful to the non-rich. Adding a bunch of income at the top of society without adding it anywhere else (or even subtracting it elsewhere) grows the pie, but who cares about that? Not me.

As a general matter, this pie analogy is perhaps the most deceptive one in all of popular economics writing. The way it is used always assumes that the gains to growth are distributed proportionally. The suggestion of the metaphor is that if the economy grows 3%, then everyone's slice grows 3% and everyone maintains their relative distributive position. But that's not what happens. Instead, the rich increase their market income by far more than 3% and the rest increase their income by much less, if they increase it at all. Consequently, the rich gobble up ever-greater percentages of the pie.

Demos Policy Shop
Why Grow The Pie?

Matt Bruenig

Ryan Grim — Elizabeth Warren Simplifies Thomas Piketty: 'Trickle Down Doesn't Work. Never Did'

The No. 2 author on Amazon's best-seller list, Sen. Elizabeth Warren, weighed in Thursday night on the No. 1 book, identifying overlapping themes.

At a reading at the Harvard Book Store, the Massachusetts Democrat, author of A Fighting Chance, was asked about Thomas Piketty's new book, Capital in the Twenty-First Century, and specifically about its contention that trickle-down economics "definitively do not work."Warren cut in. "Can we say that part again? 'Definitely do not work,'" she repeated. "Not as in that's somebody else's opinion or this comes out of a long-held political opinion. The data don't lie on this. He's got good historical data, and boy, what it shows is trickle down doesn't work. Never did, doesn't work. Just so we're all clear on the baseline. I just saved you 1,100 pages of reading." (The book is shorter than that; Warren may have assumed the audience would also read the online technical index.)

Warren, whose own book was going to be titled Rigged but ultimately went out with a more hopeful title, said that while Piketty's book could elicit despair, she found a hopeful note in it, too.

"You can read his book and you just wanna say, 'Ugh.' Because it says over and over -- look, I'll tell you the basic theme: The rich get richer," Warren said.

The Huffington Post
Elizabeth Warren Simplifies Thomas Piketty: 'Trickle Down Doesn't Work. Never Did'
Ryan Grim

As far as neoliberals are concerned, the the rich getting richer is what capitalism is all about, and distribution is beside the point. "A rising tide lifts all boats."

This is shaping up as the major theme in the 2016 general election, and Elizabeth Warren has Pope Francis in her corner.

"Here's the hopeful part in Piketty's book: Piketty makes the point that although the data keep documenting this happening, it's not like an act of nature. It's not like gravity and you can't fix it," Warren said. "Piketty's book makes the point that how much equality there is ... is a matter of the policies you choose to follow and that, for example, progressive taxation and investment in everyone's education helps to level the playing field...."

"It is a time when we made those investments that built America's great middle class and we made those decisions -- not we in this room, but our parents, our grandparents, they made those decisions. They said, 'You put a cop on the beat so nobody steals your pension, you do that on Wall Street.' But they also said, 'You tax progressively and then you make those investments.' For those who made it big, God bless 'em, that's great, but they've gotta pay a piece of that forward so the next kid has a chance to make it big and the kid after that and the kid after that. That's what defines America."

Not a bad campaign speech.

Allan H. Meltzer — The United States Of Envy

The conservative response to inequality is envy. Who woulda thunk it?

President Obama has openly encouraged envy of the top one percent of income earners. Reducing the share received by the highest earners to provide revenue for larger transfers to the lowest earners has long been a main objective of his administration. We can all expect this theme to be trumpeted loudly by the mainstream press as the mid-term election approaches: Some of us can have more, the argument goes, if we force others to have less.

Support for the alleged social benefits of setting much higher marginal tax rates on the highest incomes has now been endorsed by the International Monetary Fund, based heavily on research by two French economists named Thomas Piketty and Emanuel Saez. The two worked together on the faculty at MIT, where the current research director of the IMF, Olivier Blanchard, was a professor. Like Piketty and Saez, he is also French. France has, for many years, implemented destructive policies of income redistribution....

Voters who will hear the Obama call for envy and redistribution should ask themselves and others: Would you prefer to live in an America where the market is dynamic and opportunity abounds, or in France, where unemployment is high and tax rates are crushing? Don’t you prefer opportunity to envy?

Human Events

The United States Of Envy

Allan H. Meltzer | Distinguished Visiting Fellow at the Hoover Institution and the Allan H. Meltzer University Professor of Political Economy at the Tepper School of Business at Carnegie Mellon University

(h/t Charles Hayden)