Archive for December, 2012

cliff

The other day, when I was interviewed by BBC Radio about the fiscal cliff, I explained that politicians in Washington were engaged in an unserious discussion with serious consequences. And they weren’t even discussing the real economic problems facing the country.

Those problems, I suggested, are poverty, unemployment, and inequality. And they’re going to get worse if we jump off the cliff, the fact is workers have already been thrown off the cliff. And that’s one of the reasons the fiscal situation of the United States is even on the agenda.

Let me explain. What mainstream economists and politicians refuse to even acknowledge, let alone analyze with any seriousness, is the relationship between inequality and the federal budget deficit. There are at least three different parts of that relationship.

First, much of the current deficit has been caused by the crash of 2007-08 and the subsequent slow rate of economic growth, which have led to a decrease in government revenues and an increase in expenditures. And that economic crisis, as I have explained many times on this blog, can be directly tied to the growing inequality in the U.S. economy over the course of the past three decades. The capital share has been rising and the labor share has been failing, a trend that fueled the real estate and financial bubbles that finally burst in the fall of 2008. And that rise in the profit-wage ratio has only continued in recent years, in the midst of the Second Great Depression, as wages have stagnated and corporate profits soared.

Second, growing inequality is directly tied to the problems being faced by the Social Security program. As the Congressional Budget Office recognizes in its most recent projections, growing inequality means that the “taxable share of earnings declines because more earnings are above the maximum amount that is taxed for Social Security.” And the CBO expects that trend to continue to increase in the next few decades.

Third, inequality has created a radical shift in the Democratic Party, toward demanding tax cuts for workers and others (earning up to $400,000 a year). My view is that Obama and other Democratic politicians are proposing an extension of those tax cuts precisely because workers’ wages have been stagnant for such a long time, even while the capital share has been growing. But in allowing workers to keep a larger share of their take-home pay, they are also creating a situation that deprives the federal government of additional tax revenues.

I’m sure there are other connections I’ve missed. My only point is that inequality has played an important role in creating the current stalemate over the federal budget—and that’s because workers have already been thrown off the cliff.

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2012 in review

Posted: 30 December 2012 in Uncategorized
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The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

About 55,000 tourists visit Liechtenstein every year. This blog was viewed about 230,000 times in 2012. If it were Liechtenstein, it would take about 4 years for that many people to see it. Your blog had more visits than a small country in Europe!

Click here to see the complete report.

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Will Self [ht: tm] claims, and with good reason, that neoclassical economics is the modern religion and its prophets are engaged in what can only be described as haruspicy.

Living in the Britain of the early 1980s, where entire industries were going to the wall and millions were losing their livelihoods, it seemed to me madly dogmatic to assign a numerical value to such obviously cultural and psychological phenomena. But while these spurious notions of human behaviour that informed the ex-cathedra statements of tenured economists stuck in my craw, it was their investiture as the sacred prognosticators of our collective destiny that finally convinced me they were false prophets.

And false prophets they remain. Anyone who consistently listens to the news media cannot ignore the regularity with which economics pundits are wheeled out to pronounce on this or that set of statistics. Following Mary Douglas, to say that this constitutes the divination of sacrificial entrails is not an analogy – that is precisely what it is. And yet the relation between economic data – which are often imperfect, and can only represent the state of an economy as it was some time in the past – and the future is tenuous at best.

The problem is, it takes a group of those who have been educated (or who have educated themselves) in the languages and traditions of the modern religion to develop a critique of it and its prophets—and then to join with other nonbelievers to move in a radically different direction.

 

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