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Once again, as in 2010, a specter is haunting the United States—the specter of deflation.

That’s certainly the fear registered by Jon Hilsenrath and Brian Blackstone, writing for the Wall Street Journal.

Behind the spate of market turmoil lurks a worry that top policy makers thought they had beaten back a few years ago: the specter of deflation.

A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.

Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.

The deflation concern is particularly pronounced in Europe and Japan, two economies where policy makers are struggling to come up with solutions to counter especially slow economic growth.

Actually, what we’re seeing right now is disinflation, a slowing of the rate of price increases. But the fear is that disinflation may collapse into deflation, a Japan-style decline in the overall level of prices, in Europe and eventually in the United States.

And why is it a specter? Not because a decrease in prices hurts ordinary workers—who, of course, facing stagnant wages and bad job prospects, would welcome some relief from inflation. No, the fear is that deflation will cut into corporate profits, since it’s a symptom of extremely weak demand. This leads to a slowdown in economic activity and less production and investment by companies. It’s also a sign that the real value of the debt overhang—especially the private debt of households and businesses—will remain high, thus undermining any further increase in lending, and reinforcing the uneven and faltering rate of growth of production and investment.

Thus far, the specter of deflation has not caused all the powers of old United States and Europe to enter into a holy alliance to exorcise this specter. There are still too many antigovernment, inflation-fear-mongers out there for such an alliance to form. But the longer those powers continue on their current trajectory, the higher the risk the current recovery will collapse into deflation.

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The growing gap between a tiny minority at the top and everyone else is now so obvious even the Federal Reserve chair, Janet Yellen, has openly recognized it as a problem.

The distribution of income and wealth in the United States has been widening more or less steadily for several decades, to a greater extent than in most advanced countries. This trend paused during the Great Recession because of larger wealth losses for those at the top of the distribution and because increased safety-net spending helped offset some income losses for those below the top. But widening inequality resumed in the recovery, as the stock market rebounded, wage growth and the healing of the labor market have been slow, and the increase in home prices has not fully restored the housing wealth lost by the large majority of households for which it is their primary asset.

The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then. It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.

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Back in August, James Surowiecki observed that the lack of an Ebola treatment was disturbing but predictable—because it’s simply not profitable for corporations in the pharmaceutical industry.

When pharmaceutical companies are deciding where to direct their R. & D. money, they naturally assess the potential market for a drug candidate. That means that they have an incentive to target diseases that affect wealthier people (above all, people in the developed world), who can afford to pay a lot. They have an incentive to make drugs that many people will take. And they have an incentive to make drugs that people will take regularly for a long time—drugs like statins.

This system does a reasonable job of getting Westerners the drugs they want (albeit often at high prices). But it also leads to enormous underinvestment in certain kinds of diseases and certain categories of drugs. Diseases that mostly affect poor people in poor countries aren’t a research priority, because it’s unlikely that those markets will ever provide a decent return. So diseases like malaria and tuberculosis, which together kill two million people a year, have received less attention from pharmaceutical companies than high cholesterol. Then, there’s what the World Health Organization calls “neglected tropical diseases,” such as Chagas disease and dengue; they affect more than a billion people and kill as many as half a million a year. One study found that of the more than fifteen hundred drugs that came to market between 1975 and 2004 just ten were targeted at these maladies. And when a disease’s victims are both poor and not very numerous that’s a double whammy.

Unfortunately, the best solution Surowiecki could offer was to reward companies for creating substantial public-health benefits by offering prizes for new drugs.

Leigh Phillips offers much the same kind of analysis of the unwillingness of the pharmaceutical industry to invest in research to produce the necessary treatments and vaccines for unprofitable diseases. In an interview with Amy Goodman [ht: dw], he adds an additional dimension:

I think we need to look at the political and economic circumstances, particularly around this particular disease both in the United States and Western countries in terms of the funding for research, where that’s coming from, and in terms of austerity in Europe, but also austerity in West Africa, as well. There’s sort of two prongs to this. The first, of course, was that, you know, over the last few months we’ve seen over and over again people from the CDC, senior figures from the WHO, even John Ashton, the head of the U.K. Faculty of Health, who have said, basically, that the knowledge is there, the know-how is there—we have five candidate vaccines, there’s a number of other different treatments that, you know, are well in hand—but there just hasn’t been any buy-in from the major pharmaceutical companies. John Ashton, as I was saying, from the U.K. Faculty of Health, you know, sort of the doctor-in-chief, if you will, in the U.K., described this as “the moral bankruptcy of capitalism.” It sounds, you know, quite vituperative there, quite explosive language, but it really expresses the anger that a lot of the researchers feel about how, look, we know what to do here, but this is just an unprofitable disease.

As a result, Phillips offers a much more comprehensive solution:

Over these past few months, the worst Ebola outbreak in history has exposed the moral bankruptcy of our pharmaceutical development model. The fight for public health care in the United States and the allied fight against healthcare privatization elsewhere in the West has only ever been half the battle. The goal of such campaigns can only truly be met when a new campaign is mounted: to rebuild the international pharmaceutical industry as a public sector service as well as address wider neoliberal policies that indirectly undermine public health.

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Posted: 16 October 2014 in Uncategorized
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No, the so-called expert opinion reported in the survey by the University of Chicago’s Initiative on Global Markets does not invalidate Thomas Piketty’s claim that r > g (that is, the rate of return on wealth being greater than the growth rate of output) is “the most powerful force pushing towards greater wealth inequality” in the United States.

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As Jordan Weissmann explains, that was never Piketty’s claim in the first place:

I found myself wondering: How would Piketty himself weigh in?

“Well,” he told me in an email this morning, “I think the book makes pretty clear that the powerful force behind rising income and wealth inequality in the US since the 1970s is the rise of the inequality of labor earnings, itself due to a mixture of rising inequality in access to skills and higher education, and of exploding top managerial compensation (itself probably stimulated by large cuts in top tax rates), So this indeed has little to do with r>g.”

Let’s put it a different way: when more surplus is being pumped out of the direct producers, which is then distributed to a tiny minority at the top of the distribution of income, we can expect to see rising inequality in the distribution of income. Then, when that tiny minority that has managed to capture and keep a large portion of the surplus uses some portion of their income to purchase assets, as against the rest of the population that barely gets by on their wages and salaries, we can expect to see a more and more unequal distribution of wealth.

I can only imagine what the so-called experts would opine about that explanation. . .

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This chart contains some of the data on economic inequality from the report of a recent conference organized by the Washington Center for Equitable Growth.

From Emmanuel Saez:

In the United States today, the share of total pre-tax income accruing to the top 1 percent has more than doubled over the past five decades. The wealthy among us (families with incomes above $400,000) pulled in 22 percent of pre-tax income in 2012, the last year for which complete data are available, compared to less than 10 percent in the 1970s. What’s more, by 2012 the top 1 percent income earners had regained almost all the ground lost during the Great Recession of 2007-2009. In contrast, the remaining 99 percent experienced stagnated real income growth—after factoring in inflation—after the Great Recession.

Another less documented but equally alarming trend has been the surge in wealth inequality in the United States since the 1970s. In a new working paper published by the National Bureau of Economic Research, Gabriel Zucman at the London School of Economics and I examined information on capital income from individual tax return data to construct measures of U.S. wealth concentration since 1913. We find that the share of total household wealth accrued by the top 1 percent of families— those with wealth of more than $4 million in 2012—increased to almost 42 percent in 2012 from less than 25 percent in the late 1970s. Almost all of this increase is due to gains among the top 0 .1 percent of families with wealth of more than $20 million in 2012. The wealth of these families surged to 22 percent of total household wealth in the United States in 2012 from around 7.5 percent in the late 1970s.

The flip side of such rising wealth concentration is the stagnation in middle-class wealth. Although average wealth per family grew by about 60 percent between 1986 and 2012, the average wealth of families in the bottom 90 percent essentially stagnated. In particu­lar, the Great Recession reduced their average family wealth to $85,000 in 2009 from $130,000 in 2006. By 2012, average family wealth for the bottom 90 percent was still only $83,000. In contrast, wealth among the top 1 percent increased substantially over the same period, regaining most of the wealth lost during the Great Recession.

For both wealth and income, then, there is a very uneven recovery from the losses of the Great Recession, with almost no gains for the bottom 90 percent, and all the gains concentrated among the top 10 percent, and especially the top 1 percent.