wealth ratio

Credit Suisse [pdf] appears to celebrate the growth of wealth, in the United States and around the world, during the last few years.

But the investment giant also sounds an alarm concerning the growth in the ratio of wealth to income:

For more than a century, the wealth income ratio has typically fallen in a narrow interval between 4 and 5. However, the ratio briefly rose above 6 in 1999 during the dot.com bubble and broke that barrier again during 2005–2007. It dropped sharply into the “normal band” following the financial crisis, but the decline has since been reversed, and the ratio is now at a recent record high level of 6.5, matched previously only during the great Depression. This is a worrying signal given that abnormally high wealth income ratios have always signaled recession in the past.

 

This is the first part of a two-part series on money, directed by James Schamus (best known as the producer of such films as Hulk and Brokeback Mountain). The films about money are part of We the Economy, 20 Short Films You Can’t Afford to Miss (from writer and director Morgan Spurlock and Microsoft cofounder Paul G. Allen).

That Film about Money does a good job challenging certain common myths about money and banks, especially the idea that currency and money are the same thing, and it introduces important ideas, such as debt as the basis of the expanding money supply.

I only wish, during the discussion of trust, Schamus and the people he interviews had introduced the notion (developed within Modern Monetary Theory) that the basis of our trust in fiat money is the fact that only specific monies—in the United States, the U.S. dollar, the national money of account—can be used to pay taxes. That places the state (and its sovereign authority to levy and collect taxes) at the center of the process of accepting and issuing a particular kind of fiat money.

We can conclude that taxes drive money. The government first creates a money of account (the Dollar, the Tenge), and then imposes tax obligations in that national money of account. In all modern nations, this is sufficient to ensure that many (indeed, most) debts, assets, and prices, will also be denominated in the national money of account.

(Note the asymmetry that is open to a sovereign: it imposes a liability on you so that you will accept its IOU. It is a nice trick—and you can do it too, if you are king of your own little castle.)

The government is then able to issue a currency that is also denominated in the same money of account, so long as it accepts that currency in tax payment. It is not necessary to “back” the currency with precious metal, nor is it necessary to enforce legal tender laws that require acceptance of the national currency. For example, rather than engraving the statement “This note is legal tender for all debts, public and private”, all the sovereign government needs to do is to promise “This note will be accepted in tax payment” in order to ensure general acceptability domestically and even abroad.

Cartoon by David Simonds. Angela Merkel's hard line on debt threatens the euro project.

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Martin Rowson 20.10.14 McCOnnellNotScientist

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There is no federal protection for women workers who are pregnant. Such as Angelica Valencia [ht: sm], who was fired after she requested permission from her employer not to be forced to work overtime.

The United States did pass The Pregnancy Discrimination Act of 1978, which prohibits discrimination “on the basis of pregnancy, childbirth, or related medical conditions.” But the Act does not require employers to do anything to accommodate the needs of pregnant workers (although the Supreme Court is set to hear a case, Young v. United Parcel Service, on “whether, and in what circumstances, the Pregnancy Discrimination Act. . .requires an employer that provides work accommodations to non-pregnant employees with work limitations to provide work accommodations to pregnant employees who are ‘similar in their ability or inability to work'”).  And the Pregnant Women’s Fairness Act, H.R. 1975 and S. 942 [pdf], which was referred to Committee on 14 May 14 2013, has no chance of being enacted anytime soon.

So, seventeen separate states and cities, such Illinois and New York City, have had to pass their own legislative protections. Still, many workers don’t know their rights, and often don’t have the means to demand compliance. And their employers often disregard the laws that do exist.

Respecting a woman’s pregnancy at work is also a social and racial equity issue. According to the National Women’s Law Center, low-wage women workers, many of them primary income-earners, often have more physically demanding duties, such as lifting boxes or prolonged standing. Pregnancy-related discrimination complaints have been concentrated in the highly gendered service sectors, like retail sales and hospitality. Many physically strenuous jobs like domestic work and home healthcare services are disproportionately done by immigrant and black women.

A female executive of the Lean In class probably wouldn’t be reprimanded for wanting to lean back a bit with a foot rest at board meetings. But women workers at Walmart had to wage a national campaign for months before the company changed its policies to ensure reasonable pregnancy accommodations (and many say the policy remains only spottily enforced).

Update

There’s good news. And bad news.

The good: Angela Valencia’s bosses [ht: sm] have offered her job back. The bad: the United States still doesn’t have a Pregnant Workers Fairness Act (see original post).

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Thomas Piketty’s proposal for a global wealth tax has been attacked on both the Right and the Left.

It’s been attacked on the Right—for example, by Tim Worstall—because it won’t work.

Our problem is that a wealth tax can either be set at a rate at which it can be paid out of income, in which case it’s not actually going to reduce wealth disparity, or it will be set at a rate at which rich people must liquidate their portfolios to pay it, and if all rich people have to do that then who in heck can they sell to?

And from the Left—for example, by David Harvey—because it is considered “naïve if not utopian.”

But both sides proceed as if the proposal for a tax on wealth is a new phenomenon, something that Piketty invented in his best-selling book.

As it turns out, while working on a new research project (on “Utopia and the Marxian Critique of Political Economy,” for a conference in November), I chanced upon a much earlier discussion of wealth taxes: a speech given by Friedrich Engels on 8 February 1845 in Elberfeld.

Engels explained that communists had no intention of introducing “common ownership overnight and against the will of the nation.” Still, he argued, it was possible to move in the direction of “practical communism” by adopting certain measures—such as “general education of all children without exception at the expense of the state” and “a complete reorganisation of the Poor Relief System.” He then added:

Both these measures require money. In order to raise it and at the same time replace all the present, unjustly distributed taxes, the present reform plan proposes a general, progressive tax on capital, at a rate increasing with the size of the capital. In this way, the burden of public administration would be shared by everyone according to his ability and would no longer fall mainly on the shoulders of those least able to bear it, as has hitherto been the case in all countries. For the principle of taxation is, after all, a purely communist one, since the right to levy taxes is derived in all countries from so-called national property. For either private property is sacrosanct, in which case there is no such thing as national property and the state has no right to levy taxes, or the state has this right, in which case private property is not sacrosanct, national property stands above private property, and the state is the true owner. This latter principle is the one generally accepted — well then, gentlemen; for the present we demand only that this principle be taken seriously, that the state proclaim itself the common owner and, as such, administer public property for the public good, and that as the first step, it introduce a system of taxation based solely on each individual’s ability to pay taxes and on the real public good.

Almost 170 years later and we’re still battling over the principle of taxation.

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