Posts Tagged ‘crisis’

inequality-recovery

source

That’s right: during the first three years of the current “recovery,” the top 10 percent captured 116 percent of all income gains. That’s because incomes actually fell for the bottom 90 percent, even as they rose nicely for those at the top.

1 percent gains

Even more striking is the fact that 95 percent of the income gains during the same period went to the top 1 percent, with only 5 percent left for everyone else.

In other words, the fruits of the current expansion have been captured almost exclusively by those at the very top—in contrast to every other period of economic recovery in the postwar period.

We have to face the fact that capitalism’s crises have become increasingly severe, and the solutions to those crises have increasingly involved redirecting the income gains to a tiny minority at the top. Everyone else is being left behind. Is it any wonder that the current economic system is facing a legitimation crisis?

 

Poverty2013 RealHousehold2013

The current “recovery” rolls on but nothing is really changing—at least for the vast majority of people.

According to the U.S. Census Bureau, the 45.3 million people living at or below the poverty line in 2013, for the third consecutive year, did not represent a statistically significant change from the previous year’s estimate. And median household income in the United States in 2013 was $51,939, not statistically significant from what it was in 2012 ($51,759). This is the second consecutive year that the annual change was not statistically significant.

However, both numbers are significantly different from what they were before the onset of the current crises. Real median household income in 2013 was 8.0 percent lower than in 2007, while the number of people living in poverty has risen 21.5 percent since 2007.

What’s that they say about insanity? Doing the same thing over and over again and expecting different results. . .

26up-jared-master675

 

You know the story: Xi and his San tribe are “living well off the land.” They are happy because of their belief that the gods have provided plenty of everything, and no one among them has any wants. One day, a Coca-Cola bottle is thrown out of an airplane and falls to Earth unbroken. But the bottle eventually causes unhappiness within the tribe, leading the elders to believe it’s an “evil thing” which the gods were “absent-minded” to send them. Xi then travels to  the edge of the world and throws the bottle off the cliff. He then returns to his tribe and receives a warm welcome from his family.

I wonder if Paul Krugman expects to receive a warm welcome from the economics family after throwing the prediction bottle over the cliff.

Hardly anyone predicted the 2008 crisis, but that in itself is arguably excusable in a complicated world. More damning was the widespread conviction among economists that such a crisis couldn’t happen. Underlying this complacency was the dominance of an idealized vision of capitalism, in which individuals are always rational and markets always function perfectly.

I actually agree with Krugman on this point. Economic prediction is, in fact, impossible and the really crazy feature of mainstream economic models is the fact that endogenous crises simply can’t occur. Exogenous factors, sure, but nothing internal to the models can lead to a crash. Their idealized vision of capitalism, absent an external event (such as a credit crunch or an increase in the price of oil), simply leads to a full-employment, price-stable equilibrium.

But, wait, doesn’t the entire edifice fall when—on its own terms—the ability to correct predict is dispensed with? The whole rationale of giving up realistic assumptions about the economic system has been the ability to accurately and correctly predict the movements of the economy. That’s the mantle of predictive science that has been used, since at least the mid-1950s, to expunge all other economic theories and approaches from the discipline.

Mainstream economists can’t have it both ways: to celebrate their models for their predictive ability and then to dispense with prediction when, as in 2007-08 (just as in 1929), their models clearly failed. We need something better.

As for their track record since the crisis broke out, well, they haven’t fared much better—at least to judge by where we stand right now. Krugman, for his part, wants to stick with the hydraulic mechanisms of the textbook economic models, which “did a pretty good job of predicting how things would play out in the aftermath,” and declare that “too many influential” economists must be crazy.

rethinkecon

The Rethinking Economics conference starts this morning in New York City.

Here’s a link [pdf] to the schedule. The live-stream can be found here.

153451_600

Special mention

153366_600 153510_600

productivity-wages-G20

According to a new report jointly issued by the OECD, World Bank, and the International Labor Organization, “G20 labour markets: outlook, key challenges and policy responses” [pdf], the gap between the growth of productivity and the growth of real wages started long before the most recent crisis and, apart from a short reversal during the depth of the crisis (when productivity fell), has continued to widen since 2010.

labor share

One of the consequences of that growing gap is a “substantial and widespread” decline in the labor share of national income.

Together, the wage-productivity gap and the declining labor share are a cause of the current crisis and a consequence of the kind of recovery that has been enacted in the years since the crash of 2007-08.

food insecurity

According to the United States Department of Agriculture [pdf], the percentage of U.S. households that were food insecure remained essentially unchanged from 2012 to 2013 (14.5 and 14.3 percent, respectively)—and there has been only a slight cumulative decrease from 2011 (when the percentage of food insecure households stood at 14.9 percent).

In 2013, 5.6 percent of U.S. households (6.8 million households) had very low food security, essentially unchanged from 5.7 percent in 2011 and 2012. In this more severe range of food insecurity, the food intake of some household members was reduced and normal eating patterns were disrupted at times during the year due to limited resources.

Clearly, the people in food-insecure households are experiencing no recovery from the ongoing economic crises.