Posts Tagged ‘inequality’

Chart of the day

Posted: 1 September 2014 in Uncategorized
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As Danielle Kurtzleben explains,

the median household’s net worth fell from $106,591 to $68,839 from 2005 to 2011. . .

the median net worth of the top 20 percent divided by the median of the second 20 percent was 39.8 in 2000. Today, it’s 86.8.

In addition, the latter group lost nearly 56 percent of its wealth. And the overall wealth of the bottom 20 percent fell from -$915 to -$6,029. Or, put another way, the median American in that poorest group saw their debt increase more than 6 and a half fold.

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The answer, to paraphrase Jack Nicholson, is: you can’t handle institutions!

Certainly not Daron Acemoglu and James A. Robinson [pdf]—and not, for that matter, Branko Milanovic. They simply can’t handle the institutions Marx refers to and analyzes throughout his oeuvre.

Milanovic discusses many of the problems in Acemoglu and Robinson’s treatment of Piketty’s book I noticed when I read their critique: dismissing the role institutions play in Piketty’s analysis (although, to be honest, I would have preferred to see less on elite educational institutions and more on the institutions that are the sources of the income and wealth of the 1 percent), the facile equation of Piketty and Marx (and thus, in their mind, guilt by association), the failure to understand what it means that labor income plays a role in driving the inequality of the 1 vs 99 percent (do we really want to treat the salaries of the 1 percent in the same way as we do the labor incomes of the other 99 percent?), and so on. And, of course, there’s Milanovic’s quite-accurate dismissal of Acemoglu and Robinson’s own attempt to conduct an institutional analysis of Sweden and South Africa:

I do not discuss Acemoglu-Robinson  analysis of South Africa vs. Sweden increase in inequality because I really fail to see a great virtue in it. As I unfortunately have to confess, I often find reading Acemoglu-Robinson descriptions of political changes quite superficial: they read like Wikipedia entries with regressions. I had the same feeling here too.

But let me take issue with one of Acemoglu and Robinson’s assertions, with which Milanovic agrees: that there’s no institutional analysis of capitalism in Marx’s texts.

Acemoglu and Robinson do admit that Marx allowed for “feedback from politics and other aspects of society to the forces of production” in the Eighteenth Brumaire but that’s it. They can’t seem to find any other institutional analysis worth its name in the rest of Marx’s oeuvre—nor do they even bother to mention Engels (ever hear of The Condition of the Working Class in England, The Peasant War in Germany, or The Origin of the Family, Private Property, and the State?) or the work of generations of Marxian scholars (on a wide variety of local, national, and international institutions).

But let’s stick with Marx for the time being. Do they want institutions? Admittedly, they won’t find much in the 1844 Manuscripts or the German Ideology. But they might take a look at Marx’s journalism (with Engels, for the Neue Rheinische Zeitung, or Marx alone in the New York Daily Tribune). Or beyond the journalism: The Civil War In France and The Paris Commune. And the list could go on.

But maybe Acemoglu and Robinson and Milanovic are just confining themselves to volume 1 of Capital. Surely, they’ve read the institutional detail in Marx’s discussion of such topics as The Working-Day, National Differences of Wages, the Industrial Reserve Army, and, of course, the entire section on the so-called Primitive Accumulation of Capital, in which Marx analyzes the institutional detail surrounding the Expropriation of the Agricultural Population from the Land, the Bloody Legislation against the Expropriated, from the End of the 15th Century. Forcing down of Wages by Acts of Parliament, the Genesis of the Capitalist Farmer, the Reaction of the Agricultural Revolution on Industry. Creation of the Home-Market for Industrial Capital, the Genesis of the Industrial Capitalist, the Historical Tendency of Capitalist Accumulation, and The Modern Theory of Colonisation.

They want institutions? Then try this vivid summary (from Chapter 31) of the institutions that gave rise to capitalism:

Tantae molis erat, to establish the “eternal laws of Nature” of the capitalist mode of production, to complete the process of separation between labourers and conditions of labour, to transform, at one pole, the social means of production and subsistence into capital, at the opposite pole, the mass of the population into wage labourers, into “free labouring poor,” that artificial product of modern society. If money, according to Augier, “comes into the world with a congenital blood-stain on one cheek,” capital comes dripping from head to foot, from every pore, with blood and dirt.

Acemoglu and Robinson and Milanovic (not to mention Piketty) can’t, it seems, handle that kind of institutional analysis.

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And one more for good measure. . .

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Heinrich Kley, "Sabotage" (Betriebsstorung)

Heinrich Kley, “Sabotage” (Betriebsstorung)

I have long argued (e.g., here and here) that capitalism involves a kind of pact with the devil: control over the surplus is reluctantly given over to the top 1 percent in return for certain promises, such as just deserts, economic stability, and full employment.

In recent years, as so often in the past, we’ve witnessed those at the top sabotaging the pact (simply because they have the means and interest to do so) and now, once again, they’ve undermined their legitimacy to run things.

First, they broke their promise of just deserts, as the distribution of income has become increasingly (and, to describe it accurately, grotesquely) unequal and the tendency toward high concentrations of wealth has returned, threatening to create a new class of coupon-clippers. Then, they ended the Great Moderation with speculative decisions that ushered in the worst economic crisis since the First Great Depression. And, now, the promise of full employment appears to be falling prey to the prospect of secular stagnation.

That’s the worry expressed in a new ebook edited by Richard Baldwin and Coen Teulings published by Vox. While secular stagnation can be defined in different ways, the basic idea is that, for the foreseeable future, economic growth—and therefore the prospect of full employment—is probably going to be much lower than it was in the decades leading up to the global crises of 2007-08. Moreover, what little growth is expected will most likely be accompanied by great inequality and financial stability.

If it becomes a reality, secular stagnation represents the end of the pact with the devil. It’s going to be impossible to keep any of the promises—just deserts, economic stability, and full employment—that have maintained capitalism’s legitimacy.

I don’t know if the members of the 1 percent are aware of or concerned about the extent to which secular stagnation may be their undoing (because, in fact, they may hold out the hope that more austerity can successfully be imposed to keep pumping out the surplus). But, to judge from many of the contributions to the Vox volume, the prospect of secular stagnation certainly appears to be worrying mainstream macroeconomists.

Why? Because their own promise was to analyze the uneven and shifting patterns of the macroeconomy and to devise the appropriate set of monetary and fiscal policies to ensure the continuation of the pact with the devil. However, secular stagnation—including the idea that the real rate of interest would have to be negative to maintain an equilibrium of savings and investment—calls into question the efficacy of the kinds of macroeconomic policies that have long held sway among mainstream macroeconomists. Now, they’re not sure they’ll be able to maintain the promise of creating a just distribution of income, avoiding financial instability, and creating enough jobs to ensure every able-bodied person who wants a decent, well-paying job can have one.

Actually, as we’ve seen, they haven’t been able to fulfill that promise for the past 7 years. And now, the threat of secular stagnation means they won’t able to do it anytime in the near future.

There just may not be a happy Disney ending to this one. . .

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