Posts Tagged ‘wealth’

We’re #1!

Posted: 20 March 2017 in Uncategorized
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wealth

According to calculations by Kenneth Thomas (based on data in the latest Credit Suisse Global Wealth Report), the United States has the most unequal distribution of wealth of any rich nation.

And it’s not even close!

Thomas calculates the ratio of mean to median wealth for each country (the last column in the table above) to devise a measure of wealth inequality.

As you can see, the U.S. inequality ratio is more than 50% higher than #2 Denmark and fully three times as high as the median country on the list, France.

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Millions of workers have been displaced by robots. Or, if they have managed to keep their jobs, they’re being deskilled and transformed into appendages of automated machines. We also know that millions more workers and their jobs are threatened by much-anticipated future waves of robotics and other forms of automation.

But mainstream economists don’t want us to touch those robots. Just ask Larry Summers.

Summers is particularly incensed by Bill Gates’s suggestion that we begin taxing robots. So, he trots out all the usual arguments, hoping that at least one of them will stick. It’s hard to distinguish between robots and other forms of automation. Robots and other forms of automation produce better goods and services. And, of course, automation enhances productivity and leads to more wealth. So, we shouldn’t do anything to shrink the size of the economic pie.

This last point has long been standard in international trade theory. Indeed, it is common to point out that opening a country up to international trade is just like giving it access to a technology for transforming one good into another. The argument, then, is that since one surely would not regard such a technical change as bad, neither is trade, and so protectionism is bad. Mr Gates’ robot tax risks essentially being protectionism against progress.

Progress, indeed.

What mainstream economists like Summers fail to understand is that not touching the robots—or, for that matter, international trade—means keeping things just as they are. It means keeping the decisions about jobs, just like the patterns of international trade, in the hands of a small group of employers. They’re the ones who, under current circumstances, appropriate the surplus and decide where and how jobs will be created—and, of course, where they will be destroyed. Which, as I explained last year, is exactly how international trade takes place.

And because employers, now and as Summers would like to see the world, are the ones who are allowed to retain a monopoly over jobs and trade, they also decide how the economic pie is distributed and redistributed. Tinkering around the edges—with the usual liberal shibboleths about the need for “education and retraining”—doesn’t fundamentally alter the fact that workers remain subject to decisions about technology and trade in which they have no say. Workers are thus forced to have the freedom to adjust, with more or less government assistance, to decisions taken by their employers.

And to sit back and admire, but not touch, the growth in productivity.*

 

*And that’s pretty much what Brad DeLong also recommends in making, for the umpteenth time, the argument that today, the world’s population is, on average, many times richer than it was during the long preceding age—because both average wealth and consumer choice have increased. Delong, like Summers, doesn’t want us to touch the “innovations that have fundamentally transformed human civilization.”

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According to recent news reports, Kevin Hassett, the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (no, I didn’t make that up), will soon be named the head of Donald Trump’s Council of Economic Advisers.

Yes, that Kevin Hassett, the one who in 1999 predicted the Down Jones Industrial Average would rise to 36,000 within a few years.

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Except, of course, it didn’t. Not by a long shot. The average did reach a record high of 11,750.28 in January 2000, but after the bursting of the dot-com bubble, it steadily fell, reaching a low of 7,286 in October 2002. Although it recovered to a new record high of 14,164 in October 2007, it crashed back to the vicinity of 6,500 by the early months of 2009. And, even today, almost two decades later, it’s only just cracked the 20,000 barrier.

But, no matter, mainstream economists and pundits—like Greg Mankiw, Noah Smith, and Tim Worstall—think Hassett is a great choice.

Perhaps, in addition to his Dow book, they want to place the rest of Hassett’s writings on an altar.

Like Hassett’s claim (which I discuss here) that “lowering corporate taxes is the only real cure for wage stagnation among American workers.”

Or his other major claim (which I discuss here), that poverty and inequality in the United States are merely figments of our imagination.

Let’s focus on that last claim. As regular readers of this blog know, income inequality—whether measured in terms of fractiles (e.g., the 1 percent versus everyone else) or classes (e.g., profits and wages)—has been increasing for decades now. But for conservative economists like Hassett (who was an economic adviser to Mitt Romney before being a candidate to join the Trump team), inequality has not been growing and poor people are actually much better off than they and the rest of us normally think. What they do then is substitute consumption for income and argue that consumption inequality has actually not been growing.

So, what’s the big problem?

But even in terms of consumption they’re wrong. As Orazio Attanasio, Erik Hurst, Luigi Pistaferri have shown, once you correct for the measurement errors in the Consumer Expenditure Survey (which Hassett and his coauthor, Aparna Mathur, don’t do), and bring in other sources of consumption information (including the well-regarded Panel Study of Income Dynamics), consumption inequality has increased substantially in recent decades—more or less at the same rate as inequality in the distribution of income.

Overall, our results suggest that there has been a substantial rise in consumption and leisure inequality within the U.S. during the last 30 years. The rise in income inequality translated to an increase in actual well-being inequality during this time period because consumption inequality also increased.

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And, remember, that doesn’t take into account other forms of inequality, such as the increase in the unequal distribution of wealth, which has exploded in recent decades. The poor and pretty much everyone else—the 90 percent—are being left behind.

It’s the spectacular grab for income, consumption, and wealth by the small group at the top that Hassett and the new administration will be trying to protect.

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While Wall Street celebrates yet another stock market record—surpassing 20,000 on the Dow Jones industrial average—most Americans have little reason to cheer. That’s because they own very little stock and therefore aren’t sharing in the gains.

The only possible response is, “That’s your damn stock market, not ours,” analogous to the response about Brexit and the expected decline in GDP by a woman in Newcastle.

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It’s true, even after recent declines, about half (48.8 percent) of U.S. households hold stocks in publicly traded companies directly or indirectly (according to the most recent Survey of Current Finances [pdf]).

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But, according to Ed Wolff (pdf), the bottom 90 percent of U.S. households own only 18.6 percent of all corporate stock. The rest (81.4 percent) is in the hands of the top 10 percent.

So, while the stock market has experienced quite a turnaround from mid-February of last year (when a barrage of selling sent the Dow Jones Industrial Average to its lowest close since April 2014), especially since Donald Trump’s November victory (including more than 100 points just yesterday), most Americans continue to be left out in the cold.

Clearly, a much better alternative for American workers would be to follow Shannon Rieger’s advice and look toward a radically different model: enterprises that are owned and managed by their employees. That would give them a much better chance of sharing in the wealth they create.

They would also then be able to finally say to mainstream economists and politicians, “That’s our GDP and stock market, not yours.”

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Special mention

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As regular readers know, I’ve been warning for years that growing economic inequality puts the existing order—both economy and society—at risk.

Well, as it turns out, the 700 or so “experts” surveyed by the World Economic Forum have finally woken up to that fact.*

According to the Global Risks Report 2017 (pdf),

“Growing income and wealth disparity” is seen by respondents as the trend most likely to determine global developments over the next 10 years, and when asked to identify interconnections between risks, the most frequently mentioned pairing was that of unemployment and social instability. . .

The slow pace of economic recovery since 2008 has intensified local income disparities, with a more dramatic impact on many households than aggregate national income data would suggest. This has contributed to anti- establishment sentiment in advanced economies, and although emerging markets have seen poverty fall at record speed, they have not been immune to rising public discontent – evident, for example, in large demonstrations against corruption across Latin America.

I think they’re right: high and still-rising inequality creates the conditions for growing unemployment and and profound social instability.

But that’s where the agreement ends. Clearly, the view of the Davos folk is that “their” order is put at risk by growing inequality. The Brexit vote and Donald Trump’s election—not to mention the unexpected success of Bernie Sanders’s campaign and the rise of “fringe,” anti-mainstream political movements around the world—are threatening to upend existing economic and social institutions.

For the rest of us, the “risks” posed by growing inequality actually represent an opportunity—to imagine and enact alternative institutions and thus a radically different economic and social order.

 

*Although the Davos understanding of the problem of inequality is more than a bit strange. One of the so-called experts in a session on inequality, “Squeezed and Angry: How to Fix the Middle-Class Crisis,” is none other than hedge-fund billionaire Ray Dalio.

 

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Mainstream economists have finally discovered the importance of institutions. But they get it all wrong.

Take Daron Acemoglu (of MIT) and Jim Robinson (of the University of Chicago). In their view (according to Adam Davidson), Donald Trump threatens to disrupt the institutions that serve as the basis of “American Exceptionalism.”

The problem is, the United States does not represent an exception to the rule that “Over most of history, a small élite confiscated wealth from the poor.”

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As I showed the other day, the distribution of wealth in the United States is obscenely unequal (with the top 1 percent owning more than 40 percent of the nation’s wealth), and has been getting more unequal over the course of the past three decades. And it’s the existing set of institutions—economic, political, and cultural—that has made it possible for a small élite to confiscate wealth from the vast majority, including the poor.

Trump is thus a consequence, not a cause, of the institutions that have come to represent the unexceptionally unequal “American way of life.”