listen to the wealthy scream
January 12, 2014 8:11 PM   Subscribe

The return of "patrimonial capitalism": review of Thomas Piketty's Capital in the 21st century (pdf) - "Thomas Piketty's 'Capital in the 21st century' may be one of the most important recent economics books. It jointly treats theory of growth, functional distribution of income, and interpersonal income inequality. It envisages a future of relatively slow growth with the rising share of capital incomes, and widening income inequality. This tendency could be checked only by worldwide taxation of capital."

Inequality: Capital in the long run - "Marx's original critique of capitalism was not that it made for lousy growth rates. It was that a rising concentration of wealth couldn't be sustained politically."

Ten Theses on Growth, Employment, and Inequality - "Since asset ownership is more unequally distributed than income, attempting to generate full employment through the low interest rates —> asset prices —> investment channel is going to generate an upward spiral of inequality." [1,2,3]

Capital inequality: It's bigger and a bigger deal than labor inequality - "I really like this chart from Catherine Mulbrandon highlighting the Lorenz curve (a key measure of unequal distribution) for a bunch of different types of income. Several cool points fall out of the chart right away. One is that the distribution of capital income is much more unequal than the distribution of wage income."

How Valuable Is All the Housing in America Combined? "When the English-language version of Thomas Piketty's Capital in the Twenty-First Century drops, it's going to be a big deal for the inequality debate. But the book is also just jampacked with fascinating historical facts that are interesting for a wide range of issues. And most of the data is up here for public consumption if you don't mind reading a little French."

Why Taxing the Rich Is Great - "Welfare would only fall a little bit."

Wealth Taxes: A Future Battleground - "Rising wealth is likely to be a tempting target for governments seeking new revenue sources."

People should be taxed on the increase in their net worth - "Far better that we should get true tax reform, where the clever rich who have hidden their assets from taxation so long, like Mr. Buffett, should pay their fair share. Washington, you want real tax reform? Tax us all on the increase in net worth, and listen to the wealthy scream. They have gamed the system for too long."

Tax price, not value - "Property rights are primarily rights to exclude. If I 'own' something, what that means is that it is legitimate for me to exclude others who may wish to use or consume it. Exclusion, very obviously, carries externalities. My choice to exclude alternate uses of a resource affects those who might have benefited from those uses... for some classes of property, most notably patents and real estate, a tax on the externalities of exclusion might be very sensible. You can frame it as a Pigouvian tax, or alternatively as a kind of user fee that compensates the state for its enforcement of a right to exclude despite external harms. But on what basis should such a tax be collected? ... There is, of course, a much easier way to gauge what a property would sell for: Solicit from its owner a price."

Why do we pay taxes?
There are a number of reasons to pay taxes. One is to legitimate the currency, as your taxes can't be paid in any other currency than the one legitimated by the government. This means that you have to use this currency and no other. Another function of taxes is to serve as an economic redistribution mechanism, which is a political function that sometimes works well and at other times not so well. At present, it isn't working well in this sense at all. A third function of taxation is to control spending, sometimes as an aid to reduce inflationary pressures. Whether this is the best mechanism for doing this is a matter of some debate.

None of this has anything to do with supplying the government with money to spend. The type of economic system we have now is what is known as, and called so by Keynes, a fiat system accompanied by a floating exchange rate with foreign currencies. In a fiat currency system, money is created by government fiat, that is, ex nihilo, out of nothing. Should anyone else attempt to create this currency, they become counterfeiters. Where else can it originate?

If the government creates all the money, then it must spend it before anyone has any of it to pay any taxes that might be owed to said government. In a deflationary situation in which we currently find ourselves there is a good argument for substantially reducing the tax burden for both companies and individuals. In an inflationary situation, this may be a good time, depending on circumstances, to increase taxes, which would hopefully calm economic activity.

This means that a government with its own sovereign currency can never go broke. The US Constitution mandates the government to pay all its debts. Congress may interfere with this but this becomes a political issue. The US, the UK, Japan, and other sovereign nations with their own sovereign currencies are not like the members of the Euro, who have surrendered their own sovereign for a foreign currency over which they have very little if any control. Neither the US nor the UK are in the position of Greece or Spain. These countries can go broke. And, like California and other individual states of the US, must balance their budgets. There is no need whatsoever for a sovereign government to balance its budget, as it is under no economic constraints given that it is the creator of the currency in the first place.

There are a number of consequences that flow from looking at the system is this way and I have no space to go into them now, so instead I invite you to read Wray's Modern Money Theory. This issue, among many others, is discussed there.
also btw...
-The Biggest Myths in Economics
-Izabella Kaminska: The market monetarists and me
-A new good called 'security'
-The repo market as a form of free banking
-Free money
-Money entanglement

Making institutions - "The subject is important for several reasons. First, as Chuck Tilly emphasized, the capacity of the modern state to increase and rationalize its ability to collect taxes is key to the extension of military and administrative power."

The Decay of American Political Institutions - "Interest groups, having lost their pre-Pendleton Act ability to directly corrupt legislatures through bribery and the feeding of clientelistic machines, have found new, perfectly legal means of capturing and controlling legislators. These interest groups distort both taxes and spending, and raise overall deficit levels through their ability to manipulate the budget in their favor. They use the courts sometimes to achieve this and other rentier advantages, but they also undermine the quality of public administration through the multiple and often contradictory mandates they induce Congress to support—and a relatively weak Executive Branch is usually in a poor position to stop them. All of this has led to a crisis of representation. Ordinary people feel that their supposedly democratic government no longer reflects their interests but instead caters to those of a variety of shadowy elites."

more background & context:
  • The Defining Challenge of Our Time: President Obama Speaks on Economic Mobility - "Rising inequality and declining mobility are bad for our democracy. Ordinary folks can't write massive campaign checks or hire high-priced lobbyists and lawyers to secure policies that tilt the playing field in their favor at everyone else's expense. And so people get the bad taste that the system is rigged, and that increases cynicism and polarization, and it decreases the political participation that is a requisite part of our system of self-government."
  • US economic mobility data - "Note that mobility data over quintiles does not address the increasing concentration of wealth at the top: see US wealth inequality and Inside the 1%." [1,2,3]
  • The Strange Case of American Inequality - "Most Americans should be as worried today about the quality of their democracy as they are about the inequality of their incomes." [1,2,3]
  • The government is the only reason U.S. inequality is so high - "Before the government taxes people and/or sends them money, inequality in Sweden is as high as it is in the U.S. Then everything changes."
  • What the US should do to enhance economic growth and distributional equity - "Among developed countries, the US has the least generous and progressive transfer system. The US spends a much smaller share of GDP on family-assistance programs – including cash transfers, tax breaks, and direct government services – than its developed-country counterparts, where reliance on regressive consumption taxes to fund progressive transfer programs has kept income inequality significantly lower."
  • Transfer payments and the modern economy; More wealth = more redistribution - "Empirically, the extent of a nation's income redistribution appears to be a function of its income level at least as much as its stated or perceived ideological disposition. The comparison between the US and China is especially stark. In recent years, Communist China's 'capitalism with Chinese characteristics' has taken on the distinct historical flavor of the 'robber baron' capitalism experienced by the US at the turn of the last century. The free market champion of the US, while certainly no Scandinavia, has adopted an extensive social welfare system (now including universal healthcare) far more extensive than communist China's."
  • The Political Threat Of Soaring Inequality - "When societies grow more unequal, commonalities fray. Wealth accumulates among the few, who begin to see the polity as something to be used for private interests rather than engaged in for public-spirited reform. But as wealth at the top grows and grows, and as more and more of the middle class attempt to become part of the super-wealthy club, the loss of economic demand among the increasingly struggling majority puts a crimp in the social mobility of the wannabe elites. So we have a wealth glut: hugely wealthy one-percenters and a larger group of under-employed or unemployed professionals."
  • The American Plutocracy - "If millionaires in the United States formed their own political party, that party would make up just 3 percent of the country, but it would have a majority in the House of Representatives, a filibuster-proof super-majority in the Senate, a 5 to 4 majority on the Supreme Court and a man in the White House."
  • Unemployment and Profits: A dirty little secret - "A high unemployment rate keeps wages down for most working Americans - and the recent income growth has flowed mostly to the owners of corporations and not to labor. This is not an ideal economic situation for most Americans (but ideal for a few)."
  • Economic Possibilities for Our Children - "If one augmented the production function to include entrepreneurs, for example, it would not be difficult to address the rising share of income going to the top one percent of the population. My conjecture is that for the next generation we are likely to see this process continue, both because of the very substantial scope for current levels of computing power to support capital-labor substitution on a larger scale, and because of the scope for increased computational power to make possible capital-labor substitution of a kind that we have not seen to date."
  • Democracy, Redistribution and Inequality - "We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population..."
  • The Single Best Argument Against Inequality - "Inequality undermines growth and hurts everyone."
  • Capitalism: In search of balance - "While the income gap in industrialised societies grows inexorably wider, global inequality is shrinking."
  • Good News and Bad News About Global Inequality - "If you set aside China and India, which admittedly isn't very wise, you find that, worldwide, the gap between rich and poor countries is as large as it’s ever been, maybe even larger. And even if you do include China and India, the two great success stories, it's surprisingly hard to find evidence that inequality has fallen on a global basis."
  • Much ado about rising inequality
  • What, then, is the best response? First, globalisation has created opportunities for a large swath of humanity. Those opportunities need to be preserved and extended. The world's better-off should continue to help the poorer to prosper. Second, the combination of globalisation with technological change, financial liberalisation and opportunities for rent extraction have generated highly unequal distribution of gains within nearly all countries. The Pope is right: this is socially corrosive. Unfortunately, the processes that generate the unequal distribution of gains undermined willingness and ability to respond effectively. Third, domestic and global order depend on the ability of states to provide essential public goods. Partly for this reason, the obligation to help the relative losers and particularly the children of such losers is most pressing within countries. Otherwise, the sense of solidarity essential to sustaining trust and consent may be in peril. Finally, countries should help one another. This is particularly true in the area of taxation.
  • Why Wealth Taxes Are Not Enough - "The administrative difficulties of instituting a comprehensive wealth tax are formidable."
  • Save Your Worry - "Business savings may be more mobile internationally than are household savings. You also can view these numbers as a harbinger of greater wealth inequality in our future."
  • G20 must act to rewrite international tax rules - "The G20 must go further by agreeing that all multinational companies should report their profits and tax payments to governments, supporting an automatic system for the exchange of tax information by 2015, and putting an end to phantom companies by making sure company ownership can no longer be a secret."
  • Big business wants to keep these four things secret - "1) How much companies pay in U.S. federal income taxes; 2) Where employees are located; 3) Where earnings come from; 4) Why executives get paid as much as they do."
  • Say Ja to Socialism - "Tax returns, like most everything else in Norway, are a matter of public record. Anyone anywhere can log on to a website maintained by the government and find out what kind of scratch a fellow Norwegian taxpayer makes."
posted by kliuless (39 comments total) 262 users marked this as a favorite
What an incredible post. This will keep me busy for weeks, thank you!
posted by WidgetAlley at 8:51 PM on January 12, 2014 [4 favorites]

Damn... I was planning on getting to bed soon...
posted by Stu-Pendous at 8:58 PM on January 12, 2014

Epic post. An early contender for Best of 2014. Thanks so much for putting this together.
posted by armoir from antproof case at 9:04 PM on January 12, 2014 [2 favorites]

I've learned more in reading this post then I did in college on these topics. Now to read (some) of the links. Bravo on this epic post.
posted by chaz at 9:07 PM on January 12, 2014 [1 favorite]

Part of the problem in resolving this is that in most WASP parts of the world we lost our centre left. The Third Way has been an unmitigated fucking disaster trying to insert neocon bullshit into "labor" by way of massive campaign checks. If you couldn't beat them, just bribe them into thinking your way.
posted by Talez at 10:02 PM on January 12, 2014 [1 favorite]

Another amazing post, thank you. I've been seeing Piketty mentioned a lot in various things I read in the last two weeks or so, so I'm glad you put this all together in one post. I'll look forward to reading through it all in the next few days.
posted by triggerfinger at 10:06 PM on January 12, 2014

Wow, what a tremendous post - thanks for your work compiling all these sources.

Let's all meet back here in a few days and have the thread?
posted by EatTheWeek at 10:13 PM on January 12, 2014 [11 favorites]

Also, re: Capital inequality, I think it would be tremendously interesting to see the Lorentz curve on income from capital for a country like Australia where the mandatory savings rate is extremely high and most of it is tied up in bonds and equities.
posted by Talez at 10:16 PM on January 12, 2014

Amazing post.
posted by Ray Walston, Luck Dragon at 11:14 PM on January 12, 2014

It's going to take me weeks to wrap my head around this post.

*Stands up, Applauds*

Well done.
posted by pjern at 11:29 PM on January 12, 2014 [2 favorites]

Sidebar this please and lock it there for like two months. Fantastic work, kliuless.
posted by Joey Michaels at 1:18 AM on January 13, 2014 [3 favorites]

A more left-wing perspective on the current political/economic situation from Endnotes:

The Holding Pattern: The Ongoing Crisis and the Class Struggles of 2011-2013
posted by Noisy Pink Bubbles at 2:38 AM on January 13, 2014 [2 favorites]

Could only possibly be a better post if there were a cat video included. Excellent stuff.

I don't understand the "this chart" link above. Can anyone explain?
posted by digitalprimate at 3:02 AM on January 13, 2014

This tendency could be checked only by worldwide taxation of capital.

Right. Because sovereign nations worldwide have no greater priority than to bolster capitalist democracies.
posted by de at 3:35 AM on January 13, 2014

Also, I've linked it on here before but a lot of the current data on income inequality, capital inequality and taxes paid comes from the CBOs Trends in the Distribution of Household Income Between 1979 and 2007 (pdf). It is sixty-some-odd pages long but it is fascinating and gives a really (I think) clear picture on how inequality has grown.
posted by triggerfinger at 6:18 AM on January 13, 2014

And this administration today, here and now, declares unconditional war on poverty in America," he said, issuing his first salvo in the "war" that would take the form of new programs to improve nutrition, health care, education and job training.

"Our chief weapons in a more pinpointed attack will be better schools, and better health, and better homes, and better training, and better job opportunities," he said.

(Fifty-Year 'War on Poverty' Brings Progress, Not Victory)

I haven't read all the links yet. Thank you kliuless.
posted by bukvich at 7:01 AM on January 13, 2014

digitalprimate: Think of the axes as percentiles. As you go from left to right you go from lowest to highest income level. The line goes up according to how much richer the next richer person is. When you have to go all the way to the right side of the graph before the line starts going up, that means that most of the population has none of that type of income.
posted by ropeladder at 7:08 AM on January 13, 2014 [1 favorite]

It was simple. The robots were capital, and we were not.
posted by newdaddy at 9:02 AM on January 13, 2014 [2 favorites]

Key point from the review of Piketty:
The elixir of economic growth once discovered (whether it be human capital, institutions, control of diseases, or all of them), knows no stopping. But in Piketty’s interpretation, this extraordinary exponential curve, while being “ignited” by the Industrial Revolution as well as by the French and American political revolutions, was held “alive” in the 20th century by the convergence economics, demographic growth, and, paradoxically, cataclysmic developments during the two world wars. This is now coming to an end, or after China converges to the rich countries’ income levels, will indeed come to a final stop. From a convex curve we are likely to go back to a rather flat line implying barely rising or even stagnant per capita incomes. (emphasis added)
posted by doctornemo at 10:19 AM on January 13, 2014 [3 favorites]

"If r remains, as Piketty thinks, at its historical rate of 4-5% p.a., all the negative developments from the 19th century will be repeated."
posted by doctornemo at 10:32 AM on January 13, 2014

Good lord. Saved. Hopefully I'll have the time, grit, and economic fluency to make sense of all this in the coming weeks.
posted by HighTechUnderpants at 2:01 PM on January 13, 2014

Piketty is defining growth as population growth + growth of per capita income. Population growth is a huge part of this. Demographics for most of the developed world are unfavorable with the exception of the United States, which (notwithstanding a couple years more recently) has a replacement birth rate. I'm about halfway through the links, but does anyone know how immigration is figured into these population growth rates, if at all?
posted by triggerfinger at 2:07 PM on January 13, 2014

There is, of course, a much easier way to gauge what a property would sell for: Solicit from its owner a price."

How many people will sell their parents' / relatives ashes versus pay taxes on them? I see a lot of hilarious potential in an insane idea like this.
posted by jpe at 3:03 PM on January 13, 2014

Interesting, I've long argued here and elsewhere that sans the disruption of world wars, the globe is returning to historical levels of inequality (high). One thing that has the potential to be equally disruptive: Climate change.

A proper response to it would necessitate government intervention and change on a scale of of the world wars, I believe. However it's worth remembering, too, that rises in equally do not necessarily track with disruption.

It would probably be more astrology than history, but it would be fascinating to see how the black plague, for example, effected equality in Europe.

I do sometimes wonder if I overstate the influence the wars had on equality, laws and governments - if it's possible to do so. There were other historical developments (unionism, universal suffrage etc) that also surely played a role.
posted by smoke at 5:18 PM on January 13, 2014

Here's a copy of the Milanovic review paper that's currently cached.
posted by stratastar at 6:51 PM on January 13, 2014

As an aside, I've just gone down the rabbit hole of the spat between Izabella Kaminska and the market monetarists, which I completely missed when it happened (I've been busy lately at work so unable to keep up with Alphaville and all my other blogs the way I'd like); and...hoo boy. Imho, Scott Sumner et. al. were kind of being assholes. Izzy gets into some esoteric stuff, but I almost always can understand what she's saying and I've learned a tremendous amount from reading her. She seemed to handle the whole thing really well and gracefully, which makes me even more of a fan. Team Izzy!
posted by triggerfinger at 7:39 PM on January 13, 2014 [1 favorite]

posted by pwally at 9:31 PM on January 13, 2014

Huh. Just starting to go through 'Izzy's' blog, and these are two of the best articles on bitcoin, and money in general, I've read.

The economic book of life - Izabella Kaminska

Bubbles, Banks And Bitcoin - Frances Coppola
posted by Golden Eternity at 1:02 AM on January 14, 2014

So it's blood and fire then? Because I'm not at all sanguine about the prospects of anything like the kind of capital controls and tax regimes it would take prevent that outcome being enacted by the rich people who run the world's financial system. As Pope Guilty said, "You'd think they'd figure it out eventually."
posted by ob1quixote at 2:11 AM on January 14, 2014

yea fwiw, don't confuse market monetarists (target NGDP) with modern monetary theory (MMT or monetary realism) which if i may perhaps preemptively reframe the debate a bit could be kind of the flipside to implementing global wealth taxes :P

that is everyone has an ATM at the fed with direct access to central banking (just like the plutocrats do thru their TBTF banks) and when 'aggregate demand' is too low, free money for all!

-Why I'm interested in Bitcoin: because the payments industry sucks
-USD is a terrible way to pay for stuff
-ACH is bad, but the banks are worse
-The payments impasse

also btw...
-In a world with more inherited riches, it makes no sense to cut estate taxes
-Cheating Death Taxes
posted by kliuless at 5:43 AM on January 14, 2014 [2 favorites]

It would probably be more astrology than history, but it would be fascinating to see how the black plague, for example, effected equality in Europe

With regards to income parity it had a massive effect. Essentially when you knock off a third of the population, those willing and able to work are more in demand and can command a higher salary. IIRC "Debt" by David Graeber covers this at one point.
posted by longbaugh at 6:44 AM on January 14, 2014

inferno! (or a farewell to alms and the ascent of man ;)

oh and What Fed economists are telling the FOMC
They think aggressively easy monetary policy is needed to prevent permanent supply side deterioration

This theme has been mentioned briefly in previous Bernanke speeches, but the Wilcox paper elevates it to centre stage. The paper concludes that the level of potential output has been reduced by about 7 per cent in recent years, largely because the rate of productivity growth has fallen sharply. In normal circumstances, this would carry a hawkish message for monetary policy, because it significantly reduces the amount of spare capacity available in the economy in the near term.

However, the key is that Wilcox thinks that much of the loss in productive potential has been caused by (or is “endogenous to”) the weakness in demand. For example, the paper says that the low levels of capital investment would be reversed if demand were to recover more rapidly, as would part of the decline in the labour participation rate. In a reversal of Say’s Law, and also a reversal of most US macro-economic thinking since Friedman, demand creates its own supply.
or as izzy sez in Government as a product of the free market: "government is just another monopolistic byproduct of an anarchic society... The only difference is that government authority is established through transparent voting systems rather than gun battles, coercion, bribery, force or intimidation. It is, for want of a better word, a civilised system compared to an uncivilised system."

viz. Innovation versus freedom
cf. Emporiophobia
posted by kliuless at 9:41 AM on January 14, 2014

ryan avent lays out secular stagnation well in Purchasing power disparity
Why should there be systematic underconsumption? A market economy relies for its balance on a divine coincidence: the fact that producers produce only as much as people want. But that balance only materialises if producers produce in order to consume. That is, it assumes that profit maximisation is a goal because people want more claims on real resources because they want to consume more real resources.

But, as Mr Waldman points out, producers often produce for its own sake. Why would they do that? They might be part of the working super-rich. In that case, all their consumption needs have probably been met and the only thing that remains is the positional game, in which wealth totals are the way one keeps score. Or one could be a mercantilist government that is interested in maintaining a hefty current-account surplus, for strategic reasons related to development or employment. Either way, the result is production for the sake of production, and the accumulation of claims on real resources that are hoarded rather than recycled back into the economy. That results in a glut, which translates into a prolonged slump.

Macroeconomic stabilisation is about restoring balance to this system. There are a few ways one could do this. You could just take claims from those who have them and redistribute them to those who don't. But there is a limit to how much of that you can do; eventually producers' incentives become distorted enough that capacity falls, bringing down potential real output per person with it.

You could instead have the government borrow claims from those with an excess and redistribute them to those with a shortfall. This is what you would call fiscal policy. It too faces limits imposed by those with excess claims. They could begin to question the government's ability to repay claims in the future, and then raise the cost of borrowing claims to prohibitively high levels. More often, they may suspect that government will repay the claims in the future by seizing future the means to do so through taxation—taxing the rich in order to repay them, in other words. Those with excess claims will therefore resist, politically, a fiscal policy large enough to restore balance.

And then there is monetary policy. One important question is: how does monetary policy address this imbalance? It could work through inducing those with excess claims to lend to those with a shortfall. Mr Waldman describes the world prior to the crisis:
The ambitious grew wealthy by accumulating claims on the future of the less ambitious, in exchange for which the less ambitious (and sometimes very distant) consumed present production, and demanded more. Entrepreneurs could measure their position against their fellows by the quantity of their claims. Others could consume in proportion to their ability to manufacture claims that entrepreneurs would accept, that is, they could consume what they could borrow. But high quality claims on future wealth are in reality very scarce. An economic system that depends upon ever expanding claims on the future in order to provide current incentives to produce can not be stable. Once the "wealthy" learn that many of their claims are worthless, the system falls apart. The less-wealthy have no means of consuming, as new claims are shunned. Owners of capital gain nothing but bear costs for maintaining productive infrastructure. "Excess capacity" appears.
When Mr Summers argues that raising the inflation target is not a satisfactory solution to secular stagnation, I think he has this dynamic in mind. Raising the inflation target gets you adequate demand because it lowers the real policy rate to the point that induces enough lending to right the balance between production and consumption. But as Mr Waldman says, that process can end very messily. If the balance can't be addressed through fiscal policy, Mr Summers implies, then a world of stagnation might be preferable to a world in which markets repeatedly blow bubbles.

But is that the right analysis? Imagine instead a world in which the central bank could print money and hand it out, in the form of giant sacks of money given to each household. If the central bank successfully communicated that it would allow the new cash to permanently raise the price level, then it would have effectively managed a redistribution of claims. The cash provides claims on real resources to all households, which are "paid for" by reducing the real value of the accumulated claims of those with an excess via inflation. Importantly, nobody needs to borrow excessively in this story. They've got the cash; all they have to do is go out and spend it.

So here's the critical question: can the central bank mimic the effect of handing out sacks of cash? Well, let's say the Fed can promise, credibly, to generate higher future growth in nominal wages: higher inflation, yes, but crucially high enough inflation to generate steady rises in nominal wages. Well, higher nominal wages across the economy is the same thing as sacks of cash on the doorstep. And you're granting everyone some increase in real purchasing power by reducing the real value of accumulated claims through inflation. If this is the way monetary policy works, then a higher inflation target solves the secular stagnation problem, full stop.

Sceptics may wonder whether the central bank can credibly commit to higher nominal wage growth. History suggests to me that a strong, regime-changing statement would do it, but others understandably have their doubts. A central bank could promise to do unlimited QE—buying every shred of outstanding government debt if necessary—until expectations moved in the desired way. That would either work or eliminate the public debt as a problem. I suppose one might also worry about the timing: that monetary ease of this sort would solve the demand problem by contributing to excessive lending before expected wage growth rose high enough. In this case, though, Olivier Blanchard's remark, that monetary ease could be paired with tighter regulation, is spot on; after all, the policy doesn't work by boosting investment but by redistributing claims via inflation.

Another concern might be that the same political forces that restrain fiscal policy might also successfully impair monetary policy. If you're holding excess claims, you might use whatever means are available to you to encourage the government not to seize your wealth through taxation or inflation. If those holding excess claims wield political influence and much prefer the monetary solution that leads to them lending claims out to the one in which inflation erodes the value of their claims, then perhaps the higher inflation approach is not a realistic option.
-Failing elites threaten our future
-Inequality and the Masters of Money
-Moral Hazard: Slumdogs vs. Millionaires

-The Fiscal Myth of Tax and Spend [1,2,3]
-Neil Wallace on the Underpinnings of Money [1,2,3]
-Money as Communication: A New Educational Video by the Atlanta Fed
posted by kliuless at 6:09 PM on January 16, 2014 [2 favorites]

Power And Prejudice: The Politics of Austerity
Part 1
The response of neoliberal governments to the financial crisis of 2007/8 was first to bail out the banks and then to introduce dramatic public spending cuts which it was claimed would revive economic growth. Yet the promised growth has barely materialised and budget deficits have only increased. Despite these evident failures though, austerity remains the dominant political paradigm of our time. In the first of an in-depth two part interview, NLP’s Tom Mills discusses the contemporary folly and the deep historical roots of austerity with Mark Blyth, Professor of International Political Economy at Brown University in the United States and the author of Austerity: The History of a Dangerous Idea.
Part 2
Despite its evident failures, austerity remains the dominant political paradigm of our time. In the second of an in-depth two part interview, NLP’s Tom Mills speaks to Mark Blyth, Professor of International Political Economy at Brown University in the United States and the author of Austerity: The History of a Dangerous Idea, about the political-economic history of Germany and the power of ideas.
posted by the man of twists and turns at 11:50 AM on January 22, 2014 [1 favorite]

The U.S. Has a Social Mobility Problem, But Not the One You Think
They fear that the U.S. doesn't offer as much social mobility as it once did. A child who works hard today can't expect the same returns as her parents or grandparents once could. This suspicion is troubling – and politically potent – because it undercuts America's claim to be "the land of opportunity."

A groundbreaking study making waves today argues that this isn't true. A child born in the bottom fifth of the income distribution appears to have just as much chance reaching the top fifth in adulthood today as a child born a generation earlier. Combining these results with earlier research, it appears as if prospects for social mobility in America have remained relatively unchanged for half a century.

These findings come from the same researchers at Harvard and UC Berkeley who released last summer an equally exhaustive study of income mobility at the local level (they've just posted the full paper from that earlier work, too). Those earlier results, from Raj Chetty, Nathaniel Hendren, Patrick Kline and Emmanuel Saez, identified alarming differences in a poor child's chances of escaping poverty depending on where he or she lives.
posted by the man of twists and turns at 8:33 AM on January 24, 2014 [1 favorite]

Thomas Edsall: Capitalism vs. Democracy

Good roundup of reactions to Piketty's thesis from a good number of left-ish and right-ish economists.
posted by tonycpsu at 2:54 PM on January 30, 2014 [1 favorite]

Dark Affinities: Liberal and Neoliberal
Foreign judgment, however, does not make it easier for Americans to self-scrutinize - not simply because "American exceptionalism" pre-empts listening to foreigners but because the sort of pathography I am conducting here finds the Winners and the Losers sharing the same values. They share the same mass psyche desires, fears, antipathies, repressions, traumas, blindness, compulsions, dreams and nightmares, the same American Dream, if you will. If the Losers did not connect here with the Winners, we would face the clarity of a moral dualism, of innocence and guilt, of oppressor and oppressed, of hero and monster, of, most aptly, the dangers to democracy of a severe wealth divide and the nurturing of democracies that aspire to egalitarianism.
There is no such clear opposition within the cultural unconscious.
Transforming Our Dark Affinities
He seems to see this condemning disposition as having "no moral divide, but only a moral monism." I see it as a major moral dualism involving an "us" that is good and a "them" that is bad. The "clarity of a moral dualism" would lead to the "oppressed" turning against and condemning the "oppressors." Well, who among us is not moved in some way by that "wanting it all?" Natoli suggests that is the case of the 80 percent of us in the lower economic groupings. If there is anything needing condemning, it is the core values and beliefs that have the vast majority of us "wanting it all," not those of us caught in the cultural conundrum he so beautifully describes.
posted by the man of twists and turns at 4:17 PM on February 2, 2014

-The Equality of Opportunity Project
-17 Charts About Economic Inequality
-Branko Milanovic: Inequality in the United States and China
Three decades of ideologically driven pro-market change, combined with an ever-greater ability of the rich to influence the political process, has created a stranglehold for the top 1% on the political agenda. Having invested several decades worth of effort and money into think tanks and lobbying to argue for low taxes on income and wealth, it’s unlikely that the rich will suddenly change their mind. Although the economic policies that could reduce inequalities are well known—higher minimum wage, cheaper public education, and above all higher taxes—the probability that they will be implemented is rather small.

The medium term in the United States will thus continue to look more or less like the present. But farther afield, the very foundations of democracy may be shaken by the plutocratic turn in governance and by the continued hollowing out of the middle class. Inequality may not change US of life too much right now, but it might render its democracy vacuous, and sow deep the seeds of discontent with its political system.
-Big Problems, Little Solutions: For the New Occupy, Size Is Everything
-Ten Ways to Get Serious About Rising Inequality
-No end to inequality
My view is that the second half of the 21st century—assuming we manage not to blow each other up or fry the planet to a cinder—is likely to be an era of fantastically high growth thanks to robotics and artificial intelligence. That also produces problems related to the distribution of income, but they’re rather different from Piketty’s.

But in one sense it doesn’t matter. Piketty’s solution to the problem of this mismatch between growth and capital returns—which he considers an inevitable consequence of capitalism—is redistribution and plenty of it: “The only way to halt this process, he argues, is to impose a global progressive tax on wealth... an annual graduated tax on stocks and bonds, property and other assets that are customarily not taxed until they are sold.” That’s probably the eventual answer to the robotics revolution too. So regardless of which fork we take in the future, higher taxes on the rich seem pretty likely.
Goldman Sachs Chief Economist Jan Hatzius Argues The Fed Should Target Wage Growth Instead Of Inflation - "I’ve always thought wage targeting was superior to NGDP targeting, but that it was politically difficult to implement and wages are hard to measure. Maybe I was wrong about the politics. More recently I’ve become interested in targeting aggregate wages and salaries, which is sort of half way between an average hourly wage target and NGDP. It’s also more politically acceptable than hourly wages."
posted by kliuless at 8:32 PM on February 11, 2014 [1 favorite]

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