Tag Archives: inequality

fair vs. unfair inequality

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This interesting article in Vox talks about academic ideas on how to distinguish and measure a difference between fair and unfair inequality. The premise is that there is no moral justification for leaving anyone below the poverty line, even if they are there due to bad choices of their own making. But once out of poverty, there is a need for incentives for people to make effort, make good choices and take the kind of good risks that sometimes pay off for society. There is also a difference between people who are less well off because of bad luck (often the luck of who their parents are) and people who are less well off because they have made less effort or bad choices. Of course, people who are better off because of luck or breeding will tend to rationalize their success relative to others as being due to superior effort and good choices, when in fact they may not be the case. So having an objective way to measure this is an interesting idea. It suggests you could have policies that kick in automatically when some measure of “unfair inequality” gets to a certain level. I don’t quite understand the measure itself, but this is a blog post referring to an academic paper, and I didn’t dig into the academic paper itself.

Giants: The Global Power Elite

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This is a new book from Project Censored (or at least that’s where I became aware of it). I’m not sure whether I agree with the politics 100%, but numbers are numbers and these are a bit shocking.

As the number of men with as much wealth as half the world fell from sixty-two to just eight between January 2016 and January 2017, according to Oxfam International, fewer than 200 super-connected asset managers at only 17 asset management firms—each with well over a trillion dollars in assets under management–now represent the financial core of the world’s transnational capitalist class. Members of the global power elite are the management–the facilitors–of world capitalism, the firewall protecting the capital investment, growth, and debt collection that keeps the status quo from changing. Each chapter in Giants identifies by name the members of this international club of multi-millionaires, their 17 global financial companies—and including NGOs such as the Group of Thirty and the Trilateral Commission—and their transnational military protectors, so the reader, for the first time anywhere, can identify who consitutes this network of influence, where the wealth is concentrated, how it suppresses social movements, and how it can be redistributed for maximum systemic change.

“delusions of merit”

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This long article describes how people who have made it tend to have have “delusions of merit“. In other words, they believe they have earned their place in society through effort or self-discipline, that those less fortunate have not made the effort or do not have the self-discipline, and therefore they feel no moral obligation to help those beneath them. The problem is, we are not talking about a vast middle class refusing to help a small underclass here. We are talking about a small minority failing to feel compassion for the vast majority of fellow people.

we’re #1…in road deaths in the industrialized world

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It’s not just health care costs, life expectancy, infant mortality, education, drug addiction and infrastructure. As more evidence the U.S. is gradually slipping behind the rest of the developed world in many areas, here is a New York Times article on how road deaths are worse here than our peer countries in terms of wealth. And not just western Europe, but again our close cultural and historical cousins like Canada and Australia.

It didn’t used to be this way. A generation ago, driving in the United States was relatively safe. Fatality rates here in 1990 were roughly 10 percent lower than in Canada and Australia, two other affluent nations with a lot of open road.

Over the last few decades, however, other countries have embarked on evidence-based campaigns to reduce vehicle crashes. The United States has not. The fatality rate has still fallen here, thanks partly to safer vehicles, but it’s fallen far less than anywhere else.

As a result, this country has turned into a disturbing outlier. Our vehicle fatality rate is about 40 percent higher than Canada’s or Australia’s. The comparison with Slovenia is embarrassing. In 1990, its death rate was more than five times as high as ours. Today, the Slovenians have safer roads.

Let’s not set our sights too high – could we start by just making America average again? Let’s try to catch up to our peers with similar levels of wealth and technology, instead of continuing to slip further behind. Or we could just bury our heads in the sand, not learn about the world, let our politicians tell us how great we are, and never find out that there could have been a better way.

anti-monopoly politics

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This Intercept article talks about an anti-monopoly message some Democrats are trying out. I like the idea in principle. Productivity growth has been stuck in second gear for close to 50 years now, and yet we hear about record corporate profits and stock market returns. These things happen at the same time only if big business is able to make unfair profits by rigging the system unfairly in its favor. That way their profits can grow while wages and innovation both stagnate. This is not a recipe for long-term growth for the economy as a whole.

Big business has been able to hijack the “free market” message for a long time now. Of course, a truly free market is about a truly level playing field for businesses of all sizes, and one where innovators can compete with established big businesses. I would argue that it is also about an economy where entrepreneurs and small business owners can take chances and innovate against a backdrop of health care, childcare and retirement security. But maybe that should not be the focus – one appeal of an anti-monopoly message could be to give the devisive social issues a rest for awhile and focus on inclusive economic growth.

The author gives several examples of monopoly power hurting both rural and urban interests:

FRERICK TALKS ABOUT running a Teddy Roosevelt-style campaign. In rural towns in southwest Iowa, he has challenged the merger between Monsanto and Bayer, which would give two companies (the other is Dow/DuPont) control of 75 percent of the U.S. corn seed supply. Add the company created by the merger of ChemChina and Syngenta, and three companies would sell 80 percent of all seeds. Farmers have no ability to bargain for corn seed, which has doubled in price over the last decade, even while crop prices have dropped…

But Frerick has a broader case to make on monopolies. In urban areas of Des Moines with less connection to farm life, he’s talked about cable companies who take hours to answer customer service calls, or shrinking local newspapers due to Facebook and Google’s capturing of prized eyeballs for advertisers. In older communities, he’s condemned pharmaceutical companies that funnel patients to expensive drugs with little or no competition. A separate 2016 paper Frerick wrote while at Treasury explained how drug companies use corporate charity as a profit center, by paying discounts for individuals so insurers and government plans have to pay exorbitant rates for medications…

Most hospitals buy supplies in bulk through group purchasing organizations (GPOs) which carry a “90/10” requirement. Hospitals must continue to purchase at least 90 percent of their supplies from inside the GPO to qualify for discounts and avoid millions of dollars in penalties. This contractual obligation fortified BD’s monopoly, despite selling a more dangerous, more expensive product.

inequality and carbon emissions

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A paper in Ecological Economics explores the links between inequality and carbon emissions.

The Trade-off Between Income Inequality and Carbon Dioxide Emissions

We investigate the theoretically ambiguous link between income inequality and per capita carbon dioxide emissions using a panel data set that is substantially larger (in both regional and temporal coverage) than those used in the existing literature. Using an arguably superior group fixed effects estimator, we find that the relationship between income inequality and per capita emissions depends on the level of income. We show that for low and middle-income economies, higher income inequality is associated with lower carbon emissions while in upper middle-income and high-income economies, higher income inequality increases per capita emissions. The result is robust to the inclusion of plausible transmission variables.

It could be that as developing countries develop, greener technologies become available to the working and middle classes faster than their household incomes actually increase. I am thinking of a switch from biomass and coal to electricity and natural gas, for example. These will lower people’s ecological footprint without necessarily costing them a lot more money. Once they start to get more money, they may start to transition to higher-impact behaviors, like driving instead of bicycling, and eating more meat and less grain.

You certainly wouldn’t want to promote income inequality as a policy measure to help the environment. There are social and tax policies that could be pursued instead, for example keeping communities walkable and mixed use even as incomes rise, and pricing meat at its true cost to the environment. These aren’t easy things to do politically in developing countries or anywhere else, of course, because they would require a political system willing to take on corporate power such as the oil, automobile, highway, and agriculture industries which tend to be immensely powerful and intertwined with political, bureaucratic and military elites.

Naomi Klein

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In The Intercept, Naomi Klein warns that the Trump administration could be waiting for a crisis to advance the worst of its agenda, including extreme income redistribution (from the poor to corporations and the rich, of course).

Large-scale shocks are frequently harnessed to ram through despised pro-corporate and anti-democratic policies that would never have been feasible in normal times. It’s a phenomenon I have previously called the “Shock Doctrine,” and we have seen it happen again and again over the decades, from Chile in the aftermath of Augusto Pinochet’s coup to New Orleans after Hurricane Katrina.

And we have seen it happen recently, well before Trump, in U.S. cities including Detroit and Flint, where looming municipal bankruptcy became the pretext for dissolving local democracy and appointing “emergency managers” who waged war on public services and public education. It is unfolding right now in Puerto Rico, where the ongoing debt crisis has been used to install the unaccountable “Financial Oversight and Management Board,” an enforcement mechanism for harsh austerity measures, including cuts to pensions and waves of school closures. This tactic is being deployed in Brazil, where the highly questionable impeachment of President Dilma Rousseff in 2016 was followed by the installation of an unelected, zealously pro-business regime that has frozen public spending for the next 20 years, imposed punishing austerity, and begun selling off airports, power stations, and other public assets in a frenzy of privatization.

As Milton Friedman wrote long ago, “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.” Survivalists stockpile canned goods and water in preparation for major disasters; these guys stockpile spectacularly anti-democratic ideas.

Her list of potential shocks includes terror shock, war shock, economic shocks, and weather shocks. I would put any amount of money on at least one of these happening in the next four years.

Naomi Klein has a new book coming out called No Is Not Enough: Resisting Trump’s Shock Politics and Winning the World We Need.

minimum wage and unemployment

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In this Atlantic article, James Kwak summarizes several theories on why a higher minimum wage doesn’t seem to increase unemployment in the real world as the simple supply-and-demand theory would predict.

The idea that a higher minimum wage might not increase unemployment runs directly counter to the lessons of Economics 101. According to the textbook, if labor becomes more expensive, companies buy less of it. But there are several reasons why the real world does not behave so predictably. Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. (Imagine a local copy shop: No matter how fast the copy machine is, there still needs to be one person to deal with customers.) Therefore, some companies can’t lay off employees if the minimum wage is increased. At the other extreme, very large employers may have enough market power that the usual supply-and-demand model doesn’t apply to them. They can reduce the wage level by hiring fewer workers (only those willing to work for low pay), just as a monopolist can boost prices by cutting production (think of an oil cartel, for example). A minimum wage forces them to pay more, which eliminates the incentive to minimize their workforce.In the above examples, a higher minimum wage will raise labor costs. But many companies can recoup cost increases in the form of higher prices; because most of their customers are not poor, the net effect is to transfer money from higher-income to lower-income families. In addition, companies that pay more often benefit from higher employee productivity, offsetting the growth in labor costs. Justin Wolfers and Jan Zilinsky identified several reasons why higher wages boost productivity: They motivate people to work harder, they attract higher-skilled workers, and they reduce employee turnover, lowering hiring and training costs, among other things. If fewer people quit their jobs, that also reduces the number of people who are out of work at any one time because they’re looking for something better. A higher minimum wage motivates more people to enter the labor force, raising both employment and output. Finally, higher pay increases workers’ buying power. Because poor people spend a relatively large proportion of their income, a higher minimum wage can boost overall economic activity and stimulate economic growth, creating more jobs. All of these factors vastly complicate the two-dimensional diagram taught in Economics 101 and help explain why a higher minimum wage does not necessarily throw people out of work. The supply-and-demand diagram is a good conceptual starting point for thinking about the minimum wage. But on its own, it has limited predictive value in the much more complex real world.

Even if a higher minimum wage does cause some people to lose their jobs, that cost has to be balanced against the benefit of greater earnings for other low-income workers. A study by the Congressional Budget Office (CBO) estimated that a $10.10 minimum would reduce employment by 500,000 jobs but would increase incomes for most poor families, moving 900,000 people above the poverty line. Similarly, a recent paper by the economist Arindrajit Dube finds that a 10 percent raise in the minimum wage should reduce the number of families living in poverty by around 2 percent to 3 percent. The economists polled in the 2013 Chicago Booth study thought that increasing the minimum wage would be a good idea because its potential impact on employment would be outweighed by the benefits to people who were still able to find jobs. Raising the minimum wage would also reduce inequality by narrowing the pay gap between low-income and higher-income workers.

more on the hollowing out of the middle class

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This article from the Federal Reserve Bank of San Francisco talks about how the “wage premium” (how much educated workers make compared to less educated ones) seems to have stopped growing recently, although it is still large.

Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?

Wage gaps between workers with a college or graduate degree and those with only a high school degree rose rapidly in the United States during the 1980s. Since then, the rate of growth in these wage gaps has progressively slowed, and though the gaps remain large, they were essentially unchanged between 2010 and 2015. I assess this flattening over time in higher education wage premiums with reference to two related explanations for changing U.S. employment patterns: (i) a shift away from middle-skilled occupations driven largely by technological change (“polarization”); and (ii) a general weakening in the demand for advanced cognitive skills (“skill downgrading”). Analyses of wage and employment data from the U.S. Current Population Survey suggest that both factors have contributed to the flattening of higher education wage premiums.