China, technology and the U.S. middle class President Barack Obama’s State of the Union speech this week confirmed it: The pre-eminent political and economic challenge in the industrialized democracies is how to make capitalism work for the middle class. There is nothing mysterious about that. The most important fact about the United States in this century is that middle-class incomes are stagnating. The financial crisis has revealed an equally stark structural problem in much of Europe. Even in a relatively prosperous age — for all of today’s woes, we have left behind the dark, satanic mills and workhouses of the 19th century — this decline of the middle class is more than an economic issue. It is also a political one. All of which is why understanding what is happening to the middle class is urgently important. But when I asked him this week what had gone wrong for the U.S. middle class, he gave a different answer: “The main problem is we’ve just had a decade of incredibly anemic employment growth. “U.S.
The Third Industrial Revolution - a response to the Economist The Third Revolution by nature of its high mechanisation and non-labour intensity means an ever larger proportion of the general public will be excluded from the production process or remunerated to ever lesser extents. Amid the atonal monotony of crisis that has increasingly sirened from the media during the last several years, it has been very rare to hear of ‘good news’ stories with regards to political economy, manufacturing or industry, particularly within the context of the OECD countries. Equally rare are stories that choose to take a longer term view, that zoom out of the immediate predicament in order to take a more macroscopic view of things. This is unsurprising of course. Crisis brings a certain density of life to human affairs and it is understandable that most commentators will remain focused on US unemployment statistics or foreclosure rates, Chinese defence spending or levels of economic contraction in most of the member states of the European Union.
Global Wealth Distribution As we have discussed, from 1979 to 2007, inflation-adjusted incomes of the top 1 percent of households increased significantly versus the rest of the wage earners (i.e., the remaining 99%). Those even better off, the top 0.1 percent (the top one one-thousandth of households), saw their incomes grow 390%. In contrast, incomes for the bottom 90 percent grew just 5 percent between 1979 and 2007. All of that income growth, however, occurred in the unusually strong growth period from 1997 to 2000, which was followed by a fall in income from 2000 to 2007. Is this wealth concentration a global phenomena, or is it a US centric? Lets go to the global data, via Credit Suisse Research Institute’s Global Wealth Databook: Source: Credit Suisse, Research Institute And as a reminder, here is the recent growth in the US data, via EPI: Source: Economic Policy Institute UPDATE: November 1 2011 12:51pm David Wilson of Bloomberg News points out that a rising Misery Indexes worsens the income-gap effect:
South Africa - ECONOMY South Africa - The Economy South Africa TRADING ON JOHANNESBURG'S financial markets reached a new all-time high on April 26, 1994, reflecting the buoyant mood of voters of all races who were about to participate in the country's first democratic elections. As South Africa emerged from the economic stagnation and international isolation of the apartheid era, the new government and its theme of economic reconstruction received international acclaim and encouragement. South Africa's economy had been shaped over several centuries by its abundant natural resources and by the attempts of immigrant populations to dominate and to exploit those who had arrived before them. By the mid-1980s, the economy was distorted by government policies designed to bolster the economic and political power of a small minority and to exclude many of South Africa's citizens, selected by race, from significant participation in the nation's wealth. South Africa South Africa - The Economy - Historical Development
The Hidden Prosperity of the Poor A concept promulgated by the right — the notion of the hidden prosperity of the poor — underpins the conservative take on the ongoing debate over rising inequality. The political right uses this concept to undermine the argument made by liberals that the increasingly unequal distribution of income poses a danger to the social fabric as well as to the American economy. President Obama forcefully articulated the case from the left in an address on Dec. 6, 2011 at Osawatomie High School in Kansas: This kind of gaping inequality gives lie to the promise that’s at the very heart of America: that this is a place where you can make it if you try. We tell people — we tell our kids — that in this country, even if you’re born with nothing, work hard and you can get into the middle class. We tell them that your children will have a chance to do even better than you do. echo a standard left-wing critique of capitalism: Economic growth does not serve all classes of society. Economic Policy Institute
Modern banking's fatal flaw Does this surprise you? It should not. It has been this way since 1844. In that fateful year, the British Parliament passed the Bank Charter Act, an attempt to bar commercial banks from engaging in fractional reserve lending. Back then, people would deposit gold (the money of the day) for safekeeping in bank vaults. These banks soon realised they could create banknotes that looked just like the original banknotes, with the same contractual stipulations (that is, a claim on gold) and lend them out to merchants at interest. This was fractional reserve lending. Creating economic havoc The injection of excessive monetary liquidity into the economy fuelled euphoric speculative bubbles in asset markets. The unredeemable banknotes immediately lost all their value. British legislators rightly wanted to avoid these unnecessarily destructive cycles. Put simply, banks continued to lend more money than actual gold on deposit, rendering the financial system as unstable as before.
We’re More Unequal Than You Think by Andrew Hacker The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson and Kate Pickett Bloomsbury, 331 pp., $28.00; $18.00 (paper) The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank Princeton University Press, 240 pp., $26.95 The Age of Austerity: How Scarcity Will Remake American Politics by Thomas Byrne Edsall Doubleday, 272 pp., $24.95 Why Some Politicians Are More Dangerous Than Others by James Gilligan Polity, 229 pp., $19.95 Imagine a giant vacuum cleaner looming over America’s economy, drawing dollars from its bottom to its upper tiers. All four of the books under review reject Hamilton and Madison’s premises. The Spirit Level is a prodigious empirical effort directed to a moral purpose. As income gaps grow, they write, it’s not only the poor who suffer. The authors don’t go so far as to say that people with above-average incomes would end up better off were they to take home less money, and if greater numbers of their poor compatriots had more.
Logic Freaks Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing. At least three Nobel laureates have expressed their concerns. At a very early stage Wassily Leontief in 1982 objected that models had become more important than data: “Page after page of professional economic journals are filled with mathematical formulas … Year after year, economic theorists continue to produce scores of mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data.” In 1997, Ronald Coase complained: “Existing economics is a theoretical system which floats in the air and which bears little relation to what happens in the real world.” Geoffrey M.
The Price of Inequality - Video and audio - News and media Speaker(s): Professor Joseph E Stiglitz Chair: Professor Stephen P. Jenkins Recorded on 29 June 2012 in Old Theatre, Old Building. In his new book, The Price of Inequality, which he will discuss in this lecture Joseph Stiglitz considers the causes of inequality, why is it growing so rapidly and what are its economic impacts? He explains that markets are neither efficient nor stable and will tend to accumulate money in the hands of the few rather than engender competition and considers our political system that frequently shapes markets in ways that advantage the richest over the rest. Joseph Stiglitz was Chief Economist at the World Bank until January 2000. Professor Stiglitz will also be in discussion with Professor Amartya Sen on Thursday 28 June at 6.30pm. Event posting
World's richest woman says poor should have less fun, work harder Just in case you were beginning to think rich people were deeply misunderstood and that they feel the pain of those who are less fortunate, here's the world's wealthiest woman, Australian mining tycoon Gina Rinehart, with some helpful advice. "If you're jealous of those with more money, don't just sit there and complain," she said in a magazine piece. "Do something to make more money yourself -- spend less time drinking or smoking and socialising, and more time working." Yeah, let them eat cake. Rinehart made her money the old-fashioned way: She inherited it. "There is no monopoly on becoming a millionaire," she said by way of encouragement. "Become one of those people who work hard, invest and build, and at the same time create employment and opportunities for others." Boom. Why are people poor? "The millionaires and billionaires who choose to invest in Australia are actually those who most help the poor and our young," she said. And now it's out there. Thank you, rich people.
POVERTY, CORRUPTION AND THE CHANGING WORLD, 1950-2050 Robert H. Wade On May 29 2013 James Wolfensohn, president of the World Bank from 1995 to 2005, gave the Amartya Sen lecture at the London School of Economics, on the subject, “Reflections on a changing world, 1950-2050”. His reflections on the changing world were mainly reflections on what he achieved as World Bank president. Here I comment on the first two: poverty reduction as the central goal of development, and corruption as an explicitly stated problem. Poverty reduction and inequality Wolfensohn’s elevation of poverty reduction as the central goal echoes then World Bank president Robert McNamara in 1973, forty years ago, who solemnly proposed in a speech in Nairobi, Kenya, a “new strategy”. But McNamara showed awareness of a closely related issue that remained eclipsed in the Wolfensohn era: income and related inequalities. Why this asymmetry of attention? Corruption On corruption, I begin with my own engagement with the Bank. Fast forward to Wolfensohn on 29 May. ShareThis
Why resource-rich countries usually end up poor Photo by Walter Astrada/AFP/Getty Images. New discoveries of natural resources in several African countries—including Ghana, Uganda, Tanzania, and Mozambique—raise an important question: Will these windfalls be a blessing that brings prosperity and hope, or a political and economic curse, as has been the case in so many countries? On average, resource-rich countries have done even more poorly than countries without resources. A large literature in economics and political science has developed to explain this “resource curse,” and civil-society groups (such as Revenue Watch and the Extractive Industries Transparency Initiative) have been established to try to counter it. Resource-rich countries tend to have strong currencies, which impede other exports; Because resource extraction often entails little job creation, unemployment rises; Moreover, resource-rich countries often do not pursue sustainable growth strategies. All over the world, countries have been doing this. That is wrong.
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