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The gap in the USA between the rate of growth of productivity (now at 11.4 percent) and that of wages (1.5 percent) continues to widen

June 28, 2014 3 comments

from David Ruccio

productivity-growth

The gap between the growth of productivity (now 11.4 percent higher than in January 2007) and that of wages (only 1.5 percent higher) continues to widen (according to Reuters).

Is it any wonder, then, that income inequality continues to rise?

Your tax dollars at work: charities that make the rich richer

June 26, 2014 2 comments

from Dean Baker

We usually think of charities as being a story where money flows down from those on top to those who are most in need. But in our vibrant 21st century economy, charity often flows in the opposite direction, with rest of us subsidizing the incomes of very rich. That is the implication of several recent news stories.

For example, we have John Sexton the president of New York University. The university was recently in the news because of a story reporting that workers building its Abu Dhabi campus are often beaten and have their wages stolen. This campus is part of an ambitious expansion plan designed by Sexton, who reportedly makes $1.5 million a year and stands to pocket a “longevity bonus” of $2.5 million if he stays into 2015.

The University of Chicago is another school where the president, Robert Zimmer, appears to be doing rather well financially. Mr. Zimmer’s compensation for 2013 was reportedly $1.9 million after having spiked to $3.4 million the prior year. This compensation comes in spite of the fact that the school has an operating deficit and may be at risk of a credit downgrade.

A study by the Institute for Policy Studies found that student debt and low-paid faculty increased more rapidly at the universities with the 25 highest paid presidents than the national average. At the very least this suggests high presidential pay is not associated with scoring well in terms of either holding down student debt or minimizing the share of adjunct faculty. Read more…

CEO-to-worker compensation ratio, USA 1965 – 2013

June 25, 2014 3 comments

from David Ruccio

CEO-worker

In charting the amount of the surplus that ends up in the hands (or, if you prefer, pockets or bank accounts) of CEOs, the Economic Policy Institute finds that:  Read more…

Profit inflation

from David Ruccio

BN-DC653_inflat_G_20140605152620

A couple of weeks back I wrote that, when mainstream economists debate the causes of inflation, they focus only on labor costs and forget all about profits. Read more…

Piketty, plutonomists, and the legal framework

from Edward Fullbrook

Plutonomists, like real-world economists, know that the main determinant of income and wealth distribution is the legal framework in which an economy functions.    The Plutonomy Movement, by far the most powerful political force of our age, is founded on the underground application of this basic principle.  Occasionally this becomes manifest when one of plutonomy’s strategic documents is leaked.   Such an event happened last week when the Bank of American Merrill Lynch report “Piketty and Plutonomy: The revenge of inequality” found its way into non-plutonomist hands.  In addition to posts on this blog, there was coverage in the Chinese and the Australian press and Brad Delong posted an excerpt from the report including three graphs.  Here is another excerpt, very brief, and number 42 of the report’s 45 figures.  Red indicates “regulatory legislation” and green “deregulatory legislation”.  Read more…

USA income redistribution chart 1964 to 2010

from David Ruccio

Screen-Shot-2014-05-29-at-9.16.53-AM

As if to illustrate the point I made the other day (about earnings at the top being themselves distributions of the income captured by capital), Seth Ackerman put together the chart above (from data in Simon Mohun’s recently published article on unproductive labor) comparing the sum of profits and managerial compensation to non-managerial compensation, both as shares of total net income.

Indeed, in a direct rebuttal of the neoclassical marginal-productivity theory of distribution, capital’s share of income has been growing at the expense of labor’s share since the late-1970s.

Plutonomy and its 12-point manifesto

from Edward Fullbrook

This appeared on my screen last night.

                                               The Plutonomist Manifesto

  1. Because democracy is our worst enemy, we must work to convert every democracy in the world to a fake democracy.
  2. We, The One-percent, achieve these conversions of the system of government through three forms of targeted ownership.
    a. Owning mass media, the internet and the Web.
    b. Owning all major political parties. We achieve this ownership by making the electoral process extremely expensive, thereby making election dependent on our financial support.
    c. Owning economists. In today’s world the economics profession determines what the electorate sees and does not see regarding the economy. Therefore it is imperative that we control it.  We achieve this by maintaining remunerative revolving doors, by financing think tanks and university economics departments, by funding Trojan Horse organizations to co-opt non-One-percent economists, and by our Nobel Prize.
  3. In countries with real democratic traditions, plutonomy revolutions are achievable only by using Trojan Horse Methods (THMs). Subversion rather than violence or open campaigning is our means of conquest.
  4. The use of THMs means that sometimes we must be seen to give support to our opponents.
  5. We must be vigilant against leakages (for example, the Citigroup documents) of the existence of our program.
  6. When approached always give lip-service in support of democracy.
  7. The middleclass is both our means to success and our ultimate obstacle. It is they, not the poor, who have what we want. Hence the necessity of THMs.
  8. Ridicule all suggestions of our existence as the work of conspiracy theorists, and label people who support middleclass interests over ours as “leftists”.
  9. Channel funds to the emerging neo-fascists parties in the US and EU countries because their shenanigans camouflage our redistributions.
  10. We must work to expand and refine our armoury of redistribution mechanisms.
  11. The success we have had in the USA and the UK in redistributing middle-class income and wealth to ourselves must now in the next 15 years be duplicated across Western Europe, most especially in France and Germany.
  12. Our goal of receiving forty percent of income and owning 80 percent of wealth is achievable in most countries of the world my mid-century.

REDISTRIBUTION    –      REDISTRIBUTION    –     REDISTRIBUTION

This and this explain the reference in #5 to “Citigroup documents”.

All inequality all the time

from David Ruccio

It’s clear we are in the midst of an acute period of inequality: not only of grotesque levels of economic inequality (which are now well documented) but also of a wide-ranging discussion of the conditions and consequences of that extreme inequality (which appears to be taking off).

There are, of course, the deniers, like my dear friend Deirdre McCloskey. What inequality, is her mantra. The only thing that matters is economic growth, such that the amount of stuff people have today is much more than they’ve had throughout much of human history. OK, but that doesn’t tell us much about how that growth took place (it’s the surplus, Deirdre) or what it’s consequences are (on the majority who actually produce the surplus versus the tiny minority who appropriate it).

And then there are those who are actually thinking seriously about inequality, some of whose work is published in the latest issue of Science (a lot of which, unfortunately, is behind a paywall). Leave aside the silly article on econophysics (really, the existing distribution of income is a kind of “natural inequality,” which is what you would get from entropy?), the article that focuses on the psychological pathologies of the poor (what about those of the rich?), and the fact that all the economics is narrowly confined to mainstream theories (which have done more to deflect attention from, as against the wide range of heterodox theories that have actually focused on, inequality over the course of the past three decades). Just the fact that a special issue of such a prestigious journal is devoted to the problem of inequality tells us something about how it has risen to the top of our agenda. Read more…

Equality

May 21, 2014 21 comments

from Peter Radford

All the justified fuss over inequality in recent months begs a rather significant question doesn’t it? If we are all so vexed over inequality we must have some yardstick or some more ideal state we could call equality. What is it?

The problem I have is that equality almost immediately disappears into a fog.

There are very few of us who would argue for the blandness of total equality. That seems to be as inhuman as extreme inequality. After all we are all very different and thus there is an inherent tendency towards lumpiness in society. Some people will always outperform others whilst some will underperform. Some will be richer and others poorer. This much is so simple we can move on quickly. After all we don’t want to fall into the trap that has ensnared orthodox economists: they cannot do their work without expunging humanity from their equations. Else all that lumpiness gets in the way of the smooth operation of maximization, efficiency, and rationality. So they sweep it away peremptorily by making absurd assumptions and then pretend to have discovered something of extreme value about humanity. Ridiculous, I know, but they plod on stupidly despite it.

So what is equality in the context of our discussion of inequality?  Read more…

Change in median earnings 1998 to 2013 in USA vs. UK

from David Ruccio

blanchflower_may2014_fig1

David Blanchflower and Stephen Machin use this chart to illustrate the fact that, in the United Kingdom, “The real wages of the typical (median) worker have fallen by around 8–10% – or around 2% a year behind inflation – since 2008.”

But, as we can see, the situation for workers in the United States has been more dire, for a longer period of time: real median weekly earnings are basically unchanged for the past 25 years. Read more…

12-country 1975-2007 chart of share of income growth going to The 1%

from David Ruccio

income growth

According to a new study of top incomes by the Directorate for Employment, Labour and Social Affairs of the OECD [pdf], Read more…

Irving Fisher and inequality

May 4, 2014 9 comments

from Peter Radford

“The real scientific study of the distribution of wealth has, we must confess, scarcely begun. The conventional academic study of the so-called theory of distribution into rent, interest, wages, and profits is only remotely related to the subject. This subject, the causes and cures for the actual distribution of capital and income among real persons, is one of the many now in need of our best efforts as scientific students of society.”  Irving Fisher, President’s address to the American Economic Association, 1919

Later in that same speech he gave us his opinion of patrimonial capitalism:

“I believe that it is very bad public policy for the living to allow the dead so large and unregulated an influence over us.”

That sentiment has now reappeared as Piketty’s call not to allow the past to devour the future.

With respect to the “right” to create inheritances via wills Fisher points us to Chief Justice Coleridge of England: Read more…

The Enlightened Capitalist

May 1, 2014 4 comments

from Jonathan Nitzan and Shimshon Bichler

Preamble

Over the past few years, we have written a series of articles about the global crisis. [1] These papers try to break the conventional constrains of liberalism and Marxism, examining the crisis from the new theoretical viewpoint of capital as power. Capitalists and corporations, we argue, are driven not to maximize profit, but to ‘beat the average’ and increase their differential power. In this approach, the redistribution of income and assets is not a ‘societal’ side effect of the economy, but the central conflict that propels modern capitalism. And the main weapon in this struggle, we claim, is not investment and growth, but what the American political economist Thorstein Veblen called ‘strategic sabotage’ – the restrictions, limitations, hazards and pains that capitalists impose on the rest of society in order to sustain and augment their differential power.

Now, until 2011, distribution was a non-issue. Save for a few ivory-tower experts and justice-seeking activists, nobody spoke about it. It received little media coverage, let alone headlines, and elicited no meaningful debate. But with the global crisis lingering and upward redistribution continuing unfazed, the Occupy slogan ‘We are the 99 percent’ has finally gained traction. Suddenly, inequality and the excesses of the Top 1% are hot commodities, broadcast, discussed and written about all over the media.

The debate itself, though, remains largely conservative. The protest movements succeeded in putting distribution on the political table, but they haven’t figured how to take this achievement forward. So far, they have produced no new policy template, let alone a new theoretical framework, and this vacuum has left the political centre-stage open for policymakers, leading academics and Noble Laureates to recycle their worn-out platitudes.  Read more…

Capital and distributions of the surplus in the 21st century

April 30, 2014 6 comments

from David Ruccio

onepercent_graph

Thanks to Thomas Piketty’s new book, the returns to capital are now back on the intellectual—if not the political—agenda. Read more…

Moving On

April 29, 2014 13 comments

from Peter Radford

We now live, whether we have grasped that fact or not, in a post-Piketty era. This will seem silly to many of you who have toiled at the coal face of progressive issues for years, but I think it is something worth reflecting on. It isn’t us who need to be convinced. It is all those who have denied or avoided reality.

Something has changed.

Robert Locke, with whom I am having a rather public dialog with says this with regard to my note earlier about Piketty and the new Gilens & Page study:

“Peter, having convictions confirmed by numbers is nice, but for people who have lived observant lives since 1980, they just amount to “a penetrating glimpse into the obvious.” We need hopeful suggestions about how American public opinion can be effectively mobilized to institute an economic democracy. What books or articles, or people, should we listen to or read to effect that? We need to enter into a penetrating discuss[sic] about how change is managed. It won’t be easy. We had the abolitionists before the Civil War. Did they get rid of slavery? We had the Progressive movement at the beginning of the 20th century but it produced managerialism,not democracy. The people most effective in getting change done are the enemies of economic democracy. The system we have today is the result of their post1970 quite efficient transformational work.”

I do not want to raise Piketty to too exalted a status, but we ought to recognize his achievement, and that his effort is part of a much larger research scheme involving many others. This new era exists because we now have a massive dataset, thoroughly and transparently compiled across nations and through time sufficient to act as a foundation for a pivot away from the thinking of these past four decades.  Read more…

The new sharing economy in the USA

April 27, 2014 2 comments

from David Ruccio

24-average-hourly-wage-growth.w1120.h750

We’re hearing a lot about the virtues of the new sharing economy these days. But Kevin Roose [ht: sm] has a different view: Read more…

Economic policy in a post-Piketty world

April 25, 2014 19 comments

from Dean Baker

Thomas Piketty’s new book, Capital in the 21st Century, has done a remarkable job of focusing public attention on the growth of inequality in the last three decades and the risk that it will grow further in the decades ahead. Piketty’s basic point on this issue is almost too simple for economists to understand: if the rate of return on wealth (r) is greater than the rate of growth (g), then wealth is likely to become ever more concentrated.

This raises the obvious question of what can be done to offset this tendency towards rising inequality? Piketty’s answer is that we need a global wealth tax (GWT) to redistribute from the rich to everyone else. That is a reasonable solution if we’re just working out the arithmetic in this story, but don’t expect many politicians to be running on the GWT platform any time soon.

If we want to counter the rise in inequality that we have seen in recent decades we are going to have to find other mechanisms for reversing this upward redistribution. Specifically, we will have to look to ways to reduce the rents earned by the wealthy. These rents stem from government interventions in the economy that have the effect of redistributing income upward. In Piketty’s terminology cutting back these rents means reducing r, the rate of return on wealth.

Fortunately, we have a full bag of policy tools to accomplish precisely this task. The best place to start is the financial industry, primarily since this sector is so obviously a ward of the state and in many ways a drain on the productive economy. Read more…

2013 CEO-to-worker pay ratio in the USA

April 18, 2014 3 comments

from David Ruccio

CEO-worker-2013

According to the AFL-CIO’s latest “Executive Paywatch” report, the CEO-to-average-worker-pay ratio rose last year to 331:1. And the ratio of CEO pay to the minimum wage was much higher: 774:1.

That’s because, in both cases, workers’ wages remained more or less constant while the amount of surplus those workers created that ended up in the pockets of the CEOs of the nation’s largest corporations continued to rise.

As the AFL-CIO argues in their report: Read more…

Trickle-up economics

March 20, 2014 5 comments

from Lars Syll

1aquote-trickle-down-fraud

Inequality continues to grow all over the world — so don’t even for a second think that this is only an American problem! Read more…

Chart from the 2014 Economic Report of the President of the USA

from David Ruccio

ERP-productivity

This chart, from the 2014 Economic Report of the President [pdf], illustrates the Read more…

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