Posts Tagged ‘Economic growth’

Can economic growth overtake rising inequality?

May 5, 2016

The French economist Thomas Piketty has a strong and obvious argument as to why the rich usually get richer and the rest of us not.

He points out that so long as the return on assets—of whatever kind—is at a higher rate than the rate of economic growth, wealth and income will flow to owners of capital, not to wage-earners.

If you see gross inequality as a problem, there are two possible solutions:

  1.  Raise the top tax brackets to reduce the share of the capitalists.
  2.  Increase the rate of economic growth to increase the share of the workers.

An economist named Gerald Friedman concluded that Bernie Sanders’ economic policy would produce 5.3 percent annual economic growth.  Other economists say that is over-optimistic to the point of being crazy.  But even if Friedman is right, it would still be less than the historic rate of return on capital.

If Piketty is right, it means economic growth alone will not stem the growth of economic inequality.  It will be necessary to reduce return on capital, not to zero, but to a rate less than the rate of economic growth.

One way to do this is to raise upper-bracket taxes to 1950s levels.  Regulation of interest rates and subprime lending would help.  Prosecution of financial fraud and enforcement of antitrust laws might have an effect.

Historically, as Piketty noted in Capital in the 21st Century, there have been other ways in which concentrations of wealth have been destroyed.  They have been destroyed by means of wars, revolutions and devastating economic depressions.

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How much do we really need?

September 27, 2015

The world has enough for everyone’s need, but not enough for everyone’s greed.
        ==Attributed to Gandhi

I believe that, with good luck and good management, the world is capable of feeding the world’s people through the hoped-for demographic transition, when population growth levels off.

But I doubt that the world is capable of keeping all of the world’s people at as high a material standard of living as I enjoy as a middle-class American, barring some breakthrough that is beyond my imagination.

numberRTE_DVstuffwedon'tneedOf course the world is not limited by my imagination.  I have no way of knowing what the future will be like.  Many of fears of 50 or 60 years ago proved unfounded.  Maybe my present fears will prove equally unfounded 50 or 60 years from now.

But, as the saying goes, hope is not a plan.  Suppose things are what they seem to be.

What is required to provide for everyone’s need?  How much is enough?

Back in the 1930s, thinkers such as Bertrand Russell and John Maynard Keynes projected that economic growth would, in the foreseeable future, provide enough so that human beings—at least those in the USA and UK—could cease striving for more and lead lives based on higher values than acquiring money.

This didn’t happen because the definition of “enough” changed.

I am unhappy if my Internet connection goes down for a few days.   I am in acute discomfort if my gas furnace ceases to function.   But I was happy as a boy without those things, and so were my parents.

If you go back in history, highly civilized people such as Ralph Waldo Emerson or Samuel Johnson lived happily without electricity, indoor plumbing or private automobiles, and their contemporaries put up with pain and discomfort that people today would find unendurable.

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The passing scene: January 3, 2015

January 3, 2015

Social Programs That Work by Ron Haskins in The New York Times.

Many social welfare programs fail.  The Obama administration has identified some that succeed.   While this does not change my unfavorable opinion of the President’s policies overall, I think he is entitled to credit for having this research done.

This City Eliminated Poverty and Nearly Everybody Forgot About It by Zi-Ann Lum for Huffington Post.

Between 1974 and 1979, the small city of Dauphin, Manitoba, guaranteed all residents a basic income—employed or not, able to work or not.  What was the ultimate outcome of this radical experiment?  Nobody ever bothered to check and find out.

What’s Wrong With Georgia? by Alana Semuels for The Atlantic.

Scott Walker has failed Wisconsin and Minnesota is the proof by Jimmy Anderson for the Milwaukee Journal-Sentinel.

Georgia and Wisconsin are the latest American states to discover that a Third World economic strategy—low wages, low taxes, low services and low regulation—is not a successful formula for creating jobs and promoting economic growth.

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Protecting wealth vs. promoting growth

April 30, 2014

piketty,mattbors5_n

There’s no single principle that explains everything, but there is great explanatory power inn the French economist Thomas Piketty’s idea that inequality always increases whenever the rate of return on investment exceeds the rate of growth of the economy, that is, when r > g.

piketty-saez-top10aThis is not something that results from impersonal economic forces.  During the past 30 years, the policy of the U.S. government, and of governments that follow the U.S. lead, has been to prioritize return on investment over economic growth.

The U.S. Congress and many state governments are in the process of cutting back scientific research, education, maintenance of public works and other things that are needed for our nation’s economic future, in order to keep tax rates low for corporations and upper bracket taxpayers.

These are the same “austerity” policies being enforced by the World Trade Organization, International Monetary Fund and European Central Government on vulnerable governments, which are forced to sacrifice the well-being of their citizens in order to satisfy powerful financial institutions.   In both cases, there is a tradeoff to sacrifice economic growth in order to maintain returns on investment.

top1%sharechart-02One part of austerity is to sell off government property at bargain rates and delegate public services to corporations.  Most of the time this amounts to a transfer of wealth from taxpayers to well-connected business owners, who have no financial incentive to maximize service.

Some other ways that government policy fosters investor income at the expense of economic growth are (1) bailing out banks that have failed due to reckless financial speculation, (2) refusal to prosecute financial fraud by the “too big to fail” banks or claw back profits due to fraud, (3) expansion of patent and copyright monopolies, (4) failure to regulate cable and telecommunications laws, (5) failure to enforce antitrust laws, (6) the ban on student loan refinancing or bankruptcy …. The list goes on.

Increasingly corporate management seeks profit not by increasing the size of the economic pie, but by giving investors and executives a larger part of the pie — through financial manipulation and excess fees in the case of banks, through driving down wages and increasing executive compensation in the case of corporations in general.  I don’t say all corporate managers behave in this way.  I say that this has become common and acceptable.

the-top-01-of-americans-get-a-near-record-amount-of-income-at-around-10The result has been a concentration of wealth and income in a tiny minority of the population, and economic stagnation for everybody else.   So the first step in reducing inequality is to stop promoting it.

Piketty’s preferred solution to undue concentration of wealth is a progressive tax on capital, sufficient to prevent the wealth of the economic elite from expanding at a faster rate than the economy as a whole, along with progressive taxes on income and inheritance.  I don’t object to any of these, but higher taxes on the rich do not, in and of themselves, benefit the middle class, wage-earners or the poor.   I think it is more important to  strengthen labor unions, raise the minimum wage, maintain essential public services and invest in the future.

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What if the era of economic growth is over?

January 6, 2014

Economic-Growth

The justification for capitalism is that no other economic system has been so successful in generating economic growth.   While economic growth does not in itself create mass prosperity, it creates the conditions in which mass prosperity is possible.

I’ve written many posts about the era when most Americans shared in the benefits of economic growth.  But an economist named Raul Ilarji Meijer asks:  What if growth is gone for good?

Every single proposal to deal with our weakened economies, whether they address housing markets, budget deficits, overall federal and personal debt, or pensions systems, is geared towards the same idea: a return to growth. It doesn’t seem to matter how real or likely it is, we all simply accept it as a given: there will be growth. It is as close to a religion as most of us get.

And while it may be true that in finance and politics the arsonists are running the fire station and the lunatics the asylum, we too are arsonists and loonies as long as we have eyes for growth only.  That doesn’t mean we should let Jamie Dimon [CEO of JP Morgan Chase] and his ilk continue what they do with impunity, it means that dealing with them will not solve the bigger issue: our own illusions and expectations.

We allow the decisions for our future to be made by those people who have the present system to thank for their leading positions in our societies, and we should really not expect them to bite the hand that has fed them their positions.

But that does mean that we, and our children, are not being prepared for the future; we’re only being prepared, through media and education systems, for a sequel of the past, or at best the present. That might work if the future were just an extrapolation of the past, but not if it’s substantially different.

If there is less wealth to go around, much less wealth, in the future, what do we do?  How do we, and how do our children, organize our societies, our private lives, and our dealings with other societies?  Whom amongst us is prepared to deal with a situation like that?  Whom amongst our children is today being educated to deal with it?  The answer to either question is never absolute zero, but it certainly does approach it.

[snip]

All we’ve really done in the new millennium is seek ways to hide our debts instead of restructuring them.  You can throw a few thousand people out of their homes, but if you label the by far biggest debtors, the banks, as too big to fail, and hence untouchable, nothing significant is restructured.  But that doesn’t mean it’s going to go away by itself, the by far biggest debt in the history of mankind.  At some point it must hit us in the form of a massive steamroller of dissolving and disappearing credit.  In a world that can’t function without it.

The question is to what degree our economic growth depends on burning up fossil fuels at an ever-faster rate, and what happens when what’s left of those fuels becomes prohibitively expensive.  Can we find a way to increase, or even maintain, our economic well-being by using human labor and other renewable resources more intelligently?

If our current capitalist system has outlived its usefulness, what would a new and better system be like?  If capitalism is the best system for economic growth, what system would be best for a steady-state economy?  It goes without saying that it would not be like the failed Soviet system!

This is why I am interested in learning more about anarchist philosophy.

What do you think?

Click on All The Plans We Make For Our Futures Are Delusions for Ilarji’s full post on The Automatic Earth web log.  Hat tip to naked capitalism.

How much did the economic stimulus help?

September 2, 2011

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The economic stimulus plan enacted with the leadership of President Barack Obama, Senate Majority Leader Harry Reid and then-House Speaker Nancy Pelosi did not end the Great Recession, but, as the following charts show, it did do some good.

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While the jobs recovery is encouraging, economists believe that it is necessary to create 90,000 to 260,000 new jobs per month just to keep up with the population increase.  That is why the unemployment rate hasn’t gone down.

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The mystery of the Great Stagnation

June 16, 2011

We’re not as innovative as we think we are, according to Tyler Cowen, a respected right-of-center on the faculty of George Mason University.  American innovation and American income growth are both slowing down, he said in a talk to a TED conference.

The great age of American innovation was the first half of the 20th century, not the second half, Cowen said.  During the early 20th century, electricity, the telephone, the automobile, broadcasting and aviation revolutionized American life.  Nuclear power, the space program, xerography, the personal computer, the Internet, the cell phone – these changed American life much less.

I think what he said is correct.  I could, without much discomfort, go back to living as I did in 1961.  I don’t think many Americans who were 74 in 1961 would have willingly gone back to living as they did in 1911.

Cowen said 20th century American innovation was based largely on inventions and discoveries of the late 19th century – the electrical generator and the internal combustion engine.   Most of what came after is based on a realization of the possibilities in these two things.  The main exception that comes to mind is antibiotics, also an innovation of the early 20th century.

But Cowen does not really address the question of why this is so, and nor does he connect it with the slowing of income growth.

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