Category Archives: Income disparity

The Unattainable Illusion of Meritocracy

I’m a big fan of Richard Bookstaber, the author of the important book A Demon of Our Own Design. And while I’m glad to see a rare new post from him, on how to deal with the matter of inequality (as in whether to deal with the problem ex ante, by creating more equal opportunities, or ex post, by trying to reduce disparities of outcomes), I found one of the core parts of his discussion, on merit and meritocracy, to be maddening. In fairness, this isn’t Bookstaber’s fault; he’s working within an established framework of thinking on this topic.

Repeat after me: in complex societies and organizations, merit is a complete illusion.

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Adair Turner: The Consequences of Money-Manager Capitalism

Yves here. This is a terrific interview with Lord Adair Turner, former head of the FSA. Most of it focuses on the things missed in contemporary economics, particularly macroeconomics, and how some disciplinary “back to the future” would be desirable. A major topic of discussion is how wealth is becoming as concentrated as it was in the 18th century, and the driver then and now was the disproportionately large role real estate has come to play. Then, it was income-producing agricultural land. Now it is urban property, bid up by domestic and international elites who want to live in particularly prized cities. Turner points out the irony that access to cheap finance for housing, meant to help middle and lower income buyers, has instead contributed to rising wealth inequality. He also describes how the ability of banks and financial markets to supply virtually unlimited amounts of credit, against a limited stock of particularly sought-after locations, has the potential to create tulip-mania type results.

Perhaps due to time constraints, Turner didn’t venture into the views of classical economists, that profiting from land, which they derided as rentier capitalism, was economically unproductive. As Michael Hudson has stressed, they urged heavy taxation of land as the remedy.

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Class Traitors: How Ideological Brainwashing Gets Rich and Ordinary Americans to Undermine Their Economic Interest

Linda Beale, of ataxingmatter, has written forcefully and persuasively about some of the propagandizing-accepted-as-gospel that the well-heeled use to advocate policies that advance their economic interests. For instance, as most Naked Capitalism readers appreciate, but a remarkably large swathe of the US population does not, tax cuts for big corporations are simply a transfer to the rich. From a post last year:

I’ve argued frequently in the past that there is no there there–i.e., that lowering corporate tax rates will do nothing to create jobs. Instead, I’ve said, it will simply deliver an even higher profit margin to be skimmed off by the highest paid executives and, possibly, shareholders. The higher profit margins are unlikely even to be used to increase workers’ shares of the corporate revenues through higher wages, a place where they could most help the economy other than new jobs created. Thus, the drive for “revenue neutral” corporate tax reform (cut corporate taxes, cut expenditures elsewhere to make up for the decreased corporate tax revenues) is just another example of corporatism as an engine of the modern form of US class warfare

Beale takes up a different theme today: how the rich and poor act against their economic interest. For many in middle and lower income strata in red states, hostility to the government is an article of faith even though those states (and many of those same govement-hating citizens) are significant beneficiaries of Federal programs.

But less well recognized are the ways that the wealthy are undermining themselves. They’ve taken the “increase our distance from everyone else” experiment well beyond its point of maximum advantage, not just to the society around them but also in terms of the costs to the class warriors.

As we’ve pointed out, highly unequal societies have lower lifespans, even among the rich; the shallower social networks of stratified societies and the high cost of losing one’s perch, in terms of loss of friends and status, creates an ongoing level of stress that has a longevity cost. Beale points out something we’ve mentioned occasionally in the past, that creating an underclass with inadequate access to medical services is a great breeding ground for public health problems. The fact that many low income Americans can’t afford to take sick days and health plans generally have high deductibles, which discourage individuals from getting treated until they are sure they are really sick, isn’t a great program design if you want to reduce the spread of infectious diseases.

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The Financialization of Life

Yves here. One of the efforts the Naked Capitalism community has been engaged in is trying to understand and map our emerging political and economic order. Over the last four decades, massive changes have taken place in social values, in job security, in the importance of communities relative to other networks, like professional associations, and in the role of the state. Economists, social scientists, and laypeople have used various frameworks for describing this period. Understanding the driving process is important not merely for the purposes of description, but also for analysis, since a major question remains open: is this a last gasp of large-scale industrial capitalism, or is this the starting phase of a new economic order? We’ve tended to see this period as a self-limiting finance-led counter-revolution against the New Deal, but that may prove to be too optimistic a reading.

This Real News Network interview with Costas Lapavitsas, a professor in economics at the University of London School of Oriental and African Studies, takes a different perspective. Lapavitsas contends that financialization itself constitutes a new form of capitalism, which is supported by neoliberal ideology.

Independent of whether you fully agree with Lapavitsas’ framing, this talk gives a good overview of the major economic and political changes since 1970. His summary would be useful for those who could use a historical perspective on these shifts, or want a high-level understanding of the restructuring of modern economies without having to get too deep into the weeds. But even though this interview is designed to go down easily, it offers a lot of grist for thought.

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LinkedIn’s “Economic Graph” as Algorithmic, Global Labor Brokerage and Panopticon

Silicon Valley labor law violator LinkedIn has a vision — “the Economic Graph” — and it’s sponsoring a $25,000 contest to find “researchers, academics, and data-driven thinkers” to help them make it a reality.[1] Here’s the vision in short form: There are approximately 3 billion people in the global workforce. LinkedIn’s vision is to create […]

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The Mixed International Picture on Poverty and Inequality

Yves here. As much as readers may already have an intuitive grasp of the story told in this post, data can help define its contours better. Here we see that the rising tide of global growth has not lifted all boats. The gains of the once-poor in China and India have come at the expense of the what used to be the middle class in more developed countries. Reducing poverty has not been a zero sum game. This post also omits another key piece: the rise and rise of an uber-wealthy class.

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WalMart Makes Empty Gesture to End Minimum Wage Pay While Cutting Pay Levels

WalMart just announced that it will at some unspecified point down the road end minimum wage-level pay for its workers. As we’ll demonstrate, there is way less here than meets the eye. In fact, all in pay levels, including benefits, are falling for WalMart workers, not rising.

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Michael Hudson: Piketty vs. the Classical Economic Reformers

Yves here. This post by Michael Hudson is one entry from an issue of a journal critiquing Thomas Piketty’s Capital in the 21st Century. Hudson argues that even though Piketty’s findings about wealth accumulation over the centuries are useful, he nevertheless has done a great disservice by treating “wealth” as an undifferentiated lump. By contrast, classical economists differential between rentier behavior (such earning income from economically unproductive activities such as land ownership), financialization, and leveraged speculation on asset prices. Hudson argues that Piketty’s failure to probe the types of wealth and the impact of income-generation strategies for various types of wealth, as well as his failure to incorporate legal and political arrangements means his book tacitly supports the status quo. Inequality for him is a state of nature, not a function of how our economy is organized.

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Rob Johnson on the Uber Rich: Top 400 US Billionaires’ Wealth Equals Brazil’s GDP

Yves here. Real News Network features a vivid discussion between Rob Johnson, Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and a member of the UN Commission of Experts on Finance and International Monetary Reform, and Paul Jay on the short-sightedness of the uber-rich.

Although many of the themes of this talk will be familiar to Naked Capitalism readers, Johnson, who is also a long-standing political insider, is blunt.

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David Quentin and Nicholas Shaxson: The “Patent Box” – Proof That the UK is a Rogue State in Corporate Tax

Yves here. We are delighted to welcome two world-recognized tax experts as writers on our site. They also happen to fall in the minority that believes that paying taxes is the price of civilization. And to top it off, they write in a layperson-friendly yet technically accurate manner.

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Exclusive: How Private Debt Strangles Growth, Stokes Financial Crises, and Increases Inequality

Yves here. Richard Vague has been kind enough to allow us to feature an extract from his recent book, The Next Economic Disaster: Why It’s Coming and How to Avoid It. I first met Richard several years ago at the Atlantic Economy Summit. If my memory serves me correctly, he was then taken with the conventional view that debt was a dampener to growth…meaning government debt. The issue of what caused our economic malaise and what to do about it troubled him enough to lead him to make his own study, and he has come to reject the neoliberal view that government debt is problem and must therefore be contained.

This view implies, as many readers have pointed out, that the great lost opportunity of the crisis was restructuring mortgage debt. That would also have allowed housing prices to reset to levels in line with consumer incomes. Vague also mentions a less-widely-commeneted on debt explosion prior to the crisis, that of business debt. One big contributor was an explosion in takeover debt for private equity transactions. Indeed, a lot of experts were concerned about a blowup due to the difficulty of refinancing these deals in the 2012-2014 time horizon. But ZIRP and QE produced enormous hunger among investors for any type of asset with non-trivial yield, so the Fed enabled the deal barons to refinance on the cheap.

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