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Inequality challenge in pursued economies

2 days ago

From Richard Koo and issue 92 of RWER
Income inequality has become one of the hottest and most controversial issues in economics not only in the developed world but also in China and elsewhere as well. Many are growing increasingly uncomfortable with the divide between the haves and the have-nots, especially after Thomas Piketty’s Capital in the 21st Century2sparked a fresh debate on the optimal distribution of wealth, an issue that had been largely overlooked by the economics profession.
This paper argues that the determinants of income inequality changes depending on the stage of economic development. The three stages of industrialization identified for this purpose are: urbanizing era, when the economy has yet to reach the Lewis Turning Point (LTP), post-LTP maturing or golden era

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Global inequality in a time of pandemic

6 days ago

From Jayati Ghosh and issue 93 of RWER
A global pandemic is a particularly bad time to be reminded of existing inequalities. But there is no doubt that the Covid-19 pandemic has highlighted the extent of inequalities between and within countries. Whatever may be the fond sentiments expressed by at least some global leaders, we are clearly not “all in this together”. It is true that in principle, a virus is no respecter of class or other socio-economic distinctions: it enters human hosts without checking for such attributes. And the rapid global spread of this particular virus has shown that it is no respecter of national borders either, which points to the more fundamental truth that as long as anyone anywhere has a contagious disease, everyone everywhere is under threat. This should

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Heterodox economics needs to develop an agreed ontology and agreed modeling methods

19 days ago

From Ikonoclast
The essential problem is that heterodox economics needs to develop an agreed ontology and agreed modeling methods, including broad agreements on the likely limits to modeling. Peter Radford has pointed out some of the ways (and reasons why) the economy cannot be modeled accurately in key respects.
Orthodox economics has an agreed framework. Orthodox economists mostly agree on their framework and they accept their implied economic ontology, without question or discussion for the most part. Of course, the problem is that their framework lacks an empirically supportable ontology and thus is itself entirely un-empirical. Orthodox economists can’t see it. Every scientist and philosopher of the sciences and social sciences can see it. But while political power supports false

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Why isn’t Modern Monetary Theory common knowledge?

22 days ago

From Blair Fix
I’ve always been baffled why ‘modern monetary theory’ is called a theory. I don’t mean this in a disparaging way. As far as theories of money go, I think modern monetary theory (MMT for short) is the correct one. But having a correct theory of money is a bit like having a correct theory of traffic lights.
Traffic lights (like money) are a social convention. We agree that red means stop and green means go. Why we’ve chosen these particular colors is an interesting question, as is why we choose to put traffic lights where we do. But the fact that red means stop and green means go just is. It’s something we’ve defined to be true. The workings of money are similar. True, money is more complex than a traffic light — but only in application. In conceptual terms, money is

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Income inequality between North and South in relation to global income inequality

July 8, 2020

From Robert Wade and RWER issue no.92
The bottom line is that North and South are coherent blocs in important ways. The income gap between the North-South blocs is – persistently – larger than the income gaps within them. If we plot the share of world population living in countries arranged by average income we see a pronounced bimodal distribution, with not much population in between.
Countries of the North enjoy common economic benefits from their superior position in the world hierarchy, making for common interests in protecting their position from challengers. They translate common interests into political treaties, such as free trade agreements (e.g. NAFTA), political federations (eg European Union), and security agreements (eg NATO); and into common agreements linking groups of

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There is something new about unemployment today

July 8, 2020

Fred Zimmerman  (originally a comment)
Taken together, the chapters of Anthropologies of Unemployment, New Perspectives on Work and Its Absence, edited by Jong Bum Kwon and Carrie M. Laneby reveal that there is something new about unemployment today. It is not a temporary occurrence, but a chronic condition. In adjusting to persistent, longstanding unemployment, people and groups create new understandings of unemployment as well as of work and employment; they improvise new forms of sociality, morality, and personhood. Ethnographic studies such as those found in Anthropologies of Unemployment are crucial if we are to understand the broader forms, meanings, and significance of pervasive economic insecurity and discover the emergence of new social and cultural possibilities.

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Something must give at this point

July 7, 2020

From Ikonoclast  (originally a comment)
n C21 Piketty was exposing the automatic outcomes of an axiom-based legal law, regulation and financial system. The real economy is a real system (obviously). The financial economy is a formal system whose operations are prescribed by its axioms. Our system of legal laws, regulations, financial rules and financial calculations (bookkeeping and national accounts) is a formal, prescriptive system founded on ideological property axioms and calculated out via prescribed operations in the numéraire (money or financial capital). The RWER article even happens to mention one property axiom of the modern system: the axiom “for unlimited private accumulation.”
The expression r>g was not put forward by Piketty as a “law”. He put it forward as a tendency

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Thomas Piketty’s changing views on inequality

July 4, 2020

From Steven Pressman and RWER issue no.92
Thomas Piketty established his professional reputation by using income tax returns to measure income distribution over long time periods in several nations. Long before Capital in the Twenty-First Century (hereafter C21) appeared, Piketty (2001; 2003; & Saez, 2003) showed that, in many capitalist countries, income flowed to the top 1% (really the top .1%). C21 made two new contributions – a theory to explain this phenomenon, r>g, and a policy solution, taxing wealth.
Surprisingly, C21 became an international best seller. Nonetheless, it was criticized by a broad array of economists. Heterodox economists objected to the economic theory Piketty used to explain rising inequality. Neoclassical economists disliked his policy proposal and understood

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Inter-generational wealth distribution

July 3, 2020

From Girol Karacaoglu and RWER issue no.92
The growing disparity across generations, in their access to material sources of wellbeing such as income and wealth (including housing), has been well documented (Ingraham 2019, Wolf 2018). Figure 2 provides an example referring to the growing disparity of wealth across generations in the USA (Ingraham 2019).

As Ingraham explains, “baby boomers – those born between 1946 and 1964 – collectively owned 21 percent of the nation’s wealth by the time their generation hit a median age of 35 in 1990. Generation X (born from 1965 to 1980) came of age during the era of wage stagnation and growing inequality ushered in by the 1970s and ’80s.
When the typical Gen Xer reached 35 in 2008, his or her share of the nation’s wealth was just 9 percent, less

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Why COVID-19 is the great unequalizer

July 2, 2020

From Marshall Auerback and RWER issue no.92
In the daily TV press conferences that New York Governor Andrew Cuomo conducted throughout the spring, he referred to COVID-19 as “the great equalizer.” In the sense that anybody can be infected by the virus, the governor is right. Yet after several months, the data shows clearly the impact is unequally landing on the shoulders of people of color and all but the wealthiest. The health impacts and absence of economic measures to protect them are so extreme that Cuomo’s statements are more than hollow – they are cruel cover-ups.
If anything, COVID-19 has been little more than a novelty for the 1 percent and a dystopian nightmare for the rest of us. The U.S. now has the highest number of cases in the world. Nearly 2.1 million people have been

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RWER special issue: The Inequality Crisis

July 1, 2020

Sanity, humanity and science                       probably the world’s most read economics journalreal-world economics review
Please click here to support this journal and the WEA back issues Subscribers: 26,271 subscribe RWER Blog ISSN 1755-9472A journal of the World Economics Association (WEA) 14,468 members, join Sister journals: Economic Thought and WEA Commentaries
Issue no. 92 29 June 2020The Inequality Crisis download whole issue

The three options: an introductionEdward Fullbrook


Rethinking the world economy as a two-bloc hierarchyRobert H. Wade


Global inequality in a time of pandemicJayati Ghosh


The United States of inequalityDavid F. Ruccio


Fixing capitalism: stopping inequality at its sourceDean Baker


Inequality challenge in

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Capitalism vs. impact science

June 25, 2020

From Ikonoclast (originally posted as a comment)
There is clearly a strong correlation between science denialism and COVID-19 case rates in developed and semi-developed countries. Capitalism has an ambivalent relationship with science. Capitalists love production science and technology, including of course mining, industrial, consumerist, military, security, control and persuasion techs but they hate impact science. The impact sciences of course measure the impacts of science and technology (and natural events) on the biosphere, environments, plants, animals and humans. Capitalism does not want any interference from impact science knowledge getting in the way of profits for the few.
When it

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Another financial rescue by the US Fed

June 17, 2020

From  C. P. Chandrasekhar
While forecasters grapple with predictions on the likely contraction in the world’s leading economies, big finance, especially in the US, seems to be prematurely preparing for its next celebration. Recall that while the post-2008 Great Recession was precipitated by the financial collapse triggered by unbridled speculation in financial markets, the subsequent ‘recovery’ from the crisis saved and rewarded finance, but left the real economy limping and workers and the middle class poorer and often homeless. As the US and the rest of the world got accustomed to a new normal of slower growth, financial companies returned to profit, speculative agents had their bonuses restored and the New York stock exchange experienced the longest bull run in its history.

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The illusion of precision

June 14, 2020

From Ikonoclast (originally posted as a comment)

A policeman puts his knee on the neck of a black man in Minneapolis for 8 minutes 46 seconds. A statue to a slave trader falls down in Bristol. This recalls the butterfly effect of Chaos theory. There is no humanly constructed model which would allow one to predict the second specific event from the first specific event. A broader probabilistic model might make predictions of protests and demonstrations after the first event, especially in a social media connected world. The model might struggle to predict where the protests would spread to, what form they would take, and especially the ramifications when it occurs synchronously with a virus outbreak and a social and economic lock-down predisposing whole systems of people to react

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Seeding doubt to provoke thinking outside the cage

June 9, 2020

From Alanso Kihano (originally posted as a comment)
What’s the use of economics? I think Alan Kirman’s post is completely off the target. Economics is used to achieve political aims. Politics it the first and major use of economics! The major purpose of economics today is to educate (or brainwash if you prefer) specialists, who can serve, and run the current socio-economic system without understanding it. Therefore, economics is obliged to create complex, but inadequate models. That suits perfectly the aim – the system could not be understood, and economics simulates sciences to gain credibility.
Why that is necessary? To answer this question we need some retrospection. The contemporary mainstream economics is founded on the school of Adam Smith. Turn back to the political context of

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Economics’ missing ontology: the key obstacle to theoretical progress

June 9, 2020

From Ikonoclast (originally posted as a comment)
The key obstacle to theoretical progress is the fact that economics is both a prescriptive and a descriptive discipline. We have not developed an economic ontologly to deal with this issue.
The real economy is a real system. The natural environment is a real system. The set of legal laws, legal property relations, institutional arrangements, financial rules and calculations which we innovate and use as “rules and score-keeping of the game” are formal systems. How are we to integrate a subject encompassing and utilizing real systems and formal systems? What method can we devise to achieve the integration of such a discipline? These are the fundamental questions for economics. Economics has this foundational ontological problem in that it

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Structural fragility and net effects

May 27, 2020

From Jamie Morgan
Part 5 of Pandemic aware economies, public health business models and
(im)possible futures
An economy that grows through increasing final consumption is one that evolves with final consumption and so its reproduction, stability and growth are specially dependent on it and on the associated characteristics of work and financing. It matters how people are paid, how they are contracted, what levels of debt they take on in order to work  – for example reliance on a childcare industry – and what they are willing to do in order to consume, bearing in mind discretionary spending does not mean all consumption is freely chosen or can be foregone without consequences. If a consumption-focused economy has higher levels of sub-contracted employees, zero-hour employees and

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New fronts in the US-China trade war

May 20, 2020

From C. P. Chandrasekhar and Jayati Ghosh
While everyone was busy looking at the Covid-19 numbers across the world, other “stuff was happening” in international trade: the US-China trade war, which started as far back July 2018, just got significantly worse. This on-again-off-again war has been a feature of the Trump Presidency, with the man who became president of the US in January 2017 vowing to prevent the US from being “exploited” by other countries, notably China, that had benefited from the US market by running bilateral trade surpluses.
Trump focussed on the US aggregate surplus as well as certain bilateral surpluses, missing the basic point that aggregate trade and current account surpluses in an economy are the result of internal macroeconomic imbalances (between aggregate

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The Pandemic and the Global Economy

April 28, 2020

Unequal Effects        The Aftermath         Averting Catastrophe

from Jayati Ghosh

There are still many uncertainties about the COVID-19 pandemic: about the extent of its spread, its severity in different countries, the length of the outbreak, and whether an initial decline could be followed by a recurrence. But some things are already certain: we know that the economic impact of this pandemic is already immense, dwarfing anything that we have experienced in living memory. The current shock to the global economy is certainly much bigger than that of the 2008 global financial crisis, and is likely to be more severe than the Great Depression. Even the two world wars of the twentieth century, while they disrupted supply chains and devastated physical infrastructure and populations, did

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A debt jubilee is the only way to avoid a depression

April 21, 2020

From Michael Hudson
Even before the novel coronavirus appeared, many American families were falling behind on student loans, auto loans, credit cards and other payments. America’s debt overhead was pricing its labor and industry out of world markets. A debt crisis was inevitable eventually, but covid-19 has made it immediate.
Massive social distancing, with its accompanying job losses, stock dives and huge bailouts to corporations, raises the threat of a depression. But it doesn’t have to be this way. History offers us another alternative in such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is

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The world was a mess before anyone ever uttered the word coronavirus

April 9, 2020

From Ken Zimmerman
According to the UN (and many others) the world was a mess before anyone ever uttered the word coronavirus. These problems remain waiting for us after the current crisis fades.
1. We have a decade to significantly curb carbon emissions and avoid catastrophe. Because of years of delayed action, we face an even more pressing mandate. We need to halve global emissions by 2030 but the emissions gap between what is needed and our current commitments is significant. Starting this year [2020], we need to cut emissions by 7.6% every year for the next 10 years to limit warming to 1.5 degrees.
2. The start of 2020 ushers in the ten-year countdown to deliver the Sustainable Development Goals (SDGs) [particularly elimination of poverty and extreme poverty] and is a crucial year

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As GDPs crumble… 

April 7, 2020

As GDPs crumble… 
With the pause button pressed on nearly half of economic activity in the US and the EU for what is likely to be at least a period of three months, consumption, investment and trade have all collapsed. A contraction of as much as 10-20% of GDP or worse is possible. Pervasive uncertainty about the timing of the development of a viable treatment and/or vaccine means there is no light at the end of the tunnel yet. Even when we get there, the trauma of the COVID-19 meltdown will keep investors and consumers on the sidelines.
…tax revenues will collapse…
This will blow a massive hole through tax revenues. Corporate taxes that derive from profits will collapse first. Sales and value-added taxes will register a dramatic fall in line with the collapse in economic activity. The

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