Inequality in the OECD: causes and policy responses

Inequality has become a ‘big’ topic in recent years, of concern both to economists and the public at large. This is exemplified by the popularity of Thomas Piketty’s Capital in the Twenty-First Century, and many other works. I have written on some of these studies here.

They continue to be churned out: in the July issue of the heterodox Cambridge Journal of Economics, Pasquale Tridico of Roma Tre University analyses the determinants of income inequality in 25 OECD countries between 1990 and 2013. He finds that ‘financialisation’, increased labour market flexibility, the declining influence of trade unions and welfare state retrenchment have been key to its rise.

When other factors such as economic growth, technological change, globalization and unemployment are taken into account, the above four causes remain important, and, to the extent that they can be changed as a matter of policy, they can mitigate inequality without harming economic growth. They are therefore not the full story but, for example, the negative effects of rising unemployment on inequality can be reduced if there is a strong social safety net in place. Continue reading

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Michael Hudson on Quantitative Easing

Plenty of economists, investors and others have been wondering what will happen to financial markets and the real economy as monetary stimulus in the form of Quantitative Easing is wound down by central banks from the US to the Eurozone in the face of stronger growth.

I will be writing more about it next week, considering the perspectives of critic Richard Koo among others, but here is Michael Hudson from, as ever, his iconoclastic and insightful ‘dictionary’ J is for Junk Economics (p.189-91): Continue reading

Finance, inequality, ecology – an interview with Steve Keen

A nice interview with post-Keynesian Professor Steve Keen, in which he discusses what are (or should be) some of the most important issues in modern economics.

He covers the role of finance and private debt in generating inequality and what can be done to reduce it; the idea and feasibility of a universal basic income; economics and planetary ecology; and the incorporation of energy into economic models.

J is for Junk Economics – Michael Hudson on the Real News Network

This year I have been regularly posting excerpts from Michael Hudson’s new book J is for Junk Economics. Below is Part One of his interview with The Real News Network, in which he discusses his reasons for writing this iconoclastic ‘dictionary’ of economic thought. In his words, it is a guide to how the economy really works and seeks to overturn a misleading orthodoxy propagated by the media and many academics, not least economists!

Michael Hudson on Class Consciousness

Here is another extract from Michael Hudson‘s excellent J is for Junk Economics (p.57-8):

Class Consciousness: This term has been associated mainly with the working class, but the elites may have an even stronger feeling of solidarity as a cohesive class. Their view of their place in the economy is much like that of England’s Norman conquerors, who extracted rental and tax tribute. The medieval Arab historian Ibn Khaldun attributed the conquests by pastoral nomads such as Genghis Kahn and Turkish tribes moving into Europe to the binding force of asabiyyah (asabiya), or social cohesiveness. His Muqaddimah, an introduction to a history of the world published in 1377, explained the rise and fall of nations and empires as reflecting the degree to which marauding tribes held together as an ethnic unit, whose mutual aid and shared goals spanned economic classes. Today’s financial class is cosmopolitan rather than ethnic or nationalist, absorbing client oligarchies into its ranks.

What is needed for economic success as a class is self-consciousness of common interests. Labor has won concessions from industry, but has not deterred finance from exploiting wage earners via mortgage lending, personal debt and pension-fund capitalism. Wealth is concentrated at the top of the economic pyramid as banks and bondholders gain control of industry and move to take over governments. Their political aim is to shift taxes off finance and its major clients, and to force taxpayers to pay interest to private bondholders. It seems as if today’s working class (the 99 percent) does not realize that a class war is being waged against them – or that as Warren Buffett said of his own One Percent, “we are winning it.”

The financial strategy in this class war is to popularize “identity politics” prompting voters to think of themselves as women, ethnic or racial minorities, or sexual categories (LBGTQ) instead of economic categories such as wage earners, debtors and/or renters. True identity politics should begin with economic class consciousness, solidarity and mutual aid. There can be little promotion of group self-interest without this.”

Trumponomics Part 1: Causes of the phenomenon

TrumponomicsAs promised, here is a review of some of the ideas covered in the fairly weighty tome Trumponomics – Causes and Consequences, recently published by the World Economics Association.

The book consists of 30 chapters, each one written by a different author. They are wide-ranging, but all come from a left perspective on economics and politics.

I am not going to review it chapter by chapter, but thought I would discuss some of the main ideas. As there is plenty to get through, I have divided it into three posts to be published this week: part 1 – causes, part 2 – consequences, and part 3 – alternatives.

Part 1 – Causes

A number of the chapters discuss the reasons for the electoral success of Donald Trump. The book is written by economists, so inevitably many of them have an economic basis. However, since their sympathies are with left wing heterodox thinking, much of it could be classed as political economy, which often incorporates political, historical and sociological ideas to an interdisciplinary analysis.

Broadly speaking, the rise of Trump can be explained by patterns of socio-economic change in recent decades which have left many behind; by the perception that particular elites, including the Democrats, have become disconnected from the concerns of ordinary people and have been captured by Wall Street and the ideology of neoliberalism; and by a campaign whose rhetoric successfully appealed to raw emotion rather than to rationality alone. Continue reading

Ha-Joon Chang: Financial markets need to become less – not more – efficient

In this video Cambridge University’s Ha-Joon Chang argues that financial markets need to become less efficient in order to serve the real economy and fund productive investment, rather than fueling financial asset-price bubbles and speculation.

He also makes the case that society needs more ‘active economic citizens’, who can press politicians and other elites to fashion better economic policies, and more effectively hold them to account.