Tag Archives: inequality

Inequality – What is to be done?

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I finished [amazon_link id=”0674504763″ target=”_blank” ]Inequality: What Can Be Done?[/amazon_link] by Tony Atkinson, and think it’s great. If you’re only going to read one book on the subject, this is more useful than [amazon_link id=”067443000X” target=”_blank” ]Piketty[/amazon_link] – although I have Francois Bourguignon’s forthcoming (May) [amazon_link id=”069116052X” target=”_blank” ]The Globalization of Inequality[/amazon_link] in my in-pile and have high hopes for that one too, as a companion work.

[amazon_image id=”0674504763″ link=”true” target=”_blank” size=”medium” ]Inequality[/amazon_image]  [amazon_image id=”069116052X” link=”true” target=”_blank” size=”medium” ]The Globalization of Inequality[/amazon_image]

As noted in my previous posts, Atkinson’s [amazon_link id=”0674504763″ target=”_blank” ]Inequality[/amazon_link] starts out very carefully and clearly with the data, highlighting the fundamental point that although there are some common underlying trends tending to drive greater inequality in market incomes, different countries have had different outcomes in terms of post-tax, post-transfer incomes (and in access to public goods and services too, but this is too hard to measure). Even when it comes to the skill bias of technological change, on which many economists (me included) have placed a lot of emphasis as an explanatory factor, Atkinson argues that this is not a given of the universe. The direction of investment spending and substitution is shaped by the menu of opportunities firms face, and that is not exogenous.

His main focus is how firms make these choices and exercise their market power. What constraints do they face? This depends on the state, and on corporate governance, and on finance. All of these offer paths to influencing income distribution.

The second part of the book offers s series (15) of policy interventions to reverse the increased income inequality – there is a UK focus in the recommendations. I don’t agree with all of them, or at least not without further thought. For instance, he recommends implementing competition policy with explicit distributional considerations. However, I love the fact that there are 15 suggestions – enough of books that pretend there are simple solutions! When it comes to inequality, there’s a generation’s worth of institutional and political change behind the current situation so narrowing the income distribution will take work.

One of Atkinson’s key proposals is a vehicle for assessing and co-ordinating what will be needed is a new Social and Economic Council, with members drawn from the old tripartite of unions, business and government but adding also non-governmental organisations and consumer groups. He includes also property taxation – a proportional tax on regularly uprated property values. Every economist I know in the UK (many) recommends reforming property taxation – I was much struck by John Muellbauer’s FT column today calling for an updated and progressive council tax, with an equity transfer instead of cash payment option. Kate Barker’s excellent [amazon_link id=”1907994114″ target=”_blank” ]Housing: Where’s the plan?[/amazon_link] included a look at capital gains tax on the main dwelling.

[amazon_image id=”1907994114″ link=”true” target=”_blank” size=”medium” ]Housing: Where’s the Plan? (Perspectives)[/amazon_image]

There are many other suggestions in the book – capital endowments for all young people; a job guarantee for those out of work for more then 12 months; and more. The length of the list could be depressing (you mean we can’t just tax plutocrats?) but I found it ended up cheering me because there are so many good policy ideas here that perhaps a government could make a start with just a few and take it from there.

Anyway, UK folks, read this book and then for comparison read your favourite party manifesto. Now, onto [amazon_link id=”069116052X” target=”_blank” ]the global picture[/amazon_link].

The Beatles and class struggle

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[amazon_link id=”0674504763″ target=”_blank” ]Inequality[/amazon_link] by Anthony Atkinson is terrific. I’ll review it properly when I’ve finished. Meanwhile, one thing I really like about it is that he is heading toward policy proposals rooted in a reasonably detailed structural analysis of how the economy works, rather than in abstract macro theory. You get a sense of this in the ‘Setting the Scene’ section from his references to Michal Kalecki’s Class Struggle and the Distribution of National Income and J.K.Galbraith’s [amazon_link id=”1614273251″ target=”_blank” ]American Capitalism[/amazon_link]. Yes, we are talking about market power and the political power to change the rules of the game that flows from it. If the way markets work is flawed, the macro outcomes will be flawed too.

[amazon_image id=”0674504763″ link=”true” target=”_blank” size=”medium” ]Inequality[/amazon_image]  [amazon_image id=”B0010JYWD6″ link=”true” target=”_blank” size=”medium” ]American Capitalism[/amazon_image]  [amazon_image id=”0198285388″ link=”true” target=”_blank” size=”medium” ]Collected Works of Michal Kalecki: Volume 1: Capitalism: Business Cycles and Full Employment: Capitalism – Business Cycles and Full Employment Vol 1 (Collected Works of Micha Kalecki)[/amazon_image]

There are some terrific nuggets of information along the way. To get the UK’s Gini coefficient back to where it was in the 1960s when the Beatles were playing just using taxes and transfers – a 10 point reduction from its current level – income tax would have to rise by 16 percentage points. The political impossibility of post hoc redistribution using only taxation is clear. “This is why many of the policy measures proposed in this book are directed at making the distribution of market incomes less unequal,” writes Atkinson.

Not all numbers are equal

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I’ve started reading Tony Atkinson’s new book, I[amazon_link id=”0674504763″ target=”_blank” ]nequality: What can be done?[/amazon_link] and already think it a much better book than the famous [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century[/amazon_link] (which for me was marred by the half-baked r and g business – see for example the Jaume Ventura slides here – as well as the lack of any practical policy suggestions).

[amazon_image id=”0674504763″ link=”true” target=”_blank” size=”medium” ]Inequality[/amazon_image]

Although not far into [amazon_link id=”0674504763″ target=”_blank” ]Inequality[/amazon_link], I completely and utterly agree with the following, in a chapter describing carefully the sources and character of the data (something else on which Piketty is actually rather weak – hence the challenge much reported this week from a graduate student at MIT):

“In seeking to draw lessons from the statistics on inequality, we have to be confident in the quality of the data we are using. This is why I begin this chapter by describing and evaluation the sources of evidence on which scholars of inequality can draw. Such scrutiny is essential. All too often economists race ahead, drawing conclusions from figures that happen to be there, without asking why the data are suitable.”

Serendipitously, while reading this I’ve also been thinking about a keynote I’m giving soon at an OECD conference on [amazon_link id=”0691156794″ target=”_blank” ]GDP[/amazon_link] and the national accounts statistics in a couple of weeks’ time. All the thousands of studies and political claims resting on GDP growth figures are based on shifting sands, and we economists need to think far more carefully about what they take to be evidence for strong claims. There are some powerful examples in a paper presented by Samuel Williamson and Enrico Berkes recently at the Economic History Society conference.

Revolutionaries, old and new

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One of the enticing books reviewed this weekend (here in the FT by Francis Fukuyama, for instance) was Robert Putnam’s latest, [amazon_link id=”1476769893″ target=”_blank” ]Our Kids: The American Dream in Crisis[/amazon_link]. Fukuyama describes it as: “A truly masterful volume that should shock Americans into confronting what has happened to their society.” The US has become a class-based society; the solid middle has been eroded both by economic and by cultural change. It has happened or is happening throughout the OECD, some of whose member countries (including the UK) were always class-riven. The loss of the middle has just made the social chasm clearer. (Indeed, it’s being built into the fabric of the land, as this report including a description of separate doors for the lower classes living in “social housing” shockingly demonstrates.)

[amazon_image id=”1476769893″ link=”true” target=”_blank” size=”medium” ]Our Kids: The American Dream in Crisis[/amazon_image]

I had just been looking through the new paperback edition of a 2013 book, [amazon_link id=”B00MK2WM98″ target=”_blank” ]The Citizen’s Share: Reducing Inequality in the 21st Century[/amazon_link], by Joseph Blasi, Richard Freeman and Douglas Kruse. It’s a very American book in that it roots the case for restoring greater equality in the writings of the Founding Fathers of the American Revolution, Jefferson, Hamilton and Madison, with many quotations. Here is Madison: “There are various ways in which the rich may oppress the poor; in which property may oppress liberty; and that the world is filled with examples. It is necessary that the poor should have a defense against the danger.” The defence advocated in the book is an extension of ‘broadbased’ capitalism, particularly through increased employee ownership and ownership of other assets. Specific recommendations include not allowing share incentive schemes to count as a cost of business unless they apply to all employees, giving all newborns a small amount of capital, an effective capital gains tax and so on. All perfectly sensible, although I’m slightly sceptical about the scope for or desirability of much more extensive employee ownership, as the same few examples of success stories are cited all the time.

[amazon_image id=”B00MK2WM98″ link=”true” target=”_blank” size=”medium” ][(The Citizen’s Share: Putting Ownership Back into Democracy)] [ By (author) Joseph R. Blasi, By (author) Richard B. Freeman, By (author) Douglas L. Kruse ] [January, 2014][/amazon_image]

Tackling corrosive inequality will be a complicated business, and there will be detailed debates about all the policies required. But the underlying question is simple – do we want to accept the end of our representative democracies based on a solid middle class, or not? It’s a political question – politics and culture trump economics even if the underlying economic/technological trends seem inexorable. So meanwhile, while waiting for Putnam’s book to come out here, I’ve ordered [amazon_link id=”B00RYGKVAW” target=”_blank” ]Blueprint for Revolution[/amazon_link] by Srdja Popovic, having been intrigued by Otpor since reading this in Foreign Policy. It might come in useful.

[amazon_image id=”B00RYGKVAW” link=”true” target=”_blank” size=”medium” ]Blueprint for Revolution: how to use rice pudding, Lego men, and other non-violent techniques to galvanise communities, overthrow dictators, or simply change the world[/amazon_image]

The top 1%

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John Kay’s column in the FT on 6 January 2015 is headed: “Rise in US and UK inequality principally due to financialisation and executive pay.” He says: “The rise in inequality in some western countries is principally the result of two interrelated causes: the growth of the finance sector; and the explosion of the remuneration of senior executives. The people who ran big companies were always relatively well paid, but the meaning of “relatively well paid” is now altogether different.” (John’s new book, Other People’s Money, will be published by Profile later this year.)

This is from Ralph Milliband in [amazon_link id=”0850366887″ target=”_blank” ]The State in Capitalist Society[/amazon_link] (1973):

“The most important political fact about advanced capitalist societies…is the continued existence in them of private and ever more concentrated economic power. As a result of that power, the men –owners and controllers –in whose hands it lies enjoy a massive preponderance in society, in the political system, and in the determination of the state’s policy and actions.”

[amazon_image id=”0850366887″ link=”true” target=”_blank” size=”medium” ]The State in Capitalist Society[/amazon_image]

As Orazio Attanasio said at the recent CEPR/Bank of England conference on [amazon_link id=”B00I2WNYJW” target=”_blank” ]Thomas Piketty’s book[/amazon_link], there are two inequality problems, the bottom 10% and the top 1%. The latter are mainly the bankers and CEOs.