August 31, 2015

2015

Free Market of Ideas

Date Post / Link Title

December

20 Post CSIRO: Public Opinion About Climate Change — Australia
18 Post International Energy Agency: The 6°C Scenario
10 Post PBS Frontline: A Duty to Protect
Greg Bear: The End of War
9 Post Michael Shermer: Climate Change Skeptic
3 Link Steve Silberman: Asperger vs Kanner

November

27 Post World Meteorological Organization: 2015 likely to be Warmest on Record
Link International Energy Agency: Global energy-related emissions of carbon dioxide stalled in 2014
World Meteorological Organization: Global average concentration of CO2 crosses the 400 ppm barrier
World Meteorological Organization: The El Niño of 2015-2016
26 Link Rich Benjamin: My Fellow Americans
24 Post Carol Tavris and Elliot Aronson: The Privatization of Science
16 Post Peace and Long Life: The Meanings of Life
6 Post Clive Hamilton: Four Degrees and Beyond

October

25 Link Peter Clifton: The cholesterol and statin debate
24 Post Yuval Harari: The Root Of All Suffering
19 Post George W Bush: Liberty for wolves (is death to lambs)
John: The Truth Will Set You Free
17 Post Scientific American: Faith Based Climate Science
Brendan O'Neill: Left Wing Anti-Environmentalism

September

23 Post Thomas Piketty: Plutocratic Oligarchy
Donald Rumsfeld: What We Know
6 Post Live Long and Prosper: The Needs of the Many

August

20 Post Naomi Oreskes: Corrupting Science
17 Post Michael Lewis: High Frequency Theft
15 Post Andrew Zammit: Australian Foreign Fighters — Risks and Responses
9 Post Simon Marginson: The Eye of the Needle
Link The Politics of Fear
4 Post Curtis LeMay: America's Greatest Defeat

July

31 Link Francis Fukuyama: Neocon no more
25 Post Scientific American: Sacrificing Water for Meat
24 Post Joseph Stiglitz: German Hypocrisy
15 Post George W Bush: American Justice
8 Post Advance Australia Fair
Would you like to do more (about climate change)?
IPCC: Carbon Capture and Storage
6 Post Jane Gleeson-White: The Cost Of Doing Business
George Marshall: Cash on the Wellhead
5 Post Michael Sandel: Market Triumphalism vs Civic Virtue

June

29 Link Toby Matthiesen: Sectarianism in Saudi Arabia
25 Post Costa Rica Leads the World
Tim Flannery: Carbon Capture and Storage
Frank Luntz: Compelling Lies vs Prosaic Truths
24 Post Public Opinion on Climate Change: Vocal Minority vs Silent Majority
Link Colby Coash: The conservative Republican fighting to end the death penalty in the US
23 Link Why fund rail when roads are our future?
22 Post Iraq: Losing the Peace
Fred Palmer: Eternal Summer
George W Bush: Saving Lives
21 Post Tony Abbott: Minister for Coal
19 Post Tim Flannery: Adapting to Climate Change
Tim Flannery: Carbon Nation
Antiscience: Vaccination
Rachel Carsons: Under the Sea-Wind
17 Post Charles Darwin: A Damnable Doctrine
16 Post James Murdoch: A Better Society
15 Link Laura Dawes: Can wind farms cause sickness?
David Isay: How Do We Change When We Really Listen To The People We Love?
Evelyn Glennie: How Do We Listen When We're Unable to Hear?
12 Post Nick Minchin: The Benefits of Smoking
Tom Switzer: Climate Hysteria
9 Post Ha Joon Chang: Political Economy

May

30 Link Five Year Old Queue Jumper Imprisoned on Desert Island
28 Post George W Bush: God's Gift to Humanity
Rebekah Brooks: The £11 Million Woman
25 Post Philip Pettit: Two Conceptions of Liberty
Link Four Corners: Democracy For Sale
Satyajit Das: Update on global markets
21 Post Climate Change 2014: Extreme events
Climate Change 2014: Exposure and vulnerability
Climate Change 2014: Human responses to climate change — adaptation and mitigation
20 Post Climate Change 2014: Attribution of climate changes and impacts
19 Post Climate Change 2014: Past and recent drivers of climate change
18 Post Climate Change 2014: Climate change beyond 2100, irreversibility and abrupt changes
Climate Change 2014: Observed changes in the climate system
17 Post Climate Change 2014: Future risks and impacts caused by a changing climate
15 Post William Gibson: Molly Millions
Climate Change 2014: Projected changes in the climate system
14 Post The Honored Dead
The Dominion of Fear
William Gibson: Flowers of Steel and Crystal
Richard Wilkinson: The Future of Equality
13 Post Climate Change 2014: Interaction among mitigation, adaptation, and sustainable development
Climate Change 2014: Key drivers of future climate and the basis on which projections are made
12 Post Climate Change 2014: Characteristics of mitigation pathways
Link Michael Sandel: Market Values
10 Post Richard Wilkinson: Equality, Justice and Security
Climate Change 2014: Characteristics of adaptation pathways
9 Post Climate Change 2014: Foundations of decision-making about climate change
Climate Change 2014: Climate change risks reduced by adaptation and mitigation
8 Post Charles Darwin: The Foundation Stone of Morality
Climate Change 2014: Response options for adaptation
Climate Change 2014: Response options for mitigation
7 Post Climate Change 2014: Common enabling factors and constraints for adaptation and mitigation responses
6 Post 40 Eridani A: Ideology and Fanaticism
5 Post Climate Change 2014: Trade-offs, synergies, and integrated responses
4 Post Richard Wilkinson: Dysfunctional Societies
3 Post Koctopus: One Dollar, One Vote
1 Link Tony Abbott: Decimating the CSIRO
Tony Abbott: Funding Bjorn Lomborg

April

30 Link Ministry of Plenty: 740 Park Avenue, New York
25 Post Charles Darwin: Religion
24 Post Climate Change 2014: Policy approaches for adaptation and mitigation, technology and finance
23 Post The Australian vs the Bureau of Meteorology
Link Sunday Profile: Lucy Perry
13 Post George Megalogenis: Riots in Paradise
10 Link Tony Abbott: Minister for Women
Preventing Terrorism
9 Link Bryan Stevenson: Killing All The Broken People
3 Post George Megalogenis: The Rich White Trash of Asia?
2 Link Sunday Profile: Julian Burnside

March

31 Post George Megalogenis: Tuning In To Globalisation
30 Post George Megalogenis: Expanding the Income Tax-Free Club
Psychological Dictionary
28 Post George Megalogenis: Economics Versus Ideology
27 Post George Megalogenis: The Age of the Rorter
Link Government cancels funding cuts to domestic violence legal support services
Expanders and Punishers
26 Post George Megalogenis: How Kennett Saved Keating
23 Post George Megalogenis: Cult of Prosperity
21 Post The Root of the Problem
20 Post A Potentially Hazardous Experiment
19 Post George Megalogenis: Born To Rule
Climate Change 2014: Future Climate Changes, Risks and Impacts
18 Link Justice For All
13 Post Climate Change 2014: Severe, Pervasive, and Irreversible Impacts
8 Link The Future of Capitalism
7 Post The Future of Electricity
Natural Ideas
Link The Benefits of Mindfulness
The Silent Extinction
6 Post The End of History
5 Post Climate Change 2014: Observed Changes And Their Causes
2 Post The Path of Siddhartha Gotoma

February

23 Post The Future: The Edge
18 Post Free Rational Agents
16 Link Drunk Tank Pink
15 Link Unburnable Carbon
Preparing for Financial Armageddon
13 Post Firestorm
Being and Becoming
8 Post The Future: Outgrowth
6 Post Necessary Evil
The Skeptical Denialist
3 Post Shadows of Liberty

JANUARY

26 Post Drug Wars
27 Post Supply and Demand
LinkEight Million Dollar Man
12 Link Throwing Away The Key
11 Post The Road to Hell is Paved With Coal
9 Post The Future: The Best Government Money Can Buy
LinkSaving Lives At Sea = Destroying Lives On Land
5 Post NewSpeak Dictionary
4 Post Saving Human Civilization
Link How Can The Rule Of Law Bring "Justness" And Not Just Justice?
What Does Everyday Courage Look Like?
3 Post No Quarter
2 Post Peacemaker
I Am Special

Thomas Piketty

Green Army: Persons of Interest


[Some] animals are more equal than others.


(George Orwell, Animal Farm, 1949)


Inequality of labor income and capital ownership across time and space
(Adapted from Tables 7.2 and 7.3, Capital in the Twenty First Century, pp 248-9)
Total Income
(income from labor + income from capital)
Wealth
(capital ownership)
1910201019102010
ClassPercentile
Europe
Europe
US
Europe
Europe
US

Top 10%P90-10050%35%50%90%60%70%
  Dominant 1%P99-100
20%
10%
20%
50%
25%
35%
  Well-to-do 9%P90-9930%25%30%40%35%35%

Middle 40%P50-9030%40%30%5%35%25%

Bottom 50%P0-5020%25%20%5%5%5%

Ratio between a member of the Dominant 1% and a member of the Bottom 50%
50:120:150:1500:1250:1350:1

Ratio between a member of the Top 10% and a member of the Bottom 50%
12.5:17:112.5:190:160:170:1

peaceandlonglife:
Figures are approximate and deliberately rounded off.
The disparity of total income in the US in 2010 is comparable to that in Europe in 1910.
Between 1910 and 1970, 25% of national wealth was transferred from the top 1% to the middle 40% as a result of:
  • wartime destruction,
  • progressive tax policies and
  • exceptional post-war growth (p 356).

Assuming US wealth inequality was comparable to that Europe in 1910, it would appear that in the US since 1970, the top 1% has managed to claw back two fifths (10%) of that 25% from the middle classes.
Wealth inequality lags behind income inequality because it takes time for wealth to accumulate.
The wealth share of the top 10% in the US (%70) has not yet reached the peak in Europe in 1910 (90%); but, given the rising income disparity, it is only a matter of time before it catches up.
In the meantime, the relative shares of income (20%) and wealth (5%) of the bottom 50% have remained the same for over a century.

The growth rate of top global wealth: real rate of return on capital as a function of size of fortune
(Adapted from Table 12.1, Capital in the Twenty First Century, p 435)
Wealth Holders1980s2010Average annual growth rate (1987-2013)
Top 1 in 100 million30456.8%
Top 1 in 20 million1502256.4%
Average adult3 billion4.5 billion2.1%

Alexis Clérel (1805–1859) [Viscount of Tocqueville]:
We may naturally believe that it is not the singular prosperity of the few, but the greater well-being of all, which is most pleasing in the sight of the Creator and Preserver of men. …
A state of equality is perhaps less elevated, but it is more just; and its justice constitutes its greatness and its beauty.
(Democracy in America, 1835, Bantam, 2011, p 878)

The Great Divergence: Share of the richest 10% of the American population in total income



(Based on Piketty and Saez, Income Inequality in the United States, 1913–1998,
Quarterly Journal of Economics, 118(1), 2003, pp 1–39)

Paul Krugman (1953):
[America is] no longer a middle-class society in which the benefits of economic growth are widely shared:
[Between] 1979 and 2005
  • the real income of the median household rose only 13%, [while]
  • the income of the richest 0.1% [rose 296%.]
On the political side, you might have expected rising inequality to produce a populist backlash.
Instead, however, the era of rising inequality has also been the era of “movement conservatism" [during which] taxes on the rich have fallen, and the holes in the safety net have gotten bigger, even as inequality has soared.
(Introducing This Blog, NYT, 18 September 2007)

John Quiggan:
The top 0.01% … doubled their share of [US national] income between 2000 and 2007, from 3% of all income to 6% …
This group of around 15,000 households earned more than the the bottom quarter of the population — around 75 million people.
(p 141)

Since 2000, [US] median household incomes have [fallen over a full business cycle for] the first time in modern history …
(Zombie Economics, Princeton University Press, 2012, p 157)

Thomas Hungerford:
[The] share of income accruing to the top 0.1% of US families increased from 4.2% in 1945 to 12.3% in 2007.
[And, while] changes over the past 65 years in the top marginal tax rate and the top capital gains tax do not appear correlated with economic growth [they have been] associated with the increasing concentration of income.
(Taxes and the Economy: An Analysis of the Top Tax Rates Since 1945, Congressional Research Service R42729, September 14 2012)

Peter Singer (1946):
[Under Ronald Reagan,] 60% of the growth in the average after-tax income of all American families between 1977 and 1989 went to the richest 1% of families [ie those with] average annual income of at least $310,000 a year, for a household of four.
(How Are We to Live?, 1993, p 97)

Robert Wade (1944):
The highest-earning 1% of Americans doubled their share of aggregate income … from 8% in 1980 to over 18% in 2007 [excluding capital gains.]
The top 0.1% (about 150,000 taxpayers) quadrupled their share, from 2% to 8%.
Including capital gains [the income share of the] top 1% [reached 23%] by 2007.
During the seven-year economic expansion of the Clinton administration, the top 1% captured 45% of the total growth in pre-tax income …
[While] during the four-year expansion of the Bush administration the top 1% captured 73% …
During the seven-year economic expansion of the Clinton administration, the top 1% captured 45% of the total growth in pre-tax income; while during the four-year expansion of the Bush administration the top 1% captured 73% …
(John Ravenhill, Global Political Economy, 3rd Ed, Oxford University Press, 2010, p 396)

Nate Silver (1978):
[US Senators:]
  • who often gain access to inside information about a company while they are lobbied and
  • who also have some ability to influence the fate of companies through legislation,
return a profit on their investments that beats the market average by [nearly one percentage point per month.]
(The Signal and the Noise, 2012, p 342)

Mark Twain | Samuel Clements (1835-1910):
It takes a thousand men to invent a telegraph, or a steam engine, or a phonograph, or a telephone or and other important thing — and the last man gets the credit and we forget the others.

Thomas Piketty (1971)


[In] Europe private wealth is now at levels unknown since the Belle Epoque …
(p 105)

Total wealth (real estate and financial assets net of all debts) held by Europeans is the highest in the world, far above the United States and Japan …
(p 117)

[The] total wealth of EU households is more than €50 trillion (including more than €25 trillion in financial assets) … five times more than Europe's entire sovereign debt (€10 trillion). …
[Indeed,] Europe today is less indebted than the United States, the United Kingdom, and Japan, and yet we're the ones with a sovereign debt crisis. …
We absolutely have the means to solve our debt problems on our own — if only Europe would stop behaving like a political dwarf and a tax-revenue sieve.
(p 88)

The Cypriot crisis illustrates the drama of small countries under globalization, which, in order to save their own skins … are often willing to resort to the most ruthless tax competition to attract the most disreputable capital.
(p 111)

[Historically, growth was] never as strong as it was in the years 1950 to 1980, a period when tax progressivity was at a maximum, especially in the United States. …
[A] good part of the the current American deficit could be eliminated by returning to 1980 levels of tax progressivity …
The IMF is right to emphasize that public debts in the rich countries … aren't much compared to the mass of private wealth (financial and real estate) held by those same countries' households, especially in Europe.
The rich world is rich; it's the governments that are poor.
(pp 124-5)

(Chronicles On Our Troubled Times, Viking, 2016)


Plutocratic Oligarchy

[It] seems that US politicians of both parties are much wealthier than their European counterparts and in a totally different category from the average American …
[This] might explain why they tend to confuse their own private interest with the general interest.
Without a radical shock, it seems fairly likely that the current equilibrium will persist for quite some time.
The egalitarian pioneer ideal has faded into oblivion, and the New World may be on the verge of becoming the Old Europe of the twenty-first century’s globalized economy.
(p 514)

The top marginal tax rate of the income tax (applying to the highest incomes) in the United States dropped from 70% in 1980 to 28% in 1988.
(p 499, Figure 14.1)

The top marginal tax rate of the inheritance tax (applying to the highest inheritances) in the United States dropped from 70% in 1980 to 35% in 2013.
(p 593, Figure 14.2)

The idea that unrestricted competition will put an end to inheritance and move toward a more meritocratic world is a dangerous illusion.
(p 424)

Between 1987 and 2013, the number of [dollar billionaires rose 10 fold] from 140 to 1,400, and their total [publically visible wealth rose 18 fold] from 300 to 5,400 billion dollars …
(p 433)

[The] vast majority (at least three-quarters) of [unreported] financial assets held in tax havens [~ €7 trillion or 10% of global GDP] belongs to residents of the rich countries.
(p 467)

No one has the right to set his own tax rates.
It is not right for individuals to grow wealthy from free trade and economic integration only to rake off the profits at the expense of their neighbors.
That is outright theft.

To date, the most thoroughgoing attempt to end these practices is the Foreign Account Tax Compliance Act (FATCA) adopted in the United States in 2010 and scheduled to be phased in by stages in 2014 and 2015.
(p 522)

[The tax havens would] undoubtedly suffer significant losses if financial transparency becomes the norm.
(p 524

[Financial enclaves such as Luxembourg, Switzerland and the City of London could lose] as much as 10–20% of [their income.]
In the more exotic tax havens and microstates, the loss might be as high as 50% or more of national income, indeed as high as 80–90% in territories that function solely as domiciles for fictitious corporations.
(p 641, Note 9)

If the fortunes of the top decile … of the global wealth hierarchy grow faster for structural reasons than the fortunes of the lower deciles, then inequality of wealth will … tend to increase without limit.
This inegalitarian process may take on unprecedented proportions in the new global economy [so that, if nothing is done] to counteract it, very large fortunes [could] attain extreme levels within a few decades.
(p 431)

For example, if the top thousandth enjoy a 6% rate of return on their wealth, while average global wealth grows at only 2% a year, then after thirty years the top thousandth’s share of global capital will have more than tripled.
The top thousandth would then own 60% of global wealth …
[Such] a large upward redistribution from the middle and upper-middle classes to the very rich … would very likely trigger a violent political reaction.
(p 439)

[Economic] growth — or, more precisely, growth in output per capita, which is to say, productivity growth — has been quite similar [across the rich world within a few tenths of a percentage point (1.8±0.2) irrespective of the degree of tax liberalisation.]
(p 321)


Growth rate of per capita national income (%) in rich countries, 1970-2000
(Adapted from Table 5.1)

Japan2.0
Britain1.9
United States
Germany
1.8
France
Canada
Australia
1.7
Italy1.6

peaceandlonglife:
Tax liberalisation does not increase productivity.
It just increases the share of the wealth and income pie going to the Top 10%.
(p 174)

[The] very large decrease in the top marginal income tax rate in the English-speaking countries after 1980 seems to have totally transformed the way top executive pay is set, since top executives now had much stronger incentives than in the past to seek large raises.
[The resulting] explosion of very high incomes [has amplified] the political influence of the beneficiaries of the change in the tax laws, who [having been incentivized to keep] top tax rates low or [indeed to reduce them even further, have used] their windfall to finance political parties, pressure groups, and think tanks [dedicated to entrenching their position of advantage.]
(p 335)


Liliane Bettencourt (1922)


Between 1990 and 2010, the fortune of Bill Gates … increased from $4 billion to $50 billion.
At the same time, the fortune of Liliane Bettencourt — the heiress of L’Oréal [and the richest woman in France —] increased from $2 billion to $25 billion …
Both fortunes thus grew at an annual rate of more than 13% from 1990 to 2010, equivalent to a real return on capital of 10 or 11% after correcting for inflation.

In other words, Liliane Bettencourt, who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working. …
Note, in particular, that once a fortune passes a certain threshold, size effects due to economies of scale in the management of the portfolio and opportunities for risk are reinforced by the fact that nearly all the income on this capital can be plowed back into investment.
(p 440)

[Bettencourt's] declared income was never more than 5 million a year, or little more than one ten-thousandth of her wealth (which is currently more than €30 billion). …
The crucial point is that no tax evasion or undeclared Swiss bank account is involved (as far as we know).
Even a person of the most refined taste and elegance cannot easily spend [€1,500 million a year (ie 5% return on €30 billion)] on current expenses. …
[If such] people are taxed on the basis of declared incomes that are only [one third of 1%] of their economic incomes … then nothing is accomplished by taxing that income at a rate of 50% or even 98%. …
[In developed countries effective] tax rates (expressed as a percentage of economic income) are extremely low at the top of the wealth hierarchy, which is problematic, since it accentuates the explosive dynamic of wealth inequality, especially when larger fortunes are able to garner larger returns.
(p 525-6)

(Capital in the Twenty-First Century, 2014)


Chronicles On Our Troubled Times (2016)


Does Liliane Bettencourt Pay Taxes?

July 13, 2010


The solidarity tax on wealth (lmpot de solidarite sur la fortune, or ISF), levied on the net worth of France's richest households, was established during Francois Mitterrand's Socialist presidency. …
One of the signature measures of Sarkozy's 2007 campaign, the tax-shield policy (bouclier fiscal), aimed at limiting taxes to 50% of a household's income, effectively lowering the tax burden for many wealthy households subject to the ISF.

Sarkozy's administration suddenly became entangled in the Liliane Bettencourt affair in June 2010, when secret tapes recorded by the butler of the elderly heiress were published on a French news website.
Not only did the tapes suggest that Bettencourt was using foreign financial accounts to evade French taxes, but they also revealed intimate and possibly illegal dealings between Bettencourt's family and Budget Minister Eric Woerth — who doubled as treasurer for Sarkozy's political party, the Union for a Popular Movement (Union pour un mouvement populaire, or UMP), and whose wife happened to be employed as a financial adviser managing Bettencourt's fortune.

Beyond the obvious issue of the government's conflict of interest, the Bettencourt affair is a perfect illustration of several fundamental challenges confronting contemporary societies:
  • the aging of wealth;
  • the growing weight of inheritance, [and]
  • the iniquities of our tax system.
(p 68)

[The] fact that Liliane, who is in her eighties, and her daughter Francoise, who is in her fifties, control the capital of L'Oreal and sit on its board of directors contributes little to the common good of France's economy and society.
These are not entrepreneurs; they are heiresses, rentiers, who mainly busy themselves by fighting each other over money. …

To be sure, Liliane proudly announced that she'd paid a total of '397 million euros' in taxes on her income and wealth over ten years.
Without realizing it, she was revealing that her tax rate is well below that of L'Oreal's workers, and everyone else who has only their labor to live off of.
According to the press, her fortune is estimated at €15 billion. …
Let's say her fortune, which is managed by the [budget] minister's wife, earned her an average return of [a modest 4% (€600 million) per year.]
That would mean her average tax rate over the last ten years was [less than 7%] of her annual income [ie €40 million per year in taxes on €600 million in total annual income (labor + capital).]
(p 69)

As things turned out, Mme Bettencourt received a tax-shield refund check for just €30 million, probably because her declared taxable wealth wasn't more than €1 billion or €2 billion — the rest of her fortune benefiting from the tax loophole for 'professional' assets, or being declared by her daughter instead (who was herself no doubt a big beneficiary of the tax shield).
(p 70)


The Double Hardship of the Working Class

March 23, 2015


Over the last few decades the working class has endured a double hardship, first economic and secondly political.
  • Economic changes have been unfavorable to the most disadvantaged social groups in the developed countries:
    • the end of the exceptional growth of the postwar decades,
    • de-industrialization,
    • the rise of emerging countries,
    • the destruction of low- and medium-skilled jobs in the Global North.
    By contrast, those groups that are best equipped with financial and cultural capital have been able to benefit fully from globalization.
  • The second problem is that political shifts have only made these trends worse.
    One might have imagined that public institutions and social welfare systems … would adapt to the new situation by asking more from its main beneficiaries in order to devote more to the most affected groups.
    But the opposite has occurred.

Partly due to intensified competition between countries, national governments have focused more and more on the most mobile taxpayers (highly skilled and globalized workers, owners of capital) at the expense of groups perceived as captive (the working and middle classes).
(p 156)

This pertains to a whole set of social policies and public services:
  • investing in high-speed rail rather than commuter trains,
  • elite educational institutions rather than ordinary public schools and universities, and so on.
And of course it also pertains to how it's all financed.
Since the 1980s, the progressivity of tax systems has been sharply reduced:
  • rates that apply to the highest incomes were massively lowered, while
  • indirect taxes hitting those of the most modest means were gradually increased.

Deregulating finance and liberalizing capital flows without asking anything in return has only worsened these trends.
European institutions as a whole, which have moved toward the principle of ever purer and more perfect competition between territories and countries, without a common tax and social base, have also reinforced these trends.
We see it very clearly for the corporate tax: its rate has been cut in half in Europe since the 1980s.
And it must be remembered that the biggest companies often escape the official tax …
In practice, small- and medium-sized businesses find themselves paying rates far higher than those paid by multinationals headquartered in the big cities.
More taxes, fewer public services: it's not surprising that the groups affected feel abandoned.
This feeling of abandonment fuels the Far Right vote and the growth of Far Right parties, both inside and outside the Eurozone (as in Sweden).
(p 157)


2015: What Shocks Can Get Europe Moving?

December 29, 2014


In 1945 [Germany and France] had public debts greater than 200% of GDP.
By 1950, debt had fallen to less than 30%.
What happened — did we suddenly run budget surpluses big enough to pay off such a debt?
Obviously not: it was by inflation and repudiation, pure and simple, that Germany and France got rid of their debt in the previous century.
Had they patiently tried to run surpluses of 1 or 2% of GDP a year, the debt would still be with us today, and it would have been much harder for postwar governments to invest in growth.
Yet since 2010-11, those two countries have been explaining to southern Europe that their public debts will have to be paid back to the last euro.
This is a shortsighted selfishness, for the new fiscal treaty adopted in 2012 under German and French pressure, which orchestrates austerity in Europe … has led to a generalized recession in the Eurozone.
(p 149)

Greece [for example,] is expected to run an enormous surplus of 4% of GDP for decades, in order to pay back its debts.
This is an absurd strategy that France and Germany … never applied to themselves.
(p 160)

Meanwhile, economies everywhere else have started recovering, both in the United States and in the EU countries outside the Eurozone. …

[A] single currency can't function with eighteen different public debts and eighteen different interest rates on which financial markets can freely speculate.
There needs to be massive investment in training, innovation, and green technologies.
We're doing exactly the opposite: right now, Italy devotes nearly 6% of GDP to paying interest on its debt and invests barely 1% of GDP in all of its universities.
(p 150)


The Irish Disaster

April 14, 2009


Tax competition — the practice of attracting international business by undercutting other countries' tax rates — has long been an issue of debate in Europe …

… Ireland today is in a catastrophic situation. …
Tax receipts have cratered, spending aimed at saving the banks and helping the unemployed (the unemployment rate will reach 15% by the end of this year) has increased, and as a result the country finds itself with a colossal deficit, forecast to be 13% of GDP in 2009 — equal to the entire cost of public sector wages and pensions.
(p 29)

What's most striking is that in an atmosphere of extreme crisis, the [Irish] government is doing everything it can to keep its ultralow 12.5% tax rate on corporate profits. …
Better to hit the Irish population deeply than to risk losing everything by causing foreign capital to flee. …

The development strategy based on tax dumping, which so many small countries have adopted, is a disaster.
Many others [have] followed Ireland down this path and can't turn back all by themselves.
Almost every country in eastern Europe now has tax rates on corporate profits of barely 10%. …
(p 30)

Besides, piling up foreign-capital investments comes with a high price: right now, a country like Ireland pays out roughly 20% of its domestic production to the foreign owners of its offices and factories, in the form of profits and dividends.
In technical terms, the actual gross national product (GNP) of the Irish is about 20% smaller than their GDP.
(p 31)


The Scandal of the Irish Bank Bailout

December 7, 2010


In all European countries, taxes represent at least 30-40% of GDP and make possible a high level of:
  • infrastructure,
  • public services (schools, hospitals), and
  • social protection (unemployment, pensions).
If we tax corporate profits at only 12.5%, that's not going to work — unless we massively overtax labor, which is neither fair nor efficient and also contributes to high unemployment in Europe.

[Letting] countries that grew rich thanks to intra-European trade siphon off their neighbors' tax base has absolutely nothing to do with free markets.
It's called theft.
And lending money to people who've stolen from us without asking anything in return so as to ensure it doesn't happen again — that's called stupidity.

What's worse is that dumping harms the small countries that practice it, too.
Of course, individually, each country is caught in a vicious spiral: as in an arms race, the Irish have an interest in maintaining a low tax rate for corporations as long as the Poles, the Estonians, and others are doing the same.
And that's why only the European Union can put an end to this ridiculous zero-sum game.
There could be an entirely European corporate-tax system, or a dual system with a minimum rate of 25% in each country, complemented by a European surtax of 10%.
That would let the EU take over the extra public debt the crisis has created, and give national budgets the ability to move forward on a stronger footing.
(p 76)

Such a reassertion of control is all the more urgent because dumping quite directly contributed to the Irish bubble and the current crisis.
In particular, dumping has given rise to massive artificial accounting games that leave Ireland's bank balance sheets and national statistical accounts totally illegible.
The national accounts are now seriously distorted by enormous transfer-pricing flows … the exact proportions of which no one knows.
The scale of this opaque accounting has grown even larger than Greece's manipulation of defense spending and public deficit data.
(p 77)


The What and Why of Federalism

July 4, 2012


At the scale of the global economy, France and Germany are hardly bigger than Greece or Ireland.
By remaining divided, we're putting ourselves in the hands of the speculators and tax evaders.
This is not the best way to defend the European social model.

That's why it is urgently necessary to put Eurozone public debts in common, so that markets will stop imposing erratic and destabilizing interest rates on this or that country, along with the corporate tax, which multinational companies are evading on a massive scale.
It's those two tools, and those two tools alone, that must be mutualized and placed under the control of the federal political authority.

In concrete terms, a new Eurozone fiscal chamber, made up of deputies from the national parliaments' finance and social affairs committees, would decide by majority vote on the amount of public debt that the European treasury could issue annually, after a public and democratic debate and on the basis of proposals from a European finance minister responsible to that chamber.
But each national parliament would remain entirely free with regard to its overall level of taxes and spending, and of course, with how they're distributed.
(p 99)


Europe Against the Markets

May 18, 2010


The countries of Europe are piling up austerity plans.
We're witnessing a proliferation of drastic measures, like cuts in public sector wages, that haven't been seen since the Great Depression.
We were taught at school that such measures always end in disaster.
Since they only worsen recessions, we'll most likely find ourselves facing even higher deficits than before.
(p 62)


Rethinking Central Banks

June 15, 2010


There have always been two ways for governments to get money:
  • impose taxes, or
  • create currency.
Generally speaking, it's infinitely preferable to impose taxes.
The price for printing money is inflation, which
  • creates distributive consequences that are hard to control (those with slower income growth pay dearly) and
  • unsettles trade and production.
Moreover, once it's underway, the inflationary process is hard to stop and brings no further benefit. …

Between September and December 2008, following the bankruptcy of Lehman Brothers, the two biggest central banks in the world doubled in size.
The total assets of the [US Federal Reserve] and the [European Central Bank] went from roughly 10% to 20% of American and European GDP.
In a few months, to avoid cascading bankruptcies, nearly €2 trillion worth of new liquidity was lent at 0% to private banks, at longer and longer maturities.
Why didn't this massive money-printing operation lead to higher inflation?
Surely because the world economy was at the edge of a deflationary depression.
Central banks helped prevent a complete shutdown of credit and a collapse in prices and economic activity. …

In the end, no one paid a price for their intervention … except that in the meantime states accumulated deficits that will now have to be paid back.
These deficits are not due to the loans made by governments to private banks … but rather to the fall in tax receipts brought on by the recession.
To lighten the burden, the Fed, and now the ECB, have begun buying up public bonds, thus lending directly to governments.

But these developments, which have been less than fully acknowledged, are happening much too slowly.
Clearly, after several decades of denigrating the state, it feels more natural to us to print money to save banks than to save governments.
Yet the inflationary risk is just as low in both cases, and it can be managed.
(p 66, emphasis added)

The ECB could take onto its own balance sheet a good part of the 20% of GDP worth of public debt created by the recession, at low interest rates, while announcing that it will raise interest rates if inflation exceeds 5%.
That won't excuse European governments from the need to get their finances under control and, above all, finally unite to issue a common European debt, to benefit from low interest rates together.
But if they go all in on drastic austerity policies, there is a high risk that it will lead to disaster.
Financial crises are part and parcel of capitalism.
And when faced with major crises, central banks are irreplaceable.
Of course, their infinite power to create money must be kept within bounds.
But not to fully use this tool in today's context would be a suicidal and irrational strategy.
(p 67)


Should We Fear the Fed?

November 9, 2010


The new action plan announced last week by the Federal Reserve has prompted a good deal of delusional thinking and intellectual confusion.
Primarily, of course, among ultraconservative Republicans, those eternal enemies of the federal government.
Supporters of the Tea Party have gone so far as to demand the abolition of the Fed and a return to the gold standard.
(p 72)

July 29, 2015

Michael Lewis

Green Army: Persons of Interest

Mark Baum:
[In] a few years people are going to be doing what they always do when the economy tanks: they will be blaming immigrants and poor people.
(The Big Short, 2015)

Charlie Munger [Vice-chairman, Berkshire Hathaway]:
[High frequency trading is] the functional equivalent of letting a lot of rats into a granary [— it does] the rest of the civilization no good at all.
(Investors Conference, 2014)

Michael Lewis:
Financial intermediation is a tax on capital …
[It’s] the toll paid by both the people who have it and the people who put it to productive use.
[It is, in effect, a private Tobin tax.]
(Flash Boys, 2014, p 109)

Fair Trading vs Free Riding


In 2014, [one] money manager bought and sold roughly $80 billion in US stocks.
The teachers and firefighters and other middle-class investors whose pensions it managed were collectively paying a tax of roughly $240 million a year for the benefit of interacting with high-frequency traders in unfair markets. …

The big banks and the exchanges have a clear responsibility to protect investors — to handle investor stock-market orders in the best possible way, and to create a fair marketplace.
Instead, they’ve been paid to compromise investors’ interests while pretending to guard those interests. …

[There] is now a minority [of Wall Street dissidents] trying to fix the [system:]
  • their new stock market [IEX] is flourishing;
  • their company is profitable;
  • Goldman Sachs remains their biggest single source of volume; [and]
  • they still seem to be on their way to changing the world.
All they need is a little help from the silent majority.

(Flash Boys: One Year Later, Vanity Fair, March 2015, emphasis added)

June 14, 2015

Big Ideas

ABC Radio National

Lionel Shriver:
My politics … are libertarian …
I don't like being told what to do.
Actually, deep down inside, I'm a 10 year old child with a problem with temper tantrums.
(Lionel Shriver on free speech, identity and the future of the US, 19 September 2016)

Bryan Stevenson [Professor of Law, New York University]:
Each of us is better than the worst thing we've ever done.
(The fight for racial justice in America, 19 March 2015)

Augustine (354–430):
The good Christian should be wary of mathematics and all those who make empty prophesies.
The danger already exists that mathematicians have made a covenant with the Devil to darken the spirit and confine Man to the bonds of Hell.

Jane Gleeson-White:
[The] logic that drives the modern corporation [privileges] financial capital over every other value on earth, including the value of nature and of human beings and our communities.
While Wall Street booms and nations stagger, we continue to tear apart the earth and effectively enslave ourselves to financial capital — money — to fuel our fixation with economic growth.
The polar ice caps melt, extreme weather becomes the norm, species become extinct, the financially rich nations of the earth are plagued by depression and obesity and the impoverished nations are haunted by homelessness and hunger.
And yet we remain blind to their interconnectedness and their cause. …
The daily operations of business are destroying the planet and human societies and they do so because they are governed by one sole legal obligation: to maximise profit.
(Six Capitals, 2014, p 280)

Jane Gleeson-White


Death by Numbers

In 1977 the Ford Motor Company used a cost-benefit analysis to weigh the relative merits of adding, or not adding, a safety device to its new Pinto car.
This involved assessing the cost of safety parts versus the cost of lives lost.
Where the cost of lives lost is the dollar value of men, women and children killed in the potentially unsafe vehicle. …

An internal company memorandum estimated that if the Pinto was sold without the $11 safety feature:
  • 2,100 cars would burn every year,
  • 180 people would be hurt but would survive, and
  • another 180 would burn to death.
The safer car would save 49.5 million dollars worth of human pain, suffering and death, but it would cost 137.5 million dollars.
Clearly the costs of the safety device far exceed its benefits in numerical terms.
And so, naturally, Ford decided not to spend the money on the safety feature …




(Michael Sandel, Justice: Putting A Price Tag On Life, February 2011)


In the 6 years that the Pinto was on the market 500 hundred people [were] burned to death …

In July [2013], Portugal's finance minister resigned over the austerity measures required for its 78 billion euro bailout.
Greece still can't pay its debts.
Italy's budget deficit is expected to rise to some 4% of GDP.
On the other hand, Europe's largest bank, HSBC has just announced its half-yearly profits have risen 10% to $US 14.1 billion …

When the English philosopher Roger Bacon [1214–1292] tried to promote Arabic maths in the 13th century, he was charged with magic and condemned to life imprisonment.

(Numbers rule the world, 3 September 2013)


Costa Rica Leads the World

Not only have Costa Rica's forests and natural areas been protected since the launch of [their Payments for Ecological Services] program in 1997, but large tracts of ruined land have also been restored.
In the late 1980s, only 21% of Costa Rica was covered by forests: by 2010 that had risen to 52%.
This was accompanied by improvements in the country's living standards and energy savings.
In 1985, only half of Costa Rica's energy came from renewable sources.
By 2010, this figure had risen to 92%.
(p 72)


The Cost Of Doing Business

{In 2010, eighteen Foxconn workers attempted suicide.}

[When, in March,] seventeen-year-old Tian Yu threw herself from the fourth floor of her factory dormitory at Foxconn's Longhua facility … spine and hip fractures [left her] paralysed from the waist down.
[After public pressure forced its hand, Foxconn (Apple's primary supplier) gave] her 180,000 yuan (approximately US$29,000) in compensation so she could return to her rural village, which she had left one month earlier to earn money for her impoverished family. …

Yu threw herself out of the window after working two seven-day weeks straight, more than twelve hours a day, and finding she hadn't been paid for her month's work because of an administrative bungle.
The wages she was owed for two seven-day weeks and two six-day weeks with overtime amounted to a quarter of the cost of a new iPhone 5.
(196-7)

(Six Capitals, Allen & Unwin, 2014)

Would you like to know more?

June 9, 2015

Robert Manne

Green Army: Persons of Interest


Robert Manne


Just as stagflation fatally undermined the Keynesian social-democratic consensus, so too will the combination of the Great Recession and the growing recognition of the destructive role played by neo-liberalism in inhibiting an effective response to catastrophic climate change eventually discredit the idea at the heart of neo-liberalism: the faith in the magic of the free market. …
[However, there] are two important differences between the circumstances surrounding the end of the Keynesian era in the late 1970s and the present unravelling of neo-liberalism.
When the Keynesian consensus collapsed, a party-in-waiting existed, ready to seize its chance.
No equivalent anti-neo-liberal party exists today.
Old-style socialism is dead.
Left-of-centre neo-Keynesians are far less ideological, far more divided and far more cautious than their neo-liberal adversaries.

Even more importantly, at the moment of the neo-liberal collapse, humanity confronts the diabolical problem of climate change.
Those who inherit the post-neo-liberal world will be obliged not merely to strive to reconcile the hope for renewed prosperity with the quest for domestic and global social justice.
They will also be obliged to reconcile both these ambitions with the gravest challenge humankind has ever faced.
No one yet knows what the new era will look like or what it will eventually be called.
Only one thing seems, at present, reasonably certain.
At the end of the era of free-market faith, we will be in a far better position to turn our attention to the kinds of ethical and environmental questions which, for thirty years, neo-liberalism encouraged us to [ignore.]
(p 36)


John Quiggin (1956)


Professor of Economics, Queensland University

The Productivity Treadmill: Doing More With Less

Productivity growth is seen by economic rationalists as a matter of using market forces to squeeze more production out of a given (or, if possible, reduced) number of workers. …
Despite the success of Keynesian economic stimulus in protecting Australia from the impacts of the Global Financial Crisis, economic rationalists remain fixated on the microeconomic reform agenda of the 1980s, centered on a combination of financial deregulation and competitive pressure aimed at forcing people to work [ever] harder.
(p 210)

[The National Competition Policy] was highly successful in bypassing democratic processes [and popular discontent] to introduce market liberal reforms, but it eventually produced a backlash.
The upsurge of Pauline Hanson's One Nation party in the 1990s reflected an inchoate mass of grievances among Australians who felt excluded and looked down on by urban elites.
(p 219)

[The Institute of Public Affairs] was established in the 1940s as part of the reorganization of conservative politics that produced the Liberal Party, and was, for many years, primarily a Liberal fundraising conduit for business.
It was intellectually revitalized in the 1980s under the leadership of the former Liberal parliamentarian John Hyde, but maintained its historical role as a paid lobbyist for business interests, notably including the tobacco and, later, fossil fuel industries.
In this role, the IPA routinely attacked mainstream science and propounded pro-cartel views on economics.

[The Centre for Independent Studies (CIS),] founded in 1976, was more libertarian in orientation and, at least in its early years, more intellectually rigorous and challenging than the IPA.
It is the Australian representative of the Mont Pelerin Society, established by Hayek and others in 1947.
(p 212)

A striking feature of [Paul Keating's new deregulated, market-oriented economy of the 1990s] was the rise to prominence of a group of corporate raiders and speculators, notably including:
  • Alan Bond [— Bond Corporation,]
  • John Elliott [— Elders],
  • Robert Holmes a Court [— Bell Group,]
  • Christopher Skase and
  • John Spalvins [— Adelaide Steamship. …]
A couple of years before [their] entrepreneurial empires collapsed in a heap of bad debts, criminal charges and fraudulent bankruptcies, a CIS study concluded that the activities of "raiders" …
"lead to more profitable uses of company assets, and as such they play a vital role in the capital allocation process."
In reality, the entrepreneurs were simply the latest illustration of the adage that "genius is leverage in a rising market."
They relied heavily on borrowed money.
When interest rates rose, their paper empires collapsed, revealing a tangled web of fraud and malfeasance.
Most of the entrepreneurs went bankrupt, and many ended up behind bars or on the run.
Some, like Alan Bond, eventually bounced back, finding mysterious sources of funding that had escaped the attention of their creditors, who were paid fractions of a cent in the dollar.
(p 217)

[In the mid-1990s, economic rationalists seized on] methods of estimating productivity growth that appeared, [at least for a few years,] to reveal a "productivity miracle" unparalleled at any time in our history.
In reality, the apparent increase in productivity arose from the increase in the pace and intensity of work produced by the combination of microeconomic reform and the adverse labor market conditions that followed the "recession we had to have."
[However, these] increases in effort weren't sustainable [and so] productivity growth slowed to a crawl in the 2000s.
(p 220)


Moral Hazard

[The hedge fund Long Term Capital Management (LTCM)] looked for divergences between the margins generated by the markets and the values predicted by its computer models, then bet that the market would "correct itself" over time.
These bets paid off for a number of years, making big profits for LTCM owners and investors.
But, in 1997 with the Asian and Russian financial crises, all its bets failed at once. …

[Since] the leveraged investments made by LTCM had been financed by huge loans from major Wall Street and international banks [the] failure by LTCM ran the risk of generating a systemic collapse.
[Consequently, the] US Federal Reserve, under Chairman Alan Greenspan, orchestrated a rescue package. …
[In spite of needing a bailout, the] LTCM principals and investors escaped with much of the wealth gained from their earlier successful bets intact.
(p 56)

(Zombie Economics, Princeton University Press, 2012)


John Maynard Keynes (1883–1946)


[We] have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.
The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.

(The Great Slump of 1930, 1930)


[In the future, the] love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. …

The pace at which we can reach our destination of economic bliss will be governed by four things:
  • our power to control population,
  • our determination to avoid wars and civil dissensions,
  • our willingness to entrust to science the direction of those matters which are properly the concern of science,
  • the rate of accumulation as fixed by the margin between our production and our consumption;
of which the last will easily look after itself, given the first three.

(Economic Possibilities for our Grandchildren, 1930)


[The] ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.
Indeed, the world is ruled by little else.
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
(p 383)

There is no clear evidence from experience, that the investment policy which is socially advantageous, coincides with that which is most profitable.
(p 140)

(The General Theory of Employment, Interest and Money, 1936)


Robert Skidelsky


From the start 'scientific' economics had been strongly normative.
By increasing understanding of 'economic laws' it hoped to shift actual economic arrangements towards the competitive ideal which would maximise the creation of wealth; hence the strong association between nineteenth-century economics and the policy of laissez-faire.
Adam Smith and his followers were chiefly preoccupied with the failures of government.
Their idea was that government should keep law and order, and get out of economic life.

By the last quarter of the nineteenth century the mood had changed.
  • The failures of laissez-faire were palpable;
  • the competence and the integrity of governments were much improved; [and]
  • the growth of democracy had increased the pressure on the state to 'solve' or at least [mitigate] social problems.

[The Age of Collectivism had] dawned.
Feeding the growth of collectivism was
  • the growth of the social sciences, and
  • the parallel emergence of an activist intelligentsia, claiming a right of direction, vacated by the aristocracy and the clergy, by virtue of superior intellectual ability and expert knowledge of society.
(p 455)

The central claim which emerged from the confluence of these two tendencies was that society was a machine whose working could be improved by deliberate action, with unintended side-effects being equally amenable to correction and control, much as a mechanic fine-tunes an engine.
It was the vision … that we can make of our lives and world the world what we wish.
(p 456)

(John Maynard Keynes (1883-1946): Economist, Philosopher, Statesman, One Volume Edition, Penguin, 2003)


Niall Ferguson (1964)


… John Williamson's original 1989 formulation [of the Washington Consensus advised policy-makers to:]

  1. Impose fiscal discipline;
  2. Reform taxation;
  3. Liberalize interest rates;
  4. Raise spending on health and education;
  5. Secure property rights;
  6. Privatize state-run industries;
  7. Deregulate markets;
  8. Adopt a competitive exchange rate;
  9. Remove barriers to trade;
  10. Remove barriers to foreign direct investment.

(p 308)

One recent study of [economic output] and consumption since 1870 has identified
  • 148 crises in which a country experienced a cumulative decline in GDP of at least 10% and
  • 87 crises in which consumption suffered a fall of comparable magnitude,
implying a probability of financial disaster of around 3.6 per cent per year.
(p 342)

(The Ascent of Money, Penguin, 2008)

May 14, 2015

Future Climate Changes, Risks and Impacts

IPCC Climate Change 2014

Cumulative emissions of CO2 largely determine global mean surface warming by the late 21st century and beyond.
Projections of greenhouse gas emissions vary over a wide range, depending on both socio-economic development and climate policy. …

Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems.
Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate change risks.
(p 18)

Surface temperature is projected to rise over the 21st century under all assessed emission scenarios.
It is very likely that heat waves will occur more often and last longer, and that extreme precipitation events will become more intense and frequent in many regions.
The ocean will continue to warm and acidify, and global mean sea level to rise.
(pp 20-1)

Warming caused by CO2 emissions is effectively irreversible over multi-century timescales unless measures are taken to remove CO2 from the atmosphere. …
[Limiting] total human-induced warming … to less than 2°C relative to the period 1861-1880 with a probability of >66% would require total CO2 emissions from all anthropogenic sources since 1870 to be limited to about 2,900 GtCO2 …
About 1,900 … GtCO2 were emitted by 2011, leaving about 1,000 GtCO2 to be consistent with this temperature goal.
Estimated total fossil carbon reserves exceed this remaining amount by a factor of 4 to 7 …

Climate change will amplify existing risks and create new risks for natural and human systems.
Risks are unevenly distributed and are generally greater for disadvantaged people and communities in countries at all levels of development.
Increasing magnitudes of warming increase the likelihood of severe, pervasive, and irreversible impacts for people, species and ecosystems.
Continued high emissions would lead to mostly negative impacts for biodiversity, ecosystem services, and economic development and amplify risks for livelihoods and for food and human security.
(p 24)

Many aspects of climate change and its impacts will continue for centuries, even if anthropogenic emissions of greenhouse gases are stopped.
The risks of abrupt or irreversible changes increase as the magnitude of the warming increases.
(p 31)

May 12, 2015

Richard Wilkinson

Green Army: Persons of Interest

Richard Wilkinson and Kate Pickett:
Over the next generation or so, politics seem likely to be dominated either
  • by efforts to prevent runaway global warming or, if they fail,
  • by attempts to deal with its consequences.
(The Spirit Level, 2009, p 215)

Richard Wilkinson


[Status differentiation has] deeply ingrained psychosocial effects.
[Inequality is] not just about poverty [or] unfairness.
Its about a response to social hierarchy, social ranking …
It's also about whether people feel valued or devalued.

[In] the Financial Times 100 companies that go into the share index, the average pay difference between the CEO at the top and the lowest paid full time worker, is about 300 to 1.
There's no more powerful way of telling a whole swathe of the population:
You people are worth almost nothing!
Than to pay you one third of one percent of what the CEO gets.
And then of course we say:
The problem with the poor is low self-esteem!

(Inequality and Progress, Big Ideas, ABC Radio National, 5 February, 2014)


Richard Wilkinson and Kate Pickett


Economic Justice and Security

In the USA, a child is killed by a gun every three hours.
(p 132)

[The] most powerful sources of stress affecting health [are:]
  • low social status,
  • lack of friends, and
  • stress in early life.
(p 39)



Figure 16.2
The widening gap between the incomes of the richest and poorest 10% in the USA 1975 (=1) to 2004.

[Inequality in the USA rose] through the 1980s to a peak in the early 1990s.
The [rest of the 1990s] saw an overall decline … with an upturn since 2000.
[The] downward trends [in violence and teenage births] through the 1990s were consistent with improvements in the relative incomes of people at the very bottom of the income distribution.
(p 142)

[In] 1978 there were over 450,000 people in jail [in the USA.]
[By] 2005 there were over 2 million: [a four-fold increase.]
In the UK, the numbers have doubled since 1990, climbing from around 46,000 to 80,000 in 2007.
(p 145)

[In the US only] 12% of growth in state prisoners between 1980 and 1996 could be put down to increases in criminal offending (dominated by a rise in the drug-related crime).
… 88% of increased imprisonment was due
  • to the increasing likelihood that convicted criminals were sent to prison rather than being given non-custodial sentences, and
  • to the increased length of prison sentences.
In federal prisons, longer prison sentences are the main reason for the rise in the number of prisoners.
‘Three-strikes’ laws, minimum mandatory sentences and ‘truth-in-sentencing’ laws (ie, no remission) mean that some convicted criminals are receiving long sentences for minor crimes.
In California in 2004, there were 360 people serving life sentences for shoplifting.
(p 147)

The ratio [of the risk of imprisonment of blacks versus whites] is 6.04 for the USA as a whole and rises to 13.15 for New Jersey. …
[In terms of patterns of youth offending:]
  • 25% of white youths in America have committed one violent offence by age 17, compared to 36% of African-Americans,
  • ethnic rates of property crime are the same, and
  • African-American youth commit fewer drug crimes.
[And yet] African-American youth are overwhelmingly more likely
  • to be arrested,
  • to be detained,
  • to be charged,
  • to be charged as if an adult and
  • to be imprisoned.
The same pattern is true for African-American and Hispanic adults, who are treated more harshly than whites at every stage of judicial proceedings.
Facing the same charges, white defendants are far more likely to have the charges against them reduced, or to be offered ‘diversion’ — a deferment or suspension of prosecution if the offender agrees to certain conditions, such as completing a drug rehabilitation programme.
(p 150)

[In] more equal countries and societies, [it seems that legal frameworks and penal systems] are developed in consultation with experts — criminologists, lawyers, prison psychiatrists and psychologists, etc, and so reflect both theoretical and evidence-based considerations of what works to deter crime and rehabilitate offenders.
[Whereas, in] more unequal countries and states [the policy response is driven by] media and political pressure [to be seen to be] tough on crime … rather than considered reflection on what works and what doesn’t.
(p 155)

[After] slowly increasing from 1950 to 1980, social mobility in the USA declined rapidly, as income differences widened dramatically in the later part of the century.
(p 160)


The Future of Equality

[If] the United States was to reduce its income inequality to something like the average of the four most equal of the rich countries (Japan, Norway, Sweden and Finland),
  • the proportion of the population feeling they could trust others might rise by 75% — presumably with matching improvements in the quality of community life;
  • rates of mental illness and obesity might similarly each be cut by almost two-thirds,
  • teenage birth rates could be more than halved,
  • prison populations might be reduced by 75%, and
  • people could live longer while working the equivalent of two months less per year.
(p 261)

{We know that more egalitarian countries live well, with high living standards and much better social environments.}
[So we should not] allow ourselves to be cowed by the idea that higher taxes on the rich will lead to their mass emigration and economic catastrophe. …
Nor should we allow ourselves to believe that the rich are scarce and precious members of a superior race of more intelligent beings on whom the rest of us are dependent.
That is merely the illusion that wealth and power create.

Rather than adopting an [undeserved] attitude of gratitude towards the rich, we need to recognize what a damaging effect they have on the social fabric. …
[In the lead up to the 2008 financial crisis, the] huge salaries and bonuses at the top … increased the pressure to consume as everyone else tried to keep up.
The long speculative boom which preceded the … crash was fuelled substantially by the growth of consumers’ expenditure.
(p 262)

By adding to the speculative element in the cycles of economic boom and bust, great inequality shifts our attention from the pressing environmental and social problems and makes us worry about unemployment, insecurity, and ‘how to get the economy moving again’.
Reducing inequality would not only make the economic system more stable, it would also make a major contribution to social and environmental sustainability.

Modern societies will depend increasingly on being creative, adaptable, inventive, well-informed and flexible communities, able to respond generously to each other and to needs wherever they arise.
Those are characteristics not of societies in hock to the rich, in which people are driven by status insecurities, but of populations used to working together and respecting each other as equals. …

[To achieve this, we need] to bring about shift in public values so that instead of inspiring admiration and envy, conspicuous consumption is seen [for what it really is:] a sign of greed and unfairness which damages society and the planet.
(p 263)

[The] evidence shows that even small decreases in inequality, already a reality in some rich market democracies, make a very important difference to the quality of life. …
[We need] to stand up to the tiny minority of the rich whose misplaced idea of self-interest makes them feel threatened by a more democratic and egalitarian world.
(p 264)

We are on the verge of creating a qualitatively better and more truly sociable society for all.
(p 265)


Corporate Power

In 2007 chief executives of 365 of the largest US companies received well over 500 times the pay of their average employee, and these differences were getting bigger. …
(p 242)

In many of the top companies the chief executive [receives more in a] day than the average worker [earns] in a year.
Among the Fortune 500 companies the pay gap in 2007 was close to ten times as big as it was in 1980, when the long rise in income inequality was just beginning. …

[International estimates suggest] that ratios of CEO compensation to the pay of production workers in manufacturing might be
  • 16:1 in Japan,
  • 21:1 in Sweden,
  • 31:1 in the UK and
  • 44:1 in the USA. …

The average pay (including bonuses) for the chief executives of top [UK companies in 2007] stood at just under £2.9 million [— up 37% from the year before.]
[An analysis by] the International Labour Organization concluded that there is little or no evidence of a relationship between executive pay and company performance and suggested that these excessive salaries are likely to reflect the dominant bargaining position of executives. …

In the USA, the twenty highest-paid people working in publicly traded corporations received almost 40 times as much as the twenty highest-paid people in the non-profit sector, and 200 times more than the twenty highest-paid generals or cabinet secretaries in the Federal Government. …
(p 243)

It [is] common practice for CEOs and other senior managers to receive huge salary increases shortly after [the privatization of state-owned enterprises. …]
United Nations Conference of Trade and Development:
Twenty-nine of the world’s 100 largest economic entities are transnational corporations (TNCs) …
Of the 200 TNCs with the highest assets abroad in 2000, Exxon is the biggest in terms of value added ($63 billion).
(2002)
(p 244)

Research that looked at a large number of British companies during the 1990s found that employee share-ownership, profit-sharing and participation each make an independent contribution to increased productivity [but only when used in combination — they had little lasting impact when used in isolation.]
(p 249)

[The] Mondragon Corporation in the Basque region of Spain [combines] over 120 employee-owned co-operatives with 40,000 worker-owners and sales of $4.8 billion US dollars.
Mondragon co-operatives are twice as profitable as other Spanish firms and have the highest labour productivity in the country.
(p 251)

(The Spirit Level, Penguin, 2009)