From an August 2014 report by S&P:
- At extreme levels, income inequality can harm sustained economic growth over long periods. The U.S. is approaching that threshold.
- Standard & Poor’s sees extreme income inequality as a drag on long-run economic growth. We’ve reduced our 10-year U.S. growth forecast to a 2.5% rate. We expected 2.8% five years ago.
For the report, see here.
For press coverage, see here.
From Peter Barnes on PBS Newshour, discussing his new book With Liberty and Dividends for All:
Dividends from common wealth, by contrast, unite society by putting all its members in the same boat. The income everyone receives is a right, not a handout. This changes the story, the psychology and the politics.
Read more here.
Econ4’s James Boyce writes on newly introduced climate legislation:
A major obstacle to climate policy in the United States has been the perception that the government is telling us how to live today in the name of those who will live tomorrow. Present-day pain for future gain is never an easy sell. And many Americans have a deep aversion to anything that smells like bigger government.
What if we could find a way to put more money in the pockets of families and less carbon in the atmosphere without expanding government? If the combination sounds too good to be true, read on.
Krugman on the political roots of sadistic monetary policy:
Before the financial crisis, many central bankers and economists were, it’s now clear, living in a fantasy world, imagining themselves to be technocrats insulated from the political fray. After all, their job was to steer the economy between the shoals of inflation and depression, and who could object to that?
It turns out, however, that using monetary policy to fight depression, while in the interest of the vast majority of Americans, isn’t in the interest of a small, wealthy minority. And, as a result, monetary policy is as bound up in class and ideological conflict as tax policy.
The truth is that in a society as unequal and polarized as ours has become, almost everything is political. Get used to it.
Read more here.
Quiz for the day: Who said this?
The 85 richest people in the world, who could fit into a single London double-decker, control as much wealth as the poorest half of the global population– that is 3.5 billion people….
A greater concentration of wealth could—if unchecked—even undermine the principles of meritocracy and democracy. It could undermine the principle of equal rights proclaimed in the 1948 Universal Declaration of Human Rights.
Pope Francis recently put this in stark terms when he called increasing inequality “the root of social evil”.
Some of the greatest problems, still outstanding today, lay with the so-called too-big-to-fail firms. In the decade prior to the crisis, the balance sheets of the world’s largest banks increased by two to four-fold. With rising size came rising risk—in the form of lower capital, less stable funding, greater complexity, and more trading.
This kind of capitalism was more extractive than inclusive. The size and complexity of the megabanks meant that, in some ways, they could hold policymakers to ransom. The implicit subsidy they derived from being too-big-too-fail came from their ability to borrow more cheaply than smaller banks—magnifying risk and undercutting competition.
Answer: IMF Managing Director Christine Lagarde, in a speech to a conference on “inclusive capitalism” on May 27. See the transcript of her speech here. For more on changing spirits of the times, see here.
In testimony before the Rhode Island state legislature, Econ4’s Doug Smith lays out the rationale for capping the maximum annual compensation a firm pays its CEO – based on what it pays its lowest-paid workers:
This dangerous rise in top-to-bottom pay ratios fuels a cancerous spread of business strategies obsessed with cost reductions and short-term financial performance. The result: outsourcing, offshoring, tax avoidance, downsizing, and the substitution of good-paying permanent jobs with temporary, precarious employment.
Read his New York Times op-ed piece on maximum wages for government officials and top-paid government contractors here.
A new animation sums up the differences between the “Golden Age”of 1948-71 and the “Great Moderation” of 1985-2007:
… inequality makes the IMF sing a new tune:
[T]he newfound attention to income inequality isn’t just another facet of a more liberal, Keynesian economic worldview. The fund’s economists have been producing research that suggests that inequality could make the world economy less stable.
Read more here.
Quiz for today: who said this?
The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.
Answer: Teddy Roosevelt in a 1910 speech in Osawatomie, Kansas. Paul Krugman quotes Roosevelt to make the case that taxing the rich to safeguard democracy is as American as apple pie. Krugman also quotes Irving Fisher’s 1919 presidential address to the American Economics Association, warning of the dangers of “an undemocratic concentration of wealth.”
“How,” Krugman asks,” did such views not only get pushed out of the mainstream, but come to be considered illegitimate?”
Good question. Krugman’s conclusion is right on the money:
[T]he demonization of anyone who talks about the dangers of concentrated wealth is based on a misreading of both the past and the present. Such talk isn’t un-American; it’s very much in the American tradition.
Read his column here.
That’s the question posed by Senator Elizabeth Warren. She will introduce a bill to levy a minimum tax on incomes above $1 million (known as the “Buffet rule”), and devote the revenue to lowering interest payments on student debt:
Warren’s plan would allow students with outstanding student loans to refinance at lower rates. The cost of the change would be covered by a “dollar for dollar” effort where for “every dollar the Buffet rule brings in, we use that dollar to refinance student loan debt.”
Learn more here.