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February 4, 2013

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 16 Dec 2012 12:06 AM PST
Posted: 15 Dec 2012 11:10 AM PST
Chris Dillow:
Inequality: power vs human capital, by Chris Dillow: David Ruccio points to labor's falling share of income in the US and says:
We need to talk much more about profits and who owns capital. And, in addition, who appropriates and distributes the surplus and to whom that surplus is subsequently distributed.
This is like saying a man should put his trousers on before leaving the house. It's good advice, but it shouldn't need saying.
A nice new paper by Amparo Castello-Climent and Rafael Domenech at the University of Valencia supports his point. They point out that there's no correlation between inequality of human capital and inequality of incomes. This is true across time.. And it's true across countries... This is a challenge for the neoclassical view that income inequality is due to inequality of marginal productivities. ...
Instead, the more obvious possible reason for the lack of link between human capital and income equality is simply that inequality reflects not differences in productivity but differences in power which themselves arise from institutional differences. Inequality is higher in south America than in Japan or South Korea simply because south America has extractive institutions which enable a small minority to exploit the masses, whereas Japan and South Korea do not.
Institutional differences in power also help explain another fact: why does the return to university education differ so much (pdf) across European nations of similar income? It is higher in the UK than in Germany or Nordic countries, for example. It's hard to explain this by technical change or globalization, as these factors should have affected countries reasonably similarly. A more plausible possibility, surely, is that institutional factors - the power of capital over labor - allow (some) graduates greater access to the economic surplus in the UK than it allows them in the Nordic countries.
Although I'm speaking here in macroeconomic terms, the point holds at a micro level too. Why did Rebekah Brooks get a £10.9m payoff from Murdoch? It's not because she has obvious greater marginal productivity or technical human capital than the rest of us. It's because (for reasons we needn't consider) she had privileged access to the surplus.
Inequality, then, is better explained by power than by human capital or marginal productivity.
This is not a novel thought, or the first time I've made this point, but more and more it seems that we shouldn't think of these as competing explanations for inequality, but rather as complementary explanations that are mutually reinforcing.
Posted: 15 Dec 2012 09:34 AM PST
pgl at Econospeak:
Kevin Drum on Why the Social Security Trust Fund is Real, by pgl: Kevin Drum has a short and sweet analogy for the position that the assets in the Social Security Trust Fund are real:
Now, suppose this surplus had been invested in corporate bonds. What exactly would that mean? It means that workers would be giving money to corporations, who would turn around and spend it. In return, the Social Security trust fund would receive bonds that represent promises to repay the money later out of the company's cash flow. In effect, it gives workers a claim on the cash flows of the company at a later date in time. When that time comes, the company would have to pay up, which would make it less profitable. If the company was already unprofitable, it would make their deficit even worse. If that's what had happened, there would be no confusion about the trust fund. Everyone agrees that corporate bonds are real things, and that the corporations who sell them have an obligation to pay them back, even though it means less money for shareholder dividends.
He then substitutes treasury bonds for corporate bonds and draws the same conclusion. QED! While I agree, let me try to offer the rightwing rebuttal, which begins with the proposition that the general fund is essentially bankrupt. Is it and why? Well – it is true that the Reagan years cut taxes on the very rich just as it raised payroll taxes. It is also true that President Reagan increased defense spending. Although we had the peace dividend and some reversals of those tax cuts during the 1990's, George W. Bush put us back on the path of high defense spending and low taxes on the rich in 2001. The Republican Party seems to believe that we must forever have high defense spending and low taxes on the rich. Well if that is true, it is analogous to paying high dividends to corporate shareholders even as corporate profits are well below the dividend policy. But do we really have to accept this Republican belief system? No we can honor these promises to pay Social Security benefits if we as a nation are willing to tell the rich to pay higher taxes and tell the military industrial complex that it gets less largesse. But I guess some Republicans see the promises of low tax rates for the rich and continuing largesse for the military industrial complex as sacrosanct, which of course leads them to conclude that the problem is those promises to Social Security beneficiaries.
The tax cuts can also be viewed as a loan from the Social Security Trust Fund that didn't pay off as promised.

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