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January 2, 2015

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Paul Krugman: Twin Peaks Planet

Posted: 02 Jan 2015 12:24 AM PST

There's more to the inequality story:

Twin Peaks Planet, by Paul Krugman, Commentary, NY Times: In 2014, soaring inequality in advanced nations finally received the attention it deserved, as Thomas Piketty's "Capital in the Twenty-First Century" became a surprise (and deserving) best seller. ...
But that's a story about developments within nations... You really want to supplement Piketty-style analysis with a global view...
So let me suggest that you look at a remarkable chart ... produced by Branko Milanovic... What Mr. Milanovic shows is that income growth since the fall of the Berlin Wall has been a "twin peaks" story. Incomes have ... soared at the top, as the world's elite becomes ever richer. But there have also been huge gains for what we might call the global middle — largely consisting of the rising middle classes of China and India. ...
Now for the bad news: Between these twin peaks ... lies what we might call the valley of despond: Incomes have grown slowly, if at all, for ... the advanced-country working classes...
Furthermore..., soaring incomes at the top were achieved, in large part, by squeezing those below: by cutting wages, slashing benefits, crushing unions, and diverting a rising share of national resources to financial wheeling and dealing.
Perhaps more important..., the wealthy exert a vastly disproportionate effect on policy. And elite priorities — obsessive concern with budget deficits, with the supposed need to slash social programs — have done a lot to deepen the valley of despond. ...
The problem with these conventional leaders, I'd argue, is that they're afraid to challenge elite priorities, in particular the obsession with budget deficits, for fear of being considered irresponsible. And that leaves the field open for unconventional leaders — some of them seriously scary — who are willing to address the anger and despair of ordinary citizens.
The Greek leftists who may well come to power there later this month are arguably the least scary of the bunch... Elsewhere, however, we see the rise of nationalist, anti-immigrant parties like France's National Front and the U.K. Independence Party, or UKIP, in Britain — and there are even worse people waiting in the wings. ...
I'm not suggesting that we're on the verge of fully replaying the 1930s. But I would argue that political and opinion leaders need to face up to the reality that our current global setup isn't working for everyone..., that valley of despond is very real. And bad things will happen if we don't do something about it.

Links for 01-02-15

Posted: 02 Jan 2015 12:06 AM PST

'Why Haven’t We Drawn the Obvious and Transparent Lessons from the Past Seven Years?'

Posted: 01 Jan 2015 11:25 AM PST

Brad DeLong:

Back before World War I ... there was a deflation caucus–a great mass of wealth committed to investments in long-term nominal bonds and in real estate rented out in long term leases at fixed nominal rates. This deflation caucus had a very strong material interest in the hardest of hard monies and, by virtue of its wealth, a dominant political voice.
Since every nominal asset comes with a nominal liability, arithmetic tells us that, as far as economic material interest is concerned, the soft money-caucus has as much at stake at the margin as does the hard-money caucus. But back before World War I a great deal of the soft-money caucus did not have the vote. Combine the restriction of the formal franchise with wealth's dominance of the informal franchise and it is not surprising that–except in times of total war or revolution–hard money ruled in the North Atlantic core of the global economy from the days of Sir Isaac Newton to World War I. In between World Wars I and II ,as the material power of the hard money caucus ebbed, it made sense that its ideological power would wane only with a lag.
Since World War II, however, there has been no material hard-money caucus: all of the rich have broadly diversified portfolios. And everyone has the franchise. Since World War II, the stakes in the zero-sum hard-money soft-money debate are now very low. Since World War II, we all have a common interest in full employment and shared prosperity–we are all the 100%.
So whence come the many policy disasters since 2007? How are we to explain what has happened? We have managed to throw away between 5%-10% of the potential wealth of the North Atlantic, and we appear to have thrown it away permanently. How? Why? And why can't we fix it?
And, of course, why haven't we drawn the obvious and transparent lessons from the past seven years of what we need to do in order to keep this from happening again? Let me turn the microphone over to Paul Krugman...

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