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February 27, 2015

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Posted: 27 Feb 2015 12:06 AM PST

The Decline in Unionization and Inequality

Posted: 26 Feb 2015 10:26 AM PST

Research by Jaumotte and Carolina Osorio Buitron of the IMF finds that "The decline in unionization in recent decades has fed the rise in incomes at the top":

Power from the People: Inequality has risen in many advanced economies since the 1980s, largely because of the concentration of incomes at the top of the distribution. ...
While some inequality can increase efficiency by strengthening incentives to work and invest, recent research suggests that higher inequality is associated with lower and less sustainable growth in the medium run (Berg and Ostry, 2011; Berg, Ostry, and Zettelmeyer, 2012), even in advanced economies (OECD, 2014). Moreover, a rising concentration of income at the top of the distribution can reduce a population's welfare if it allows top earners to manipulate the economic and political system in their favor (Stiglitz, 2012). ...
We examine the causes of the rise in inequality and focus on the relationship between labor market institutions and the distribution of incomes, by analyzing the experience of advanced economies since the early 1980s. ... [W]e find strong evidence that lower unionization is associated with an increase in top income shares in advanced economies during the period 1980–2010 (for example, see Chart 2)... This is the most novel aspect of our analysis, which sets the stage for further research on the link between the erosion of unions and the rise of inequality at the top. ...

'Can Helicopter Money be Democratic?'

Posted: 26 Feb 2015 09:53 AM PST

Simon Wren-Lewis:

Can helicopter money be democratic?: Helicopter money started as an abstract thought experiment..., in technical terms this is a combination of monetary policy (the creation of money) and fiscal policy (the government giving individuals money). Economists call such combinations a money financed fiscal stimulus. With the advent of Quantitative Easing (QE), it has also been called QE for the people.
Some have tried to suggest that central banks could undertake helicopter money for the first time without the involvement of governments. This is a fantasy that those who dislike the idea of government have concocted. Others who dislike the idea of fiscal policy have suggested that helicopter money is not really a fiscal transfer. That is also nonsense. ...
If initiation by the central bank is the defining feature of helicopter money, and this policy always requires the cooperation of government, might it be possible to imagine a form of helicopter money that was more 'democratic'? ... A left wing government might decide that, rather than giving money to everyone including the rich, it would be better to increase transfers to the poor. A right wing government might decide it should only go to 'hard working families', and turn it into a tax break. We could call this democratic helicopter money.
I can see two problems with democratic helicopter money. ...
Given these problems, why even think about democratic helicopter money? One reason may be political. A long time ago I proposed giving the central bank limited powers to make temporary changes to a small set of predefined tax rates, and I found myself defending that idea in front of the UK's Treasury Select Committee. To say that the MPs were none too keen on my idea would be an understatement. Making helicopter money democratic may be what has to happen to get politicians to support the idea.

'Making Do with More'

Posted: 26 Feb 2015 09:52 AM PST

Brad DeLong:

Making Do with More: If we as a species can avoid nuclear war; curb those among us who are violent because they are God-maddened, state-maddened, or ethnicity-maddened; properly coordinate global action to reduce global warming from its current intolerable projected path to a tolerable one, adapt to the global warming that occurs, and distribute paying for the costs of that adaptation--well, if we can do all of those things, the human race can have a very bright future indeed. ...

Is Competition to Attract Businesses Harmful?

Posted: 26 Feb 2015 09:52 AM PST

At MoneyWatch:

Is competition to attract businesses harmful?: State and local governments often use incentives such as tax cuts, rebates, promises of government services and the easing of regulatory restrictions to induce new or existing businesses to locate in their region.

But this strategy raises some important questions:

  • Do these policies work
  • Do the costs exceed the benefits?
  • Do the policies simply redistribute economic activity from one region to another, what economists call a "zero-sum game," or do they create a positive aggregate effect from easing tax burdens and other restrictions?
  • Finally, if it is a zero-sum game, would the U.S. benefit from banning this sort of competition for businesses at the state and local level because it lowers the tax revenue needed to fund critical services and erodes regulatory protections?

These questions are addressed... First...

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