Economics: Prizing Plain Talk on Inequality

Angus Deaton, variously described as a Scotsman, a Briton and a Princeton economist has just been awarded the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2015, often called the Nobel Prize for Economics. Leaving aside all the acid and vitriol about the the name, its sponsor and the wishes of the Nobel family (and there is plenty of it) this particular prize should be welcome in a world in which growing wealth inequality is seen as a problem by almost everyone.

For a quick look at what Deaton offers on the subject, I bring you a post, brought to my attention by Paul Krugman’s blog (not the NY Times opinion piece), from Cardiff de Alejo Garcia.

“I’m passing along the most memorable passage on the topic [of inequality] that I’ve come across lately. It’s from Angus Deaton’s excellent The Great Escape: Health, Wealth and the Origins of Inequality, which I just finished and warmly recommend (I’ve embedded links to the studies and books referenced in the excerpt and footnotes):

Books The Great Escape

“There is much to be said for equality of opportunity, and for not penalizing people for the success that comes from their own hard work. Yet, compared with other rich countries, and in spite of the popular belief in the American dream that anyone can succeed, the United States is in fact not particularly good at actually delivering equal opportunities.

One way of measuring equality of opportunity is to look at the correlation between earnings of fathers and sons. In a completely mobile society, with perfect equality of opportunity, your earnings should be unrelated to what your father earned; by contrast, in a hereditary caste society, in which jobs are handed from one generation to the next, the correlation would be 1.

In the United States, the correlation is 0.5, which is the highest of the OECD countries and is exceeded only by those of China and a handful of countries where there appears to be the least equality of opportunity.

[T]here is a danger that the rapid growth of top incomes can become self-reinforcing through the political access that money can bring. Rules are set not in the public interest but in the interest of the rich, who use those rules to become yet richer and more influential.

To worry about these consequences of extreme inequality has nothing to do with being envious of the rich and everything to do with the fear that rapidly growing top incomes are a threat to the wellbeing of everyone else.”

So, congratulations to Angus Deaton, regardless of what the prize should be called. More perceptive detail on the causes and results of inequality, not only on individuals, groups and classes but on democracy itself is a good thing, if understood and acted upon.

Public Immorality

Robert Reich is always worth listening to whether about economics or trade or work, usually all three at the same time.  In recent blog posts he’s gone after the disappearance of public morality in great corporations, an absolute necessity, he says:

An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.

He’s written about it twice in recent weeks, following on earlier posts about The Outrageous Ascent of CEO Pay and Corporate Welfare in California



At a time many Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – America is experiencing a far more significant crisis in public morality.

CEOs of large corporations now earn 300 times the wages of average workers. Insider trading is endemic on Wall Street, where hedge-fund and private-equity moguls are taking home hundreds of millions.

A handful of extraordinarily wealthy people are investing unprecedented sums in the upcoming election, seeking to rig the economy for their benefit even more than it’s already rigged.

Yet the wages of average working people continue to languish as jobs are off-shored or off-loaded onto “independent contractors.”

All this is in sharp contrast to the first three decades after World War II.

Read All

And if you didn’t see him in Inequality for All, here is a trailer.  Available out there in internet land



Amazon: Travel with Care

In recent years, Amazon has used its dominance in ways that we believe harm the interests of America’s readers, impoverish the book industry as a whole, damage the careers of (and generate fear among) many authors, and impede the free flow of ideas in our society.

  • Amazon, to pressure publishers over the past eleven years, has blocked and curtailed the sale of millions of books by thousands of authors;
  • Amazon, during its dispute with Hachette in 2014, appears to have engaged in content control, selling some books but not others based on the author’s prominence or the book’s political leanings;
  • Amazon has used its monopsony power, and its ability to threaten punishment, to extract an ever greater share of the total price of a book from publishers; this has resulted in publishers dropping some midlist authors and not publishing certain riskier books, effectively silencing many voices;
  • Amazon routinely sells many types of books below cost in order to acquire customers for unrelated lines of business and to drive less well capitalized retailers – like Borders – out of business. This practice, extending over many years, has caused price deflation across the industry and reduced the amount of revenue available for publishers to invest in new books, thus depriving readers of wider choice;
  • Amazon routinely uses its market power to steer readers toward its own books and away from books published by other companies;
  • Amazon dictates pricing to self-published authors, requiring them to price their books within a specific range or be subjected to a 50 percent cut in royalties.

Read Author’s United open letter.

And Caille Milner at SF Gate issued her own self-revelation and plea last week.

I’m no consumer saint. After the whole Hachette fiasco, I stopped buying books on Amazon last year. I moved all of my online book shopping over to Powell’s, and I’m a happy frequenter of local stores such as Christopher’s Books, Green Apple and the Alexander Book Co.

But I buy other things from the site — all of my weird vitamins and hippie tonics, scarce beauty products, the odd MP3.

I do this even though I know how bad Amazon is.

The Hidden Hand, Indeed!

Libertarians and free market fans love to talk about the hidden hand of the marketplace as God’s way of ensuring fairness, making sure the most good comes to the most people.  What they never like to talk about are the actual hidden hands — those market makers, market manipulators who shred the idea of free markets, and trample on the idea of markets regulated for the public good.

Why have almost none of the accounts of the Greek crisis over the last several months whispered the name Goldman Sachs?

Here’s a guy who will: Robert Reich.


The Greek debt crisis offers another illustration of Wall Street’s powers of persuasion and predation, although the Street is missing from most accounts.

The crisis was exacerbated years ago by a deal with Goldman Sachs, engineered by Goldman’s current CEO, Lloyd Blankfein.

Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it

On Reich’s Blog: How Goldman Sachs Profited from the Greek Debt Crisis.

More on the Greeks Germans

Eduardo Porter, business columnist at the NY Times, is only the latest to point out the forgotten half of the German-Greek crisis.  Germany is insisting that Greek pay-up or get out, forgetting that the world was far kinder to the Germans on at least two occasions  in the last hundred years.

Major debt overhangs are only solved after deep write-downs of the debt’s face value. The longer it takes for the debt to be cut, the bigger the necessary write-down will turn out to be.

Nobody should understand this better than the Germans. It’s not just that they benefited from the deal in 1953, which underpinned Germany’s postwar economic miracle. Twenty years earlier, Germany defaulted on its debts from World War I, after undergoing a bout of hyperinflation and economic depression that helped usher Hitler to power.

Punishment for Felonious Banks

Robert Reich, economist, author, blogger, public servant, is always worth turning to in order to understand the world, and some striking alternatives to the status quo.  Here is a June article from his web site, recommending some innovative punishments for felonious banks.

When real people plead guilty to felonies, they go to jail. But big banks aren’t people despite what the five Republican appointees to the Supreme Court say.

The executives who run these banks aren’t going to jail, either. Apologists say it’s not fair to jail bank executives because they don’t know what their rogue traders are up to.

Yet ex-convicts often suffer consequences beyond jail terms.

In many states they lose their right to vote. They can’t run for office or otherwise participate in the political process.

So why not take away the right of these convicted banks to participate in the political process, at least for some years? That would stop JPMorgan’s Dimon from lobbying Congress to roll back the Dodd-Frank act, as he’s been doing almost non-stop.

Why not also take away their right to pour money into politics? Wall Street banks have been among the biggest contributors to political campaigns. If they’re convicted of a felony, they should be barred from making any political contributions for at least ten years.

Read All

Greeks Off the Cliff

So the Greeks have voted NO to accepting more austerity as the price of more loans from the Big 3 European banking institutions.  At least most Greeks.

The final results of Greece’s bailout referendum are in, with all 19,159 precincts reporting. The “No” side won with a higher than expected 61.31 percent, while “Yes” got 38.69 percent.

A total of 6.16 million Greeks voted in Sunday’s referendum, or 62.5 percent of eligible voters. The poll needed a minimum 40 percent turnout to be valid.

As usual, one has to wonder about the 37.5% who chose not to vote, in perhaps the most direct and pressing question any electorate has ever been asked to vote on.

What happens next is not at all clear, though certainly more negotiations will take place between the Greek government, their creditors and at least one of the 3 banks, the IMF.  If that fails, as would seem likely, bankruptcy will be declared, ties will be severed between the Eurozone and Greece, and somehow a new currency will be put in place.  One hopes smart people are at least at the drawing boards for that.

It seems to me that in calculations and negotiations not all the externalities are factored in.  One easy postulate for Germany and France, for example, it that a severe weakening of Greece and its economy would make its shores the destination of choice for migrants from the Middle East. Certainly, Turkey, Greece’s near neighbor and once-upon-a-time applicant to join the Eurozone, will be having second thoughts, if only because of the bad management of the whole slow growing crisis.

Not only that, but as with drunk driving charges only being brought against the drinker and not the salesman behind the bar, most of the opprobrium has been directed against Greek pensioners. Here’s a counter-view by an investment banker.

The northern Europeans … were outright enablers of Greek excess. Not only did they aggressively seek to provide loans to Greece during the bubble era (through their private banking sectors and the bond markets), but in what can only be seen historically as a panicked response to preserve the euro system, the euro group (through the European Central Bank and its individual country central banks), together with the International Monetary Fund, bailed out European banks and the bond market by socializing Greece’s bad debt and placing taxpayers throughout the euro zone at risk of sharing the losses thereon.

Paul Krugman has also been a strong opponent of the austerity hawks in Europe, and today repeats his belief that Greece exit from the Euro currency may be better than staying in.

The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding.

Though it’s a lot to ask, I know, I hope the analysts and scholars are hard at work figuring out how it came to this.  When is lending bad policy? How is any group of people rescued from bad luck + bad decisions+ co-dependency with others?  How can improvident loans be identified and those who made them be recipients of the largest ‘hair cuts?” Given the data banks of information of economies rising and falling, how can better predictions be made?  A surplus of questions is swirling, even with a drought of wisdom.

How this might affect “us” depends of course on who “us” is.  If us is drawn narrowly to be our close family, perhaps not too much — some fear of stock market gyrations and uncertainty.  If us is instead, we the people of the world, some of us have been suffering outside their share of human misery already, and may suffer more.

Bernie Sanders has called on the U.S. to understand the problem in also ours, as I’ve wondered for months why it has seemed to be only a German-Greek fight.

“It is unacceptable that the International Monetary Fund and European policymakers have refused to work with the Greek government on a sensible plan to improve its economy and pay back its debt,” Sanders said in an exclusive statement to The Huffington Post. “At a time of grotesque wealth inequality, the pensions of the people in Greece should not be cut even further to pay back some of the largest banks and wealthiest financiers in the world.”

All the best to the Greek people, one of whomcalled yesterday, elated by the vote but completely unsure how he or the country was going to make it through the next year.


If you really want to get down in the weeds about Germany’s claim to the moral high-ground over indebtedness, here are two interesting articles by Eric Toussaint: #1 Greece-Germany: who owes who? (1) London 1953: cancellation of the German debt and #2 Creditors are protected, the people of Greece sacrificed

Medicare Spending Gap Falls Again

For quite some time now, the Deficit Hawks in the greater American punditocracy have waved their fear flags about Medicare and how it was going to send the nation down the slippery slope of Greekification.  Better to let each oldster and handicapped person work it out on their own, or depend on relatives or churches, or the side-walks, like the good old days!

Well the latest data shows the worry has been overwhelming their prognostication.  Not that they will stop shrieking of course.  But anyway, here it is:

You’re looking at the biggest story involving the federal budget and a crucial one for the future of the American economy. Every year for the last six years in a row, the Congressional Budget Office has reduced its estimate for how much the federal government will need to spend on Medicare in coming years. The latest reduction came in a report from the budget office on Wednesday morning.

The changes are big. The difference between the current estimate for Medicare’s 2019 budget and the estimate for the 2019 budget four years ago is about $95 billion.

Some of the recent reductions in Medicare spending are because of differences in estimates about the economy and demographics that affect the program.

And some are because of cuts in health care spending passed by Congress. The Affordable Care Act, in particular, made significant reductions to Medicare’s spending on hospitals and private Medicare plans, to help subsidize insurance coverage for low- and middle-income Americans. The Budget Control Act, which Congress passed in 2011, also made some across-the-board cuts to Medicare spending.

Participatory Surveillance

One of George Orwell’s great insights and fears was not, as in 1984, a draconian dictatorship imposed on the populace but of a participatory one. For the proper benefits (even if only perceived) men will join most anything.  We can see this in many ways in the modern world, accelerating with social media of all kinds.  Well here comes another chance:

Surveil Me!  Surveil Me!

An increasing number of the nation’s auto insurance companies have a new proposition: Let them track every second of your driving in exchange for an annual discount that can reach into the hundreds of dollars if you behave yourself on the road.

In theory, everyone wins here. Progressive, Allstate and State Farm — among the most aggressive of the larger companies that are pursuing this strategy — attract better drivers who crash less often. Customers who sign up for the optional programs can pay premiums based more on how they drive and less on their age, gender or credit history.

At the moment, State Farm and Progressive are not raising rates on people who sign up for monitoring and prove to be terrible drivers. Participation is voluntary, and Progressive, the early adopter in usage-based insurance, says that close to 15 percent of its customers are already enrolled.

Still, as more people sign up, the standard rate will start to feel like a penalty for those who decline to participate…

NYTimes Lieber

Of course somewhere in the big data every purchase I make is being tracked, my preferences, locations, size of purchase…  But we all better start wondering where the line is to be drawn

Libertarian Flim Flam

Paul Krugman is on to the “Libertarian Moment” being proclaimed in some quarters.

Is libertarian economics at all realistic?

The answer is no. And the reason can be summed up in one word: phosphorus.

As you’ve probably heard, the City of Toledo recently warned its residents not to drink the water. Why? Contamination from toxic algae blooms in Lake Erie, largely caused by the runoff of phosphorus from farms.

When I read about that, it rang a bell. Last week many Republican heavy hitters spoke at a conference sponsored by the blog Red State — and I remembered an antigovernment rant a few years back from Erick Erickson, the blog’s founder. Mr. Erickson suggested that oppressive government regulation had reached the point where citizens might want to “march down to their state legislator’s house, pull him outside, and beat him to a bloody pulp.” And the source of his rage? A ban on phosphates in dishwasher detergent. After all, why would government officials want to do such a thing?

And in his on-line blog he reminds us of the cloth from which Paul Ryan is cut:

Brad DeLong reminds us of the original Ryan budget plan — or actually “plan”, as I’ll explain — and emphasizes its dire warnings about a looming debt crisis that wasn’t. But pointing out that the debt panic was unjustified only gets at part of what was wrong with that Ryan budget (and all his subsequent proposals). For the fact is that it wasn’t a proposal made in good faith.


And, as to the idea that there is a libertarian tide rising, floating the boat of one Rand Paul, Ed Kilgore offers a corrective over at Talking Points Memo.

…to the extent there is something that can be called a “libertarian moment” in the Republican Party and the conservative movement, it owes less to the work of the Cato Institute than to a force genuine libertarians clutching their copies of Atlas Shrugged are typically horrified by: the Christian Right. In the emerging ideological enterprise of “constitutional conservatism,” theocrats are the senior partners, just as they have largely been in the Tea Party Movement, even though libertarians often get more attention.

And here, Kilgore offers a short summary of the above.