Economic innequality and financial instability.

Economic innequality and financial instability.

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Paul Krugman: The Conscience of A Liberal

Princeton University Professor and NYT columnist Paul Krugman speaks about the end of the New Deal post-war consensus and the rise of a new Gilded Age.

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Cap and Trade, Green Tax Switch, Ineqaulity and International Climate Funds.

A short time back i was asked to contribute one simple policy to a website called 'day one' that is seeking to concentrate suggestions for day one of the next US presidency.

My suggestion was:

"I suggested taxing pollution more and income less. Income tax would be
reduced most at the lower levels of income to overcome the regressive nature of a carbon tax. This 'green tax switch'is one no brainer that every country
should adopt in combination with other measures."

After all my recent reading and video watching on ineqaulity recently I think it's fair to say that i would go beyond simply balancing the regressive nature of a carbon tax with the progressive nature of income tax cuts for the poor. I would create a dramatically progresive system to counterbalance both structural economic feature disadvantaging the poor and the current tax system that steals from the poor to give to the rich.

I would like to thank Christopher Mitchel for passing on this link to me. The New Rules Project sketches out a cap and trade scheme based on an auction of permits with the revenues being recycled into the economy as suggested be me for a carbon tax.




It really dosent matter to me if this scheme is followed or a carbon tax approach is used for funding tax cuts for the poor. What i would say is that both a carbon tax and a cap and trade scheme are needed, and one of them will need to fund projects agreed on internationally. Adaptation and clean development in the global south require significant revenues. Politicians have proven appauling at looking through their domestic budgets and finding a little slack so they can fullfil their international responsibilities. However the EU ETS and some US cap and trade schemes are considering a hypothication of auction revenues for international commitments. I think that this is sensible and that as cap and trade systems are likely to all function under a post-kyoto framework it seems logical if not absolutely nessicary that they provide the funds and that a revenues neutral but progresive carbon tax recycling schemes can be a purely national matter.

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Economic Inequality in the USA

Continuing my investingation of economic ineqaulity I found this video investingating the Bush tax cuts. Ineqaulity of some degree is nessicary but currently things are getting out of hand in the UK and US.

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Getting serious about people to protect the planet.

John Schmitt gives a facinating talk on changes in income and wealth ineqaulity in the US since the second world war.

I seem to be following US economic policy more closely that that in the UK as materials are better available. The US may now be in a recssion but even before this period Americans didn't feel as wealthy as national economic growth suggests that they should. Why arent Americans feeling welathier?




The answer comes down to distribution of income. In perticular the establishment
of govornment policies that actively shift power to the wealthiest 5% and even more
so to the wealthiest 1% of the population. It is a great irony that in the early 80's when the post-war boom had subsided the presumed saviour of the economy Ronald Ragan was voted into office. Ragan presided over an economy growing steadily, whilst at the same time singularly failing to pass on this growth to the vast majority of the population. So whilst the economy has grown from 100 units to 167 units per capita the feeling is very different:

"We are a very much richer country now than we where 25-30 years ago. And i think one of the great ideological victories of the rights is to persuade us somehow that we dont have the resources or the abillity to be able to afford the things that we used to do...that we cant afford the education, or the social security sysem...and i think that is an incredible misrepresnetation of the economic situation on the united states."

US GDP was 100 uits in 1979 and 167 in 2004. The image bellow shows the wage growth at 10th, 50th and 95th percentile. Wages have decreased slightly for the poorest, risen about 10% for the median and about 30% for the top 10%: despite 60% growth in wealth!

All of these figuers are however poor when compared to growth in GDP...the full increase in wealth reaches the top eschelons not through wages but through invesments. Govornment policies are effectively robbing from the poor and giving to the rich (but subtly). The graph bellow shows how the wealth gains from 1983 to 2001 have been distributed. And it is this economic policy that the Republicans are falling over each other to associate themselves with! The democrats also had a role in this and they have done very little to show that they have seen the light and are prepared to do something about this appaling state of affairs and move the US away from its position as most ineqaul developed nation.

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Inequality: seeing is believing.

My latest interest is economic inequality. A natural next step after reading Herman Daly and his take 
on ecological economics and the need for a steady state economy; in a steady state economy great wealth for a few actually represents impovrishment of the poor. Even without a steady state economy the image bellow forces us to ask some significant questions...

This image is a visual metaphor displayed graphically, the metaphor is here.

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Inneqaulity in the US.

Economics is flawed, at least as currently practiced. Currently markets are used quite effectively to carry out the key function of resource distribution. States cannot do this, as the Soviets so convincingly illustrated. However, distribution of economic resources is not the only problem that we need to solve.

If you are a traditional economist then the two areas of concern are:

• Distribution of resources efficiently. (this gets all the atention at present)
• Allocation of wealth. (Ineqaulity in excess leads to low economic productivity)

If you are an ecological economist then these two issues are joined by a third

• Scale. (if the physical limits of the planet are to be considered there is an optimum scale for the economy; with a given distribution and allocation pattern a variety of standards of life are possible depending on scale)

This is best explained by means of an analogy:

Boat's have a plimsol line. You can add goods to the vessel untill the water reaches this level. If you are careful and distribute the goods evenly over the vessel you may carry more than if the weight is to one side. The weight is analagous to the economic activity, the boat our planets carrying capacity and the distribution is the perfect distribution of resources in the economy.

We can stretch this analogy further to cover inneqaulity. It is well known that a unit of wealth for very poor is more productive than for the wealthy. If you give a poor farmer $500 dollars he may be able to transform his livelihood, the same can not be said for a millionaire. So if we imagine not a deck with goods to be sifted around but a series of decks where goods on the higher decks represent the wealthy we can see that this to destabilises our boat. The higher the centre of gravity the more the boat rocks, even if the load is even and not great the plimsol line will be diping into the water and tising far above.

When dealing with envieronmental issues we must embrace economics. We must say, what a facinating system, let us set it a new challange. Having largely solved distribution let us then look at scale and allocation. We must fight inneqaulity and population growth as we promote innovation and eco-efficiency.

All of this is important not only in terms of comming to grips with communal challanges but also in terms of getting such a movement off the ground. Ineqaulity has many associated malodies, it does not emerge out of thin air and the related social issues of insecurity and lack of trust are certain to promote reactionary, defencive politics not a generous progressive agenda.

The video bellow covers the current economic state of play in the US.

Panel discussants:

Alan Krueger, the Bendheim Professor of Economics and Public Policy and Director of the Survey Research Center at the Woodrow Wilson School;

Douglas Massey, the Henry G. Bryant Professor of Sociology and Public Affairs at the School;

Viviana Zelizer, the Lloyd Cotsen '50 Professor of Sociology at Princeton.

Moderator:

Stan Katz, Lecturer with rank of Professor of Public and International Affairs
Faculty Chair, Undergraduate Program

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Rights for all; including agency workers?!

In their book Break Through, Nordhaus and Schellenburger make the case for what they term "the politics of possibility" an alternative conceptual box to replace environmentalism. One of the primary outcomes of accepting this proposal is the need to take a more active interest in social issues, on the understanding that environmentalism is post-material, people will find it hard to support change and perticulalry environmental protection if they their basic needs are not met. For this reason I will be posting from time to time about significant developments that impact on peoples rights and sense of security.

Rights for All

According to the BBC a seemingly simple proposal by a Labour backbench MP to give agency workers the same benefits as other employees is being resisted by the Labour government and the Conservatives. It looks likely to be the biggest rebellion that Gordon Brown has faced as Prime Minister. It is difficult for many to accept that the Labour party has moved so far from it's roots with concerns for workers to a position of accepting free market dogma. The relative positions of the Confederation of British Industries and the union Unite gives and indication of where Labour's loyalty lies.

"The CBI warned that new rights for agency staff discussed by the EU
employment ministers would cost up to 250,000 jobs. The union Unite is
campaigning for equal rights for agency workers, saying there should be a "level
playing field" with permanently employed people."

The phrase 'flexible labour marker' is particularly Orwellian, it's real meaning is insecurity. It seems quite unlikely that a anything other than environmental damage can result from a nation with a million extra people without the rights--the security--in employment that the rest of the nation enjoys.

"More than one million people are employed via agencies, which means they do not get benefits such as sick pay."

This Bill has only been introduced due to a failure to reach an agreement at the European level, due in large part to the UK.

"The UK opposed the proposals, saying it would damage the country's flexible
labour market and hit jobs, but the legislation will be discussed again this
year."

Labour MP Bill Miller who introduced the bill said:

"In economic terms, we are not going to succeed if we try and undercut the lowest terms and conditions of employment in the world, we are going to succeed if we have a highly skilled, highly trained workforce...The way in which a lot of employers are using agencies to drive down pay and conditions is not a long-term, constructive solution; it's good old British short-termism which is
good for just that but not good for Britain in the world as portrayed by the
prime minister in his speech at Davos."

Related:

• Independent.
• Guardian.
• FT.
• Times.
• E-politics

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