Pollution Inequality and Income Inequality

James K. Boyce

This interview with regular Triple Crisis contributor James K. Boyce (Political Economy Research Institute, University of Massachusetts-Amherst) appeared originally at The Real News Network. Prof. Boyce describes the findings from his recent study showing that, in the United States, inequality in exposure to air pollution is even more unequal than inequality in income. The study, issued by the Institute for New Economic Thinking, was co-authored by Boyce with Klara Zwickl and Michael Ash.

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Is Rising Income Inequality Inevitable?

C.P. Chandrasekhar and Jayati Ghosh

Rising inequality is now a concern on everyone’s minds, even amongst the rich. Unequal societies are actually more unpleasant and dangerous for everyone, not just for those deprived by the system. High and rising inequality can be dysfunctional for the economy: for example, many now argue that growing inequality and the suppression of wage incomes combined with the effects of financial deregulation to generate the Global Financial Crisis of 2008, and that the subsequent poor performance of most economies is related to the slow and limited recovery of labour incomes. Policy makers seem to recognise that addressing inequalities is important not only for justice and social cohesion, but also for continued material progress.

This may partly explain the recent proliferation of academic studies on global and national inequalities, as well as the numerous reports on the subject that have come from UN organisations and other multilateral organisations. The huge media attention devoted to one academic study—Thomas Piketty’s Capital in the 21st Century—is a sign of the times. The spotlight that is shone on the rising share of incomes of the rich and the substantial empirical data that have been brought to bear on establishing this are indeed welcome. But that book, like many other recent analyses of inequality, tends to ascribe some sort of inevitability to the process, as the result of the working of some inexorable economic forces. Piketty, for example, argues that there is a general tendency for wealth and income inequalities to increase because the rate of return on capital tends to exceed the rate of growth of the economy. There are various analytical concerns with this formulation, which relies on assumptions of full employment over the process of economic expansion and returns to factors like capital being determined by their marginal productivity (itself a problematic concept that is also impossible to measure).

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What Happened to the Recovery, Part II

Gerald Friedman, Guest Blogger

This is the second part of a two-part series on the reasons for the sluggish U.S. economic “recovery” since the Great Recession, by Gerald Friedman, professor of economics at the University of Massachusetts and author of Microeconomics: Individual Choice in Communities. This post, from Friedman’s “Economy in Numbers” column in Dollars & Sense magazine, focuses on the failings of various government policy responses to the crisis.

Government Policy and Why the Recovery Has Been So Slow

The recovery from the Great Recession has been so slow because government policy has not addressed the underlying problem: the weakness of demand that restrained growth before the recession and that ultimately brought on a crisis. Focused on the dramatic events of fall 2008, including the collapse of Lehman Brothers, policymakers approached the Great Recession as a financial crisis and sought to minimize the effects of the meltdown on the real economy, mainly by providing liquidity to the banking sector. While monetary policy has focused on protecting the financial system, including protecting financial firms from the consequences of their own actions, government has done less to address the real causes of economic malaise: declining domestic investment and the lack of effective demand. Monetary policy has been unable to spark recovery because low interest rates have not been enough to encourage businesses and consumers to invest. Instead, we need a much more robust fiscal policy to stimulate a stronger recovery.

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What Happened to the Recovery? Part I

Gerald Friedman, Guest Blogger

This is the first part of a two-part series on the reasons for the sluggish U.S. economic “recovery” since the Great Recession, by Gerald Friedman, professor of economics at the University of Massachusetts and author of Microeconomics: Individual Choice in Communities. Originally published in Dollars & Sense, this post focuses on the basic shape of the recovery—wage stagnation, increased profits, and growing inequality. The second part will focus on the reasons for the persistent weakness in demand and economic growth, and the failings of various government policy responses.

Weak Employment, Stagnant Wages, and Booming Profits

The 2007-2010 recession was the longest and deepest since World War II. The subsequent recovery has been the weakest in the postwar period. While total employment has finally returned to its pre-recession level, millions remain out of work and annual output (GDP) is almost a trillion dollars below the economy’s “full-employment” capacity. This column explains how high levels of unemployment have held down wages, contributing to soaring corporate profits and a remarkable run-up in the stock market.

There was a sharp fall in output (GDP) at the onset of the Great Recession, down to 8% below what the economy could produce if labor and other resources were employed at normal levels (“full employment” capacity). Since the recovery began, output has grown at barely above the rate of growth in capacity, leaving the “output gap” at more than 6% of the economy’s potential—or nearly $1 trillion per year.

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Why UK Workers Took to the Streets and Need to Do It Again

John Weeks, Guest Blogger

On 11 June in reply to The Guardian asking her about the “good news” that UK total output was back to where it had been before the Great Recession hit in 2008, the secretary of the Trades Union Congress Frances O’Grady responded, “The news that the economy is returning to its pre-crash size will be of cold comfort to the millions of workers who are still thousands of pounds a year worse off compared to five years ago.”

Is that right or is it just a union leader refusing to accept the economy is on the mend under the wise policies of the Coalition Chancellor? Official statistics leave no doubt. There are two charts below with pay measured as the percentage difference compared to the beginning of 2010 (on the left) and the unemployment rate in percent of the labour force on the right.

The top diagram is labelled “how they should look.” I could also describe it as the “standard scenario” presented in economics textbooks and the business pages of magazines and newspapers. Unemployment declines (from well over 8% of the civilian labour force to about 6.5%) and by definition the labour market “tightens.” As a result of fewer unemployed workers for business to pick and choose among, weekly pay rises—the shortage stimulates a rise in wages.

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China’s Wealthy Getting Richer in a Declining Economy

Sara Hsu

As China’s economy declines, inequality is growing. A recent study by Yu Xie and Xiang Zhou finds that China’s Gini coefficient surpassed 0.50 in 2010, remaining high through the present period. Despite the decline in investment and production, the sheer number of wealthy is increasing—Forbes states that China had 157 billionaires in 2013. The number of high net worth individuals, individuals with over US$1 million of investable wealth, rose by 17.8% in 2013 to 758,000, according to consultancy Capgemini and RBC Wealth Management.

Rapidly increasing wages in the financial and IT industries, contrasted with stable or slowly increasing wages in most other sectors (for example, utilities, construction, and transportation) has led to a sharp divergence between the income of the average worker and incomes of workers in privileged industries. What is more, the skyrocketing pay of top executives has enriched certain individuals over the masses.

China’s private financial wealth amounts to US$22 trillion, according to the Boston Consulting Group. This is equivalent to well over double China’s GDP in 2013. While the average per capita income was US$6,747 in 2013, Chinese executives averaged well over US$100,000. The poorest workers have also face delayed or partial payment of wages. In many cases, this has led to protests and legal action against employers.

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China's Wealthy Getting Richer in a Declining Economy

Sara Hsu

As China’s economy declines, inequality is growing. A recent study by Yu Xie and Xiang Zhou finds that China’s Gini coefficient surpassed 0.50 in 2010, remaining high through the present period. Despite the decline in investment and production, the sheer number of wealthy is increasing—Forbes states that China had 157 billionaires in 2013. The number of high net worth individuals, individuals with over US$1 million of investable wealth, rose by 17.8% in 2013 to 758,000, according to consultancy Capgemini and RBC Wealth Management.

Rapidly increasing wages in the financial and IT industries, contrasted with stable or slowly increasing wages in most other sectors (for example, utilities, construction, and transportation) has led to a sharp divergence between the income of the average worker and incomes of workers in privileged industries. What is more, the skyrocketing pay of top executives has enriched certain individuals over the masses.

China’s private financial wealth amounts to US$22 trillion, according to the Boston Consulting Group. This is equivalent to well over double China’s GDP in 2013. While the average per capita income was US$6,747 in 2013, Chinese executives averaged well over US$100,000. The poorest workers have also face delayed or partial payment of wages. In many cases, this has led to protests and legal action against employers.

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Should We Count Out Piketty Due to “Sum” Math Errors?

Steven Pressman, Guest Blogger

Economist Steven Pressman has been “Live-Blogging” on his reading of Thomas Piketty’s Capital in the Twenty-First Century, and related controversies, at the Dollars & Sense blog. This post combines two installments, focused on the attempted refutation of Piketty by the Financial Times Chris Giles, and Piketty’s rejoinder.

While I am here in Paris reading Capital in the Twenty-First Century carefully, the book has dominated the headlines again. Having just spent a good deal of time thinking about its numbers, I thought it would be useful to reflect on the piece published May 23 in the Financial Times.

There, Chris Giles provides a detailed and lengthy argument against Piketty. He claims there are many instances where Piketty has used the wrong numbers in making his calculations and that many assumptions Piketty makes in doing his research are incorrect.

First, an important point—data transcription and math errors occur all the time in economics. It is a sort of dirty and hidden secret. Typically, errors are not discovered and don’t make front page news. One cost of being an economic rock star is that the data Paparazzi hang on to your every number.

But the “gotcha!” reception of finding math mistakes is worth reflecting on. I have been amused by smug claims that Piketty supporters unthinkingly accepted his numbers, and that Giles has proven Piketty to be totally wrong. Even before examining any numbers, it is easy to see that these claims succumb to the same mistake that they accuse Piketty’s supporters of making. I cannot think of any better evidence that Capital in the Twenty-First Century has hit a raw nerve in the socio-economic psyche.

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