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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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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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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Philip Arestis and Malcolm Sawyer

The recent book Capital in the 21st Century by Thomas Piketty (2014) has attracted an enviable amount of attention with its detailed history of income and wealth inequality. A central idea in this book comes from (r > g); that is, the idea that the rate of return on wealth (r) exceeds by a considerable margin the rate of economic growth (g) so far as Western industrialised countries are concerned. This, Piketty argues, has implications for rising inequality especially of wealth and of rentier income.

The basic mechanism is that when the rate of return is greater than the income growth rate, then savings made out of the return on wealth received in the form of dividends, rents, interest and capital gains adds to wealth, which then rises at a rate determined by these savings (and equal to savings propensity out of wealth (s), multiplied by the rate of return (r), (i.e., s∙r), and then the stock of wealth rises faster than income. The wealth to income ratio then rises, and the gains from wealth rise faster than other incomes. Wealth inequality also rises on the basis that rich wealth owners can achieve higher returns on their wealth than the poorer wealth owners. This is a substantial, though not complete, part of the general rises in inequality over the past three or more decades (and a large part of his book is concerned with documenting those rises in inequality).

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Jeff Madrick

The Piketty bubble may be coming to an end. Economists are starting to criticize the heart of his argument. That is not to diminish important aspects of his book. But the most profound of his claims simply may not hold.

Arriving with a fanfare worthy of Caesar, Thomas Piketty’s long book, Capital in the 21st Century was at first welcomed almost uncritically by enthusiastic centrists and progressives both. Why not? As one read the first sections of the book, who wouldn’t have? I am an admirer and remain one. Here was an economist widely respected in the mainstream telling us point blank that the rich earned far more than they deserved, that economic theory regarding labor markets failed, that the most respected economists had little sense of the real world, and that inheritance was a source of persistent inequality.

Most impressive was the quantity and depth of empirical backing. Piketty scolded economists for depending on models with little empirical basis. This needed to be said by someone so respected. Piketty’s remarkably influential work on income inequality with his colleague Emmanuel Saez is what really revolutionized thinking about economics—and paved the way for his enthusiastic acceptance. Using tax records, they showed the remarkable concentration of wealth in the top 1%—basically they counted how many really rich people there were. Their findings about the extreme distribution of income towards the risk were shocking and confirmed anecdotal evidence.

The empirical analysis in the new book went further. It showed that the equality that existed since World War II and began to reverse in the early 1980s had been an aberration. Capital usually grew faster than incomes throughout history. And it would likely continue to do so! Piketty found that this relation in which r, the rate of return on capital, exceeded g, the growth rate of the economy, seemed permanently etched into not merely history but the future.

And he told us that the best way to deal with such a law of inequality was to tax the rich through a global wealth tax.

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Douglas K. Smith, guest blogger

Introduction

I am Doug Smith, the Executive Director of Columbia Journalism School’s Sulzberger Leadership Program. I have authored a number of books on best practice for business, based on three decades of consulting experience.  I am also one of the co-founders of Econ4, a network of economists and other analysts seeking to shift the way economics is taught, understood, and practiced—away from the failed practices that produced the Great Financial Crisis and the extraordinary income and wealth inequalities that now imperil our democracy.

On May 6, I submitted written testimony to the Finance Committee of the Rhode Island Senate in support of a proposed law to help rein in rising economic inequality in the state. The law would give preference in the awarding of state-government contracts to businesses that limit the ratio of pay between their highest-paid executive and lowest full-time employee to no more than 32-to-1. The text below is based on my testimony.

For Triple Crisis readers unfamiliar with Rhode Island, it is the smallest by area of the fifty U.S. states. It is, however, also the second most densely populated, making Rhode Island’s economy essential not just to Rhode Islanders but also people across the Northeast region of the United States. Today, Rhode Island’s economy is in serious jeopardy—in large part because of the raging income and wealth inequality imperiling people across the globe—from Greece to Great Britain and, yes, from Romania to Rhode Island.

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Roger Bybee, Guest Blogger

Those at the top have never done better,” President Obama ruefully acknowledged in his January 28 State of the Union speech. “But average wages have barely budged. Inequality has deepened.”

Yet, moments later, Obama heartily endorsed the Trans-Pacific Partnership (TPP), which as drafted directly reflects the demands of “those at the top” and would, if passed, severely intensify the very inequality spotlighted by the president. The TPP would provide transnational corporations with easier access to cheap labor in Pacific Rim nations and new power to trump public-interest protections—on labor, food safety, drug prices, financial regulation, domestic procurement laws, and a host of others—established over the last century by democratic governments. The nations currently negotiating the TPP—which together comprise nearly 40%of the world economy—include the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Among them, Malaysia, Brunei, Mexico, Singapore, and Vietnam, are all notorious violators of labor rights The TPP’s labor provisions are far too weak to begin uplifting wages, conditions, and rights for workers in these nations.

As with NAFTA, the TPP will benefit U.S. companies relocating jobs to low-wage, high-repression nations, argues economist Mark Weisbrot, co-director of the Center for Economic and Policy Research (CEPR). This would also exert strong downward pressures on the pay of U.S. workers, “Most U.S. workers are likely to lose out from the TPP,” Weisbrot says. “This may come as no surprise after 20 years of NAFTA and an even-longer period of trade policy designed to put lower- and middle-class workers in direct competition with low-paid workers in the developing world.”

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This is the third part of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part considers financialization in relation, first, with industrial and commercial enterprise and, second, with the household. It then turns to the main consequences of financialization, in terms of economic stability, development, and inequality. (See the earlier parts of the interview here and here.)

Costas Lapavitsas, Guest Blogger

Part 3

Dollars & Sense: A striking aspect of your analysis of industrial and commercial enterprises is that, rather than simply becoming more reliant on bank finance, they have taken their own retained profits and begun to behave like financial companies. Rather than plow profits back into investment in their core businesses, they are instead placing bets on lots of different kinds of businesses. What accounts for that change in corporate behavior?

CL: In some ways, again, this is the deepest and most difficult issue with regard to financialization. Let me make one point clear: to capture financialization and to define it, we don’t really have to go into what determines the behavior of firms in this way. Financialization is middle-range theory. If I recognize the changed behavior of the corporation, that’s enough for understanding financialization. It’s good enough for middle-range theory. Now obviously you’re justifiedto ask this question: why are corporations changing their behavior in this way? And, there, I would go back at some point to technologies, labor, and so on—the forces and relations of production.

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Timothy A. Wise

Timothy A. Wise, the Director of the Research and Policy Program at the Global Development and Environment Institute (GDAE) and a regular Triple Crisis contributor, announces GDAE’s annual Leontief Prize for Advancing the Frontiers of Economic Thought.

Today my institute will award its annual Leontief Prize for Advancing the Frontiers of Economic Thought to economists Angus Deaton and James K. Galbraith for their work on poverty, inequality, and well-being. Angus Deaton’s most recent book, The Great Escape: Health, Wealth, and the Origins of Inequality, is a must-read on the issue. James K. Galbraith’s Inequality and Instability: A Study of the World Economy Just Before the Great Crisis locates inequality in the context of the recent financial crisis.

As Global Development and Environment Institute co-director Neva Goodwin said in awarding the prizes, “Angus Deaton has demonstrated that inequality is about much more than income differences, focusing on how inequality affects the health and well-being of societies. James Galbraith has shown that inequality isn’t an outcome driven by factors outside of our control, but instead is often a direct result of the policy choices we make.”

You can read more about the Leontief Prize and its illustrious laureates, and about about this year’s prize. You can also watch the ceremony live, including lectures from Deaton and Galbraith on the theme “Health, Inequality, and Public Policy.” The stream below will run from 12:30-2:00 EDT on April 4, 2014.

Triple Crisis welcomes your comments. Please share your thoughts below.

Leonce Ndikumana

Jessica Desvarieux of The Real News Network interviews Triple Crisis contributor Leonce Ndikumana about the role of inequality in stifling economic growth in South Africa.

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