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.

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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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Juan O’Farrell and Soledad Villafañe, Guest Bloggers

Latin American countries’ experiences over the last decade have been widely described as a success story for reducing income inequality. In a work to be published this month, we analyze how the coordination between labor and macroeconomic policies with a clear objective of employment creation and welfare expansion explains the progress made in Argentina and Brazil towards income redistribution with economic growth. Under different macroeconomic regimes, but with similarly active promotion of wage increases and labor institutions, both countries achieved an expansion of employment, wages, and social protections, breaking a long period of downward trends. These factors are behind the reduction in the gap between the rich and the poor.

What these experiences show is that, contrary to the view of labor institutions (like the minimum wage, collective bargaining, etc.) as “rigidities,” these can be key drivers of inclusive development. This holds significant relevance beyond Latin America for an important reason: despite the evidence and increasing consensus of the role of declining wage shares in the unfolding of the global financial crisis, policymakers (especially in Europe) still resist abandoning the mantra of labor market “flexibilization” and internal devaluation as a way out of the crisis. Furthermore, there was an attempt this year to reintroduce the idea of flexibilization in G20 documents.

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Robin Broad and John Cavanagh

With the help of Forbes magazine, we and colleagues at the Institute for Policy Studies have been tracking the world’s billionaires and rising inequality the world over for several decades. Just as a drop of water gives us a clue into the chemical composition of the sea, these billionaires offer fascinating clues into the changing face of global power and inequality.

After our initial gawking at the extravagance of this year’s list of 1,426, we looked closer. This list reveals the major power shift in the world today:the decline of the West and the rise of the rest. Gone are the days when U.S. billionaires accounted for over 40 percent of the list, with Western Europe and Japan making up most of the rest. Today, the Asia-Pacific region hosts 386 billionaires, 20 more than all of Europe and Russia combined.

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James Boyce

Do corporations seek to maximize profits? Or do they seek to maximize power?

The two may be complementary—wealth begets power, power begets wealth—but they’re not the same. One important difference is that profits can come from an expanding economic “pie,” whereas the size of the power pie is fixed. The pursuit is a zero-sum game: more for me means less for you. And in corporations, the pursuit of power sometimes trumps the pursuit of profits.

Take public education, for example. Greater investment in education from pre-school through college could increase the overall pie of well-being. But it would narrow the educational advantage of the corporate oligarchs and their privately schooled children—and diminish the power that comes with it. Although corporations could benefit from the bigger pie produced by a better-educated labor force, there’s a tension between what’s good for business and what’s good for the business elite.

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We are economists who think that the economy should serve people, the planet, and the future.

Some politicians and economists still cling to the old claims that bigger is better, greed is good, a fossil-fueled economy is inevitable, and inequality is efficient. A growing body of evidence has shown this model to be bankrupt.

Instead of prosperity, it is feeding ever-wider inequalities of wealth and power that erode our health and economic well-being.

Instead of full employment, it is generating monthly job growth that fails to match labor force growth.

Instead of a sustainable future for our children and grandchildren, it has brought us to the brink of an unprecedented environmental crisis, consistently overstating the costs of actions to protect our climate while understating their benefits.

Instead of a competitive and resilient economy, it has fostered the growth of too-big-to-fail banks and corporations whose political power threatens the integrity of our democracy itself.

We call for a new economy founded on the building blocks of a level playing field, true-cost pricing, resilience, and real democracy.

In addition to new and effective policies in the critical arenas of job creation, housing, health care and regulation, we call for support for 21st century alternatives to the centralized, unfair, and unsustainable economy of the 20th century.

If you’re an economist and would like to add your name to this statement, please send an email to Econ4 by clicking here (info@econ4.org).

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Arjun Jayadev

Who does it hurt? The IMF on fiscal consolidation

In 2010 Alberto Alesina from Harvard University was celebrate by Business Week for his series of papers on fiscal consolidation. This was ‘his hour’ the article argued. The surprising argument that he and his coauthors made that was that the best way forward for several countries facing debt issues was to undertake “Large, credible and decisive spending cuts”. Such cuts would work to change the expectations of market participants and bring forward investment that was held back by the uncertainty surrounding policies in the recession.

The idea of ‘expansionary austerity’ has failed spectacularly by any account. Martin Wolf’s latest article in the New York Review of Books goes over this, as does Paul Krugman’s earlier piece in the same outlet. In a forthcoming paper written by Josh and I  (which I will blog about later), we argue that austerity succeeded at least in part because of the nature of consensus macroeconomics (by which we mean both New Keynesian and Real Business Cycle approaches).

One paper that I had wanted to write was to discuss the distributional implications of austerity. For many reasons, including those elucidated by Jim Crotty, Josh and Jerry Epstein, austerian policies and should really be seen as class conflict—protecting the interests of the wealthy and attacking those of the poor.

I never got to the empirical tracing out of this argument- but the IMF has. And the abstract really does say it all:

This paper examines the distributional effects of fiscal consolidation. Using episodes of fiscal consolidation for a sample of 17 OECD countries over the period 1978–2009, we find that fiscal consolidation has typically had significant distributional effects by raising inequality, decreasing wage income shares and increasing long-term unemployment. The evidence also suggests that spending-based adjustments have had, on average, larger distributional effects than tax-based adjustments

In other words—it does hurt, and it hurts the relatively poor more. Even more importantly, the claim that spending cuts are ‘better’ for the economy than tax raises as argued by Alesina and some coauthors forgets to ask for whom this is better. The IMF’s answer is that spending cuts are definitely not good for the working class and that advocating spending cuts rather than tax increases imposes distributional costs to those least capable of bearing it.

What a surprise!

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Erinc Yeldan

They are referred to under different identifiers: generation-Y; millennium generation; globalization generation; Net-generation… roughly they are the cohort of post-1980 newborns, coming from distant geographies, different nations. Yet, they are claimed to share astonishingly common characteristics:  narcissistic love of the self; the me, me, me approach to life; impatience; intolerance of all forms of hierarchy; a fetishistic loyalty to technology and brands; almost non-existing interest in social events; apolitical nihilism; non-reading, etc etc…

The peculiar characteristics of the post-1980 generation has been the subject matter of quite some research, but the subject gained popular interest recently through an editorial led by the popular Time Magazine, where most of the adjectives indicated above had been liberally adopted.  The Time approach to the generation-Y consisted mostly of a superfluous description of the peculiarities of the young and the hot-blooded consumers.  There was not much mention of the surrounding dictates of the neoliberal global assault on the young citizens, nor on the conditions of the political-economy embedded within today’s bubble capitalism.

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Jennifer Clapp

This post introduces some of the points raised in a discussion document entitled Framing Hunger that was recently presented to the FAO by a group of experts coordinated by Frances Moore Lappé of the Small Planet Institute. Three Triple Crisis Bloggers – Robin Broad, Timothy Wise and Jennifer Clapp – took part in the preparation of the document, which offers a detailed critique of the FAO’s “State of Food Insecurity 2012.” This post originally appeared on the Ottawa Citizen Aid and Development Blog.

As the 2015 deadline for meeting the Millennium Development Goals (MDGs) nears, the pressure is on to define what will replace those goals as we move forward. World progress on addressing hunger, a key aspect of the first MDG – to eradicate extreme poverty and hunger – has been mixed at best.

The United Nations launched a series of processes last year and is now seeking to finalize recommendations for a Post-2015 Development Agenda. The Report of UN Secretary General Ban Ki Moon’s High Level Panel on the topic is due to be released on May 31. Food security experts are anxious to see how world hunger will be addressed within that agenda.

It is important to ensure that any new hunger agenda take into account key lessons from the MDG experience. Indeed, as pointed out in a recent communication from a group of hunger experts addressed to the Food and Agriculture Organization (FAO), the ways in which we measure hunger, and the goals we set for reducing it, matter a great deal. Current indicators are too narrow, and a broader conceptualization of hunger is sorely needed.

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Matias Vernengo

Economics is an essential part of foreign policy. One cannot think of the Cold War without the Marshall Plan that allowed reconstruction in Western Europe and containment of the Soviet Union in Western Europe. In Latin America one cannot dissociate the Cuban Revolution and the subsequent Alliance for Progress, which basically provided credit for allies in the region, pushed by Kennedy to contain Communism in the region. Geopolitics is, however, often ignored by economists, and political scientists tend to use only mainstream economics when discussing political economy issues.

In the case of US-Latin American affairs, the inability to understand the political elements of the economic process, and the incapacity to comprehend the deep causes of underdevelopment in the region explain, in part, the problematic relationship of the Obama administration with the left of center governments in the region. The Obama administration has compounded old mistakes and aggravated the mistrust from progressives in Latin America (for an early discussion of the topic go here; subscription required). John Kerry, the Secretary of the State, has referred recently to Latin America as the American “backyard,” and the Obama administration has not recognized the democratically elected government of Nicolás Maduro in Venezuela.

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