Thursday, October 31, 2013

Median household incomes at 1996 levels

From an adaptation-level theoretic perspective, I don’t understand why confidence hasn’t collapsed already.


Source: Census via FRED. Annual data through 2012.

Tuesday, October 29, 2013

The glorification of greed: America’s greatest export

Two recent items on the major problem facing the world today, the explosion of inequality and the destabilization of society across the globe. The first is a graph showing that inequality has hit the “global upper middle class” the worst in relative terms (e.g., the American middle class and similars).

The great economic reshuffle – Reuters

October 28, 2013 @ 3:43 pm

By Shane Ferro

Branko Milanovic [1], the lead economist at the World Bank’s research department, has a new paper out on global income inequality (the paper was first spotted by John McDermot [2]t). Among other things, Milanovic compares the change in global income from 1988 to 2008:


He writes:

Global income distribution has thus changed in a remarkable way. It was probably the profoundest global reshuffle of people’s economic positions since the Industrial revolution. Broadly speaking, the bottom third, with the exception of the very poorest, became significantly better-off, and many of people there escaped absolute poverty. The middle third or more became much richer, seeing their real incomes rise by approximately 3% per capita annually.

And yet, those in the 75th to 90th percentile of the income distribution — including “many from former Communist countries and Latin America, as well as those citizens of rich countries whose incomes stagnated” — haven’t seen the sort of gains that the bottom half and the top 1% have. […]

The second article I’m linking to emphasizes the growth of billionaires outside the US and the West. Some might say that America’s greatest export has been its culture, not the least part of which is our glorification of greedy material acquisition. We have seen the shameless tax avoidance of the very rich across the globe—for example, Gerard Depardieu in France emigrating (at last report) to avoid a 75 percent marginal tax rate on income over about two million dollars. In American the highest growth rates occurred when wew had such marginal tax rates and there was a sense of a viable social contract, and when incomes far beyond anything needed for happiness or a good life caused a mild sense of shame among many (I know, I was there and had rich relatives who paid their taxes without complaint).

Billionaires: Decline of the West, Rise of the Rest –

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.

In 2013, of the 9 countries that are home to over 30 billionaires each, only three are traditional “developed” countries: the United States, Germany, and the United Kingdom.

Next in line after the United States, with its 442 billionaires today? China, with 122 billionaires (up from zero billionaires in 1995), and third place goes to Russia with 110. China’s billionaires have made money from every possible source. Consider the country’s richest man, Zong Qinghou, who made his $11.6 billion through his ownership of the country’s largest beverage maker. Russia’s lengthy billionaire list is led by men who reaped billions from the country’s vast oil, gas and mineral wealth with devastating consequences to the environment. […]

With this kind of concentration of wealth and power the specter of neo-feudalistic global fascism (rule by greedy corporation) is not such a stretch to imagine. Look at Europe, look at the United States.

Labor arbitrage is a game that can be played indefinitely. Until marginal tax rates on very high incomes can be raised substantially global imbalances and instability will probably increase.

Saturday, October 26, 2013

The power of public protest

Physicist Michio Kaku on how pubic protests stopped nukes from being used by Eisenhower and Nixon. Relevant today as Sheldon Adelman suggests dropping a “demonstration bomb” “in the middle of the desert” in Iran. Nothing could possibly go wrong with that, right? Think Putin might not take that as an affront to his masculinity, and require to drop on on Alaska, perhaps, or North Dakota?

Sunday, October 20, 2013

My favorite blog posts from the week

Tax Rates, Inequality, and US Deficits – Barry Ritholtz.  Sometimes no one nails it like Barry.

Its Friday, after what was for me a long and annoying 17 days. But the shutdown is over, US markets are at all time highs, and Bob Shiller got his Nobel (more on this tomorrow).

You might think that I would be at peace with the current state of the world, but life is never that simple. You see, I have assumed the task of explaining things which require explaining. By some quirk of fate and an odd academic background, I find myself with skills in simplifying complex matters. Whether OCD or over-compensation for some other defect, this is my lot in life. (I made peace with it long ago).

As we discussed yesterday, amongst all of the background nonsense since October 1, the noise about the deficits was not really about budget deficits at all. Rather, it was about a decidedly narrow ideology held by a small percentage of Americans. Their belief is that government should be much smaller. This is a legitimate political ideology, one that has persisted over the centuries.

Their approach to this philosophy, however, is far less intellectually honest. Rather than having a full on debate on that subject — a debate they are likely to lose — they have chosen a very different approach. This time around, they made the deficit a proxy.

Because of what I do for a living, I found this offensive. Deficits impact fixed income, an important part of portfolio planning. They impact available credit, capital for investment, in a broad and varied way. Hence, the deficit is a genuine issue, a real problem that should be addressed in a mature and responsible way. It can be easily solved using intelligent solutions, but for the ideologues in Washington DC (and elsewhere) who refuse to treat it as the basic mathematics and accounting problem it actually is. The way the Tea Party and others have treated the deficit reminds me of the approach Meredith Whitney took to Municipal Debt. Both groups are stunningly ignorant about their subjects, while possessing the skills to allow them to exploit the topic, hog the spotlight for themselves and other tangential pet issues.

The Tea Party, like Whitney, turned an important question of debt and credit and solvency into one giant PR clusterfuck.

Back to our issue of taxes (next week, I will address spending). Amongst Industrialized Nations, the United States has amongst the lowest tax rates in the world, especially for those folks (like myself) who reside at the top of the income scale.

To demonstrate this, I want to point to the IMF’s World Economic and Financial Surveys: Taxing Times. It is chock full f great charts and data and other interesting results of the IMF survey.

The two below caught my eye. They are rather instructive for our discussion of taxes and deficits in the US.

The first looks at major industrial nations, and compares what the IMF calls their Revenue-Maximizing Tax Rates (blue line) versus their actual top rate (red dot).

As you can see, some countries — Denmark and Sweden — are at the top of the revenue maximizing ranges. Other countries — Canada and Germany — are at the bottom of their revenue maximizing ranges.

Then there is the United States, which is simply far off the scale, way below the bottom of its revenue maximizing range.

If your concern is deficits, than you must take notice of how much money the USA is leaving on the table. I am not suggesting that the role of government should be to maximize their tax revenues, but rather to suggest that if you want to close the deficit, you need to at least be in a defendable range. The US is not.

click for ginormous charts
Top Marginal Rates
Source: IMF

Not coincidentally, when we look at shares of Net Wealth held by the bottom 50% of he population versus the top 10%, the United States is off the scale. We are the most unequal nation in the world.

Shares of Net Wealth
Source: IMF

The inescapable conclusion presented to us by this data is that our tax policy is responsible for both the world’s greatest inequality among developed nations, and our ongoing deficits.

If you have a better explanation for our current conditions, or the net results of our tax policies, I would love to hear it.

Fiscal Monitor Taxing Times
World Economic and Financial Surveys
IMF October 2013

Did Monetary Policy Cause the Recovery?John Hussman. A very nice demolition of our monetary policy charade for Janet Yellen to consider. Let’s hope she has the guts to make some heads roll [i.e., to bring back honest accounting].

[…] To address this question, a proper understanding of the credit crisis is essential. Much of the present faith in monetary policy derives from the belief that it was the central factor in ending the banking crisis during what is often called the Great Recession. On careful analysis, however, the clearest and most immediate event that ended the banking crisis was not monetary policy, but the abandonment of mark-to-market accounting by the Financial Accounting Standards Board on March 16, 2009, in response to Congressional pressure by the House Committee on Financial Services onMarch 12, 2009. The change to the accounting rule FAS 157 removed the risk of widespread bank insolvency by eliminating the need for banks to make their losses transparent. No mark-to-market losses, no need for added capital, no need for regulatory intervention, recievership, or even bailouts. Misattributing the recovery to monetary policy has contributed to a faith in its effectiveness that cannot even withstand scrutiny of the 2000-2002 and 2007-2009 recessions, and the accompanying market plunges. This faith is already wavering, but the loss of this faith will be one of the most painful aspects of the completion of the present market cycle. […]

The simple fact is that the belief in direct, reliable links between monetary policy and the economy - and even with the stock market - is contrary to the lessons from a century of history. Among the many things that are demonstrably nottrue - and can be demonstrated to be untrue even with simple scatterplots - are the notions that inflation and unemployment are negatively related over time (the actual correlation is close to zero and slightly positive), that higher inflation results in lower subsequent unemployment (the actual correlation is positive), that higher monetary growth results in subsequent employment gains (the correlation is almost exactly zero), and a wide range of similarly popular variants. Even "expectations augmented" variants turn out to be useless. Examining historical evidence would be a useful exercise for Econ 101 students, who gain an unrealistic sense of cause and effect as the result of studying diagrams instead of data.

Wednesday, October 9, 2013

Inequality forever: the (hidden) neo-feudalist agenda

I read a lot of different blogs, mostly for their links. I have little interest in reading Yves or Michael Snyder, but they both provide lots of high-quality links, so I frequent their blogs. Some blogs I won't go to, like Brad de Long's, simply because the stench of the self-satisfied Establishment is too much.

What I find tragic about the libertarians like Mish and about the Evangelicals like Michael Snyder is that they are apparently willing to play so readily into a Government-destroying gambit that opens the way for those in control of vast wealth, the 1 percent, so to speak, to bankrupt governments worldwide and then buy up their assets at trivial prices as occurred after the fall of the Soviet Union; in other words, to take the world into the new world order dreamed of by Rockefellers and other Illuminati for generations, a neo-feudalism enforced by financial fascism through a world-wide fiat money system run by the Bank of International Settlements, which there are the lords and ladies of wealth over the debt-serfs, everyone else. Snyder even had a link to a Carroll Quigley quote on this from the Sixties.

Depression conditions are known to foster fascism, but the indicated depression conditions don't seem to bother the Evangelicals or the libertarians.

But history is nonlinear, and I maintain hope that in the Crisis to come a new viable democratic form will emerge.