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Begin New Search Topic Inequality Content Type Working Paper Publishing Institution Institute for New Economic Thinking (INET)

1. Industrial Feudalism and Wealth Inequalities

Author:
Hanna Szymborska and Jan Toporowski
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The possibility, first raised by Rudolf Hilferding, of stabilizing a capitalist economy through the operations of a ‘general cartel’, leaving only social and political ‘contradictions’ to disturb the functioning of the system, gave rise to a discussion among Marxists not only on whether such a stabilization was at all possible, but also on the nature and scope of those contradictions. This discussion had been anticipated in the 1890s in the work of the Polish Marxist Ludwik Krzywicki (1859 – 1941). He put forward the idea that, in a capitalist economy stabilized in this way, a state of ‘industrial feudalism’ would prevail, in which society would become stratified into social classes without the possibility of mobility between those classes. This analysis was extended in 1940s by Oskar Lange (1904-1965) as he attempted to make sense of the American New Deal and rediscovered in the 1950s by Tadeusz Kowalik (1926-2012). This paper explains the concept of industrial feudalism and argues that the main mechanism for such a stratification today is the unequal distribution of wealth, in the context of declining welfare provision.
Topic:
Industrial Policy, Inequality, Feudalism, Industry, and Wealth
Political Geography:
North America and United States of America

2. Employment Mobility and the Belated Emergence of the Black Middle Class

Author:
Joshua Weitz, William Lazonick, and Philip Moss
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
As the Covid-19 pandemic takes its disproportionate toll on African Americans, the historical perspective in this working paper provides insight into the socioeconomic conditions under which President-elect Joe Biden’s campaign promise to “build back better” might actually begin to deliver the equal employment opportunity that was promised by Title VII of the Civil Rights Act of 1964. Far from becoming the Great Society that President Lyndon Johnson promised, the United States has devolved into a greedy society in which economic inequality has run rampant, leaving most African Americans behind. In this installment of our “Fifty Years After” project, we sketch a long-term historical perspective on the Black employment experience from the last decades of the nineteenth century into the 1970s. We follow the transition from the cotton economy of the post-slavery South to the migration that accelerated during World War I as large numbers of Blacks sought employment in mass-production industries in Northern cities such as Detroit, Pittsburgh, and Chicago. For the interwar decades, we focus in particular on the Black employment experience in the Detroit automobile industry. During World War II, especially under pressure from President Roosevelt’s Fair Employment Practices Committee, Blacks experienced tangible upward employment mobility, only to see much of it disappear with demobilization. In the 1960s and into the 1970s, however, supported by the Civil Rights Act and the Equal Employment Opportunity Commission, Blacks made significant advances in employment opportunity, especially by moving up the blue-collar occupational hierarchy into semiskilled and skilled unionized jobs. These employment gains for Blacks occurred within a specific historical context that included a) strong demand for blue-collar and clerical labor in the U.S. mass-production industries, which still dominated in global competition; b) the unquestioned employment norm within major U.S. business corporations of a career with one company, supported at the blue-collar level by massproduction unions that had become accepted institutions in the U.S. business system; c) the upward intergenerational mobility of white households from blue-collar employment requiring no more than a high-school education to white-collar employment requiring a higher education, creating space for Blacks to fill the blue-collar void; and d) a relative absence of an influx of immigrants as labor-market competition to Black employment. As we will document in the remaining papers in this series, from the 1980s these conditions changed dramatically, resulting in erosion of the blue-collar gains that Blacks had achieved in the 1960s and 1970s as the Great Society promise of equal employment opportunity for all Americans disappeared.
Topic:
Government, History, Employment, Inequality, Mobility, Unions, Middle Class, New Deal, African Americans, and Great Migration
Political Geography:
North America and United States of America

3. Local David Versus Global Goliath: Populist Parties and the Decline of Progressive Politics in Italy

Author:
Matteo Cavallaro
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper analyzes the role of local spending, particularly on social welfare, and local inequality as factors in the Italian political crisis following the adoption in 2011 of more radical national austerity measures. We employ two different methods. First, we develop an original database of municipal budgets. There we show that even the lowest level of social welfare spending, that offered by Italian municipalities, though also hit by austerity, was still able to moderate this national shock. We test three operationalizations of local spending: aggregate current expenditures, aggregate current expenditures on social services, and current expenditures disaggregated by function. We show that municipal current expenditures, particularly on social spending, significantly affected the post-2011 share of votes for the progressive coalition. The results also show that social spending, especially on education, significantly moderated the combined effect of national austerity and the economic crisis on voting for populist radical right parties, while no significant results appeared for populist parties in general. Local inequality appears to significantly enhance vote shares of populist radical right parties and populist parties in general. We caution that, although significant, the effect is not strong: that local policy and economic conditions can moderate national shocks but cannot reverse them. The second analysis relies on survey data to ascertain the individual-level mechanisms behind the role of local welfare. The paper argues that local economic inputs influence voters’ position on non-economic issues. Our results, however, do not identify any significant individual-level channel of transmission, be it cultural or economic.
Topic:
Politics, Elections, Inequality, Populism, and Austerity
Political Geography:
Europe and Italy

4. Artificial Intelligence, Globalization, and Strategies for Economic Development

Author:
Anton Korinek and Joseph E. Stiglitz
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Progress in artificial intelligence and related forms of automation technologies threatens to reverse the gains that developing countries and emerging markets have experienced from integrating into the world economy over the past half century, aggravating poverty and inequality. The new technologies have the tendency to be labor-saving, resource-saving, and to give rise to winner-takes-all dynamics that advantage developed countries. We analyze the economic forces behind these developments and describe economic policies that would mitigate the adverse effects on developing and emerging economies while leveraging the potential gains from technological advances. We also describe reforms to our global system of economic governance that would share the benefits of AI more widely with developing countries.
Topic:
Development, Globalization, Science and Technology, Inequality, Artificial Intelligence, and Redistribution
Political Geography:
Global Focus

5. The Contributions of Socioeconomic and Opioid Supply Factors to Geographic Variation in U.S. Drug Mortality Rates

Author:
Shannon Monnat
Publication Date:
02-2019
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Over the past two decades deaths from opioids and other drugs have grown to be a major U.S. population health problem, but the magnitude of the crisis varies across the U.S., and explanations for widespread geographic variation in the severity of the drug crisis are limited. An emerging debate is whether geographic differences in drug mortality rates are driven mostly by opioid supply factors or socioeconomic distress. To explore this topic, I examined relationships between county-level non-Hispanic white drug mortality rates for 2000-02 and 2014-16 and several socioeconomic and opioid supply measures across the urban-rural continuum and within different rural labor markets. Net of county demographic composition, average non-Hispanic white drug mortality rates are highest and increased the most in large metro counties. In 2014-16, the most rural counties had an average of 6.2 fewer deaths per 100,000 population than large metro counties. Economic distress, family distress, persistent population loss, and opioid supply factors (exposure to prescription opioids and fentanyl) are all associated with significantly higher drug mortality rates. However, the magnitude of associations varies across the urban-rural continuum and across different types of rural labor markets. In rural counties, economic distress appears to be a stronger predictor than opioid supply measures of drug mortality rates, but in urban counties, opioid supply factors are more strongly associated with drug mortality rates than is economic distress. Ultimately, the highest drug mortality rates are disproportionately concentrated in economically distressed mining and service sector dependent counties with high exposure to prescription opioids and fentanyl.
Topic:
Economics, Health, Inequality, Macroeconomics, and Drugs
Political Geography:
United States

6. Labor Laws and Manufacturing Performance in India: How Priors Trump Evidence and Progress Gets Stalled

Author:
Servaas Storm
Publication Date:
02-2019
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Strong labor protections for ordinary workers are often portrayed as a ‘luxury developing countries cannot afford’. No study has been more influential in propagating this perversity trope in the context of the Indian economy than the QJE article of Besley and Burgess (2004). Their article provides econometric evidence that pro-worker regulation resulted in lower output, employment, investment and productivity in India’s registered manufacturing sector. This paper reviews existing critiques of Besley and Burgess (2004), which highlight conceptual and measurement errors and uncover econometric weaknesses. The paper takes a step beyond these: it reports a failure to replicate Besley and Burgess’ findings and demonstrate the nonrobustness of their results. My deconstruction is not only about the econometrics, however. I show that Besley and Burgess’ findings are not just inconsistent with their theoretical priors, but also internally contradictory and empirically implausible, taxing any person’s capacity for belief. The paper, written by two ‘useful economists’, exhibits a gratuitous empiricism in which priors trump evidence. On all counts, it fails the test of being useful to the purpose of ‘evidence-based’ public policy advice.mp Evidence and Progress Gets Stalled
Topic:
Economics, Political Economy, Labor Issues, Inequality, and Labor Policies
Political Geography:
India and Asia

7. Inequality in the 21st century: A critical analysis of Piketty’s work

Author:
Nadia Garbellini
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Thomas Piketty’s (2014) Capital in the XXI Century aims to analyze distributions of income and wealth and their determinants, in a set of developed countries from the nineteenth century to the present. The objective is a bold one, made even more so by the fact that Piketty pursues it not only from a theoretical, but also, from an empirical point of view. The task is particularly impressive not only because of the enormous effort required in collecting and organising data, but also because the work entails attaching a deterministic interpretation to facts and figures from radically different countries over a time span that covers almost two centuries, thereby forcing comparison between numbers coming from clearly incommensurable contexts. These difficulties are not lost to Piketty, who states that “[w]ithout precisely defined sources, methods, and concepts, it is possible to see everything and its opposite.” (Piketty, 2014, pp.2-3) This study argues that the empirical ‘methods and concepts’ adopted by Piketty are not always consistent with those coming from his reference theoretical framework, nor from National Accounts (United Nations, 2009).
Topic:
Economics, Inequality, Income Inequality, Economic Growth, and Capital
Political Geography:
Global Focus

8. Where Do Profits and Jobs Come From? Employment and Distribution in the US Economy

Author:
Lance Taylor and Özlem Ömer
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
“Meso” level analysis of 16 producing sectors sheds light on broad forces shaping growth of employment and profits. In a growth decomposition from 1990 through 2016, employment responds positively to output increases and negatively to rising productivity. The macro profit share responds positively to sectoral productivity and demand shifts, and negatively to real wage increases. The decomposition weights suggest that wage repression raises profits in business services, education and health, wholesale and retail trade, and parts of manufacturing. Observed profit growth was robust in manufacturing, trade, finance and insurance, and information. The latter two (and wholesale trade) benefitted from favorable demand shifts. However, they generate less than a quarter of total profits. Owners of real estate receive more than a quarter but their share is not increasing. Growth of the remaining one-half of profits has been due to demand shifts and productivity growth which exceeded real wage increases. Market power matters in all sectors. The strongest effects may act against employment and real wages in labor markets.
Topic:
Inequality, Income Inequality, Economy, Monopoly, Rent, Minimum Wage, and Wealth
Political Geography:
North America and United States of America

9. How and Why Government, Universities, and Industry Create Domestic Labor Shortages of Scientists and High-Tech Workers

Author:
William Lazonick, Philip Moss, and Joshua Weitz
Publication Date:
12-2016
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
On June 2, 1965, under a mandate established by Title VII of the Civil Rights Act of 1964, the U.S. Congress created the Equal Employment Opportunity Commission (EEOC) to enforce federal anti-discrimination laws related to employment. The expectation was that African Americans would be prime beneficiaries of the EEOC. There was no assumption that the EEOC, on its own, could reverse deep-rooted employment discrimination against blacks. But in the late 1960s there was optimism that, in combination with equal educational opportunity and the strong demand for unionized workers in the well-paid manufacturing jobs that marked the post-World War II decades, the EEOC could help to ensure that an ever-increasing number of blacks would ascend to the American middle class. African Americans as a group are better educated than they were in the 1960s, and, as discriminatory norms and practices have lessened, large numbers of college-educated blacks have experienced upward employment mobility into professional, technical, and administrative occupations. But the promise of a large-scale ascendancy of blacks to middle-class status, characterized by secure and well-paid employment, has not been fulfilled. Our basic thesis is that, in combination with the institutions of racism which remain widespread in American society, the erosion of secure and well-paid employment opportunities is a major reason for the persistence since the 1980s of African Americans as disproportionately disadvantaged. Our contribution to the larger debate on the economics of race is to focus on the role of corporate resource allocation as the prime determinant of the quantity and quality of employment opportunities in the economy. The decline of middle-class employment opportunities has adversely affected the majority of the U.S. labor force of all races, ethnicities, and genders. African Americans, however, have been more vulnerable than other demographic groups to this decline. U.S. institutions of corporate governance vest power over major resource-allocation decisions in the hands of senior executives, supported by their hand-picked corporate boards. Given the enormous size of the major business corporations and their centrality to economic activity, the resource-allocation decisions made by senior executives of major U.S. corporations profoundly influence the operation and performance of the economy as a whole—including the availability, or not, of secure and well-paid employment opportunities. The failure to include an analysis of corporate resource allocation and how it has changed over the past half century in the policy debate on income inequality is what we call the “equal employment opportunity omission.”
Topic:
Race, Employment, Inequality, Civil Rights, Legislation, and Equality
Political Geography:
North America and United States of America

10. The Mismeasure of Mammon: Uses and Abuses of Executive Pay Data

Author:
Matt Hopkins and William Lazonick
Publication Date:
10-2016
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
On April 7, 2016, the Wall Street Journal ran an article headlined “CEO pay shrank most since financial crisis,” while on May 27, 2016, a similar New York Times story declared “Top CEO pay fell – yes, fell – in 2015.” Unfortunately, both the Journal and the Times mismeasured the actual take-home pay of each and every one of these CEOs in 2014 and 2015. The reason for this mismeasure is that both articles relied on “fair value” estimates of the stock-based pay of these CEOs as reported in the Summary Compensation Table of the definitive proxy statement (Form DEF 14A) that each publicly listed company files annually with the U.S. Securities and Exchange Commission (SEC). Yet the very same proxy statements also report the actual realized gains of these CEOs in the Option Exercises and Stock Vested Table. It is the realized gains on stock-based pay, not fair-value estimates, that enter into the total compensation that a CEO actually takes home and reports as income in his or her income-tax return. Moreover, including actual realized gains instead of estimated fair value of stock– based pay in the measure of total executive compensation can make a big difference. In 2014 average total compensation of the 500 highest-paid executives named on corporate proxy statements based on actual realized gains was $34.3 million, with 81 percent coming from stock-based pay. But average total compensation of the 500 highest paid based on estimated fair value was $19.3 million, with 62 percent attributable to stock- based pay. The excess of total actual realized-gains compensation over total estimated fair-value compensation was greatest in those years when the stock market was booming. Why would the Wall Street Journal and the New York Times report estimates of executive pay when they could be reporting the CEOs’ actual pay? In this paper, we answer this question by explaining the origins of the “fair value” estimates of stock-based pay and how the obsession with these estimates by the SEC, relying on the business-run Financial Accounting Standards Board (FASB), has relegated to statistical obscurity executives’ readily available, accurate, and actual realized gains from stock-based pay. We use Standard & Poor’s ExecuComp database to document that a) stock-based pay, in the forms of realized gains from stock options and stock awards, dominates both the size of and the changes over time in the total compensation of the highest-paid senior executives; and b) the fair-value estimates of stock-based pay tend to understate, often substantially, the realized gains from stock-based pay that these executives actually receive. An irony is that even critics of excessive executive pay, most notably the AFL-CIO on its Executive Paywatch website, use the fair-value estimates when the actual CEO compensation numbers would reveal a much larger ratio of CEO pay to the earnings of the average worker. Indeed, as we discuss in the conclusion to this paper, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, this mismeasure of executive pay has become institutionalized in U.S. government policy in the SEC’s Pay Ratio Disclosure Rule, which beginning in 2017 requires every company to publish the ratio of CEO to median-worker pay. Under this rule, the SEC requires companies to use the fair-value measure of CEO pay. The Pay Ratio Disclosure Rule is supposed to provide the public with a company-level indicator of income inequality. Instead it will tend to underestimate inequality, substituting fictitious estimates for actual known amounts of income that CEOs put into their bank accounts and declare in their income-tax returns.
Topic:
Financial Crisis, Inequality, Income Inequality, Stock Markets, and Wage Growth
Political Geography:
North America and United States of America

11. Inequality, Debt Servicing, and the Sustainability of Steady State Growth

Author:
Mark Setterfield, Yun K. Kim, and Jeremy Rees
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A Kaleckian growth model is modified to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy’s macrodynamics.
Topic:
Debt, Inequality, Islamic State, Economic Theory, and Sustainability
Political Geography:
North America and United States of America

12. Did Quantitative Easing Increase Income Inequality?

Author:
Juan Montecino and Gerald Epstein
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The impact of the post-meltdown Federal Reserve policy of ultra-low interest rates and Quantitative Easing (QE) on income and wealth inequality has become an important policy and political issue. Critics have argued that by raising asset prices, near-zero interest rates and QE have significantly contributed to increases in inequality, while practitioners of central banking, counter that the distributional impact have probably been either neutral or even egalitarian in nature due to its employment impacts. Yet there has been little academic research that addresses empirically this important question. We use data from the Federal Reserve’s Tri-Annual Survey of Consumer Finances (SCF) and look at the evolution of income by quintile between the “Pre- QE period” and the “QE period” analyzing three key impact channels of QE policy on income distribution: 1) the employment channel 2) the asset appreciation and return channel, and 3) the mortgage refinancing channel. Using recentered influence function (RIF) regressions pioneered by Firpo et. al (2007) in conjunction with the well-known Oaxaca-Blinder decomposition technique, we find that while employment changes and mortgage refinancing were equalizing, these impacts were nonetheless swamped by the large dis-equalizing effects of equity price appreciations. Reductions in returns to short term assets added further to dis-equalizing processes between the periods. Bond price appreciations, surprisingly, had little distributional impact. We cannot know precisely how much of these changes are due to QE as opposed to other influences, but to assess potential causal effects we utilize a counter-factual exercise to assess the quantitative range of impacts of QE on the main channels. We conclude that, most likely, QE was modestly dis-equalizing, despite having some positive impacts on employment and mortgage refinancing. The modestly dis-equalizing impacts were due to both policy choices and deep seated structural problems, such as the long-term deterioration in labor market opportunities for many workers due to globalization and legal and political reductions in labor bargaining power that have contributed to long term wage stagnation. Finally, there is no support in our analysis, for the proposition that raising interest rates would be an efficient mechanism for improving income distribution, because of the likely costs in terms of employment and debt refinancing opportunities.
Topic:
Federal Reserve, Inequality, Income Inequality, Fiscal Policy, and Wage Growth
Political Geography:
North America and United States of America

13. Wealth Concentration, Income Distribution, and Alternatives for the USA

Author:
Lance Taylor, Özlem Ömer, and Armon Rezai
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
Topic:
Inequality, Income Inequality, Tax Systems, Redistribution, and Wealth
Political Geography:
North America and United States of America

14. Wealth Concentration, Income Distribution, and Alternatives for the USA

Author:
Lance Taylor, Özlem Ömer, and Armon Rezai
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
Topic:
Inequality, Income Inequality, Tax Systems, Redistribution, and Wealth
Political Geography:
North America and United States of America

15. Global Crises, Equalizing and Dis-equalizing Capitalist Regimes: The Case of 20th Century Asian Political Economy

Author:
Vamsi Vakulabharanam
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The logic of deep global capitalist crises needs to be incorporated centrally into an understanding of the changes in the within-country inequality levels. I present a theoretical framework that incorporates two levels of political economic processes. First, global capitalist crises lead to the creation of an institutional structure or a regime in the capitalist centers that influences inequality in these core countries and in the periphery. Second the class configuration in the non-core countries - a set of institutional arrangements that can be termed local political economy - also plays a key role in determining inequality outcomes. The main argument of this short note is that these two sets of processes interact to produce patterns of within country-inequality that we observe across the world. In the Asian case, high growth was accompanied by declining inequality for a period of three decades after World War 2. However, with the crisis of global capitalism during the 1970s, a new regime was created in the global center that pushed inequalities higher across the world. These changes occurred through the implementation of policy structures that have disproportionately favored urban elites. In the Asian economies too, growth was accompanied by rising inequality after the 1980s. I use these experiences to argue that growth episodes in capitalism that follow effective demand crises (such as the Great Depression) seem to allow for lower within-country inequality. Growth episodes that follow profitability crises by contrast tend to cause increases in the within-country inequality. However, this is not a deterministic frame of analysis, as the recent experience of most countries with austerity policies suggests, even if this recent experience might well be a passing phase.
Topic:
Political Economy, Capitalism, Inequality, Finance, and Crisis Management
Political Geography:
Asia

16. Social Interaction Models and Keynes’ Macroeconomics

Author:
Duncan Foley
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The central concepts of Keynes’ macroeconomic theories concerning the behavior of labor markets, aggregate demand, and asset pricing can be formulated as special cases of a general social interaction model. In its simplest form this model analyzes a system of interacting identical agents, each of whom controls the level of an action, and all of whom have the same utility functions trading off the effort required by the action with the monetary incentives for it. When the incentives include an interaction term involving the action levels of the other agents, the equilibrium outcome is in general Pareto-inefficient for the interacting agents, and multiple equilibria are possible. The expectations that lie at the heart of Keynes’ conception of macroeconomic equilibrium concern the behavior of other individuals rather than concrete forecasts of the concrete path of prices.
Topic:
Economics, Inequality, Microeconomics, Keynes, and Behavior
Political Geography:
Global Focus

17. Two Paths to War: The Origins of the First World War versus the Dynamics of Contemporary Sino-American Confrontations

Author:
James Kurth
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
During the past year, there have been numerous and somber reflections, rather like those during a traditional period of mourning, about the great and tragic events that occurred just 100 years ago – the beginning of the First World War. And in the course of these melancholy reflections about the past, there naturally have arisen anxious concerns about the future. Is it possible that we may once again be entering into an era of great conflicts, or even of a great war, between the great powers of the time? Are there important and ominous similarities between the international situation before the First World War and the international situation of today?
Topic:
Development, Government, Politics, History, and Inequality
Political Geography:
China and United States of America

18. Information and Economics: A New Way to Think About Expectations and to Improve Economic Prediction.

Author:
David Tuckett, Paul Ormerod, Rickard Nyman, and Robert Elliot Smith
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The largely unexpected arrival of the global economic crisis and the largely unpredicted slowness of the recovery from the Great Recession should be precipitating an intellectual crisis across economics and policy making. We require additional theories and additional methods to detect how an economy is evolving and to provide the basis for policy intervention (Haldane, 2014).
Topic:
Economics, Inequality, Microeconomics, and Behavior
Political Geography:
Global Focus

19. Twisting the economic tale: what literature can do that political economy can’t

Author:
Sara Thornton
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper will address the problem of how we might gain economic understanding from literature. It will look at the aesthetic form of literature as being an efficient vehicle for economic thinking.
Topic:
Economics, Political Economy, Culture, Inequality, History, and Literature
Political Geography:
Global Focus

20. Capital Flight from Africa and Development Inequality: Domestic and Global Dimensions

Author:
Léonce Ndikumana
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Over the past decades African economies have exhibited two stunning paradoxes: growth acceleration coexisting with stubbornly high poverty rates; increasing capital flight along with widening development financing gaps. There has been no attempt to link the two in the literature. This paper attempts to fill the gap; it suggests that the implications of capital flight for the inequality-growth-poverty nexus may be the key. Specifically, the paper proposes to shift attention to conceptual and empirical analysis of the implications of capital flight for inequality along income lines and inequality in development both within African countries and between Africa and advanced economies. The evidence presented in the paper indicates that Africa may be more unequal along human development dimensions than along income, and points to the possibility that capital flight may be one of the factors behind the observed limited poverty reduction gains from growth and persistent development gap between African countries and advanced economies.
Topic:
Development, Government, Politics, History, Economies, Inequality, Finance, Microeconomics, Capital Flight, and Trade
Political Geography:
Africa

21. The Prince('s) Rules: Economic Theories and Political Struggle in Europe

Author:
Orsola Costantini
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Cyclically Adjusted Budget (CAB) is the estimated size of the public budget at some previously defined level of output which may represent the ‘normal’ output or a policy target and that usually is considered to be unaffected by business fluctuations or cycles. Such an estimate is supposed to isolate the automatic movements of revenues and expenditures, given the current structure of tax and transfers, from discretionary fiscal interventions and indicate the “impact” and sustainability of fiscal action. But this definition hardly does justice to the long and contentious history of this fateful estimate, which has been differently named, interpreted and calculated over the years and played a crucial role in many of the most important controversies in macroeconomics and public policy. This paper traces the evolution of the concept through time, tying it to the history of economic thought as well as economic history and policymaking. The reconstruction illustrates the important role the distribution of power plays in the evolution of economic theory and policy as the historical forms of the state-market relationship evolve. Here, however, we will focus mainly on the case of the European Union and Eurozone.
Topic:
Government, Politics, Science and Technology, History, Inequality, and Innovation
Political Geography:
Europe

22. Social investment for inclusive growth: a Southern European perspective

Author:
Annamaria Simonazzi
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Inequality has emerged as a major economic issue: sharp increases in the share of income going to those at the very top of the income distribution, a rising share of income going to profits, stagnant real wages, and a fall in median family income have raised concern over the sustainability of our economies and societies.
Topic:
Science and Technology, Inequality, Investment, Innovation, and Social Investment
Political Geography:
Southern Europe

23. Towards a Sovereign Debt Restructuring Framework

Author:
Richard A. Conn Jr.
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Initiatives to improve sovereign debt restructuring (“SDR”) began long before recent Argentine bond decisions but were redoubled in the aftermath of these rulings. At first glance, these cases identify problematic contract language that could be rectified by re-drafting critical boilerplate provisions such as the pari passu and collective action clauses (“CAC”). But given the effects of disorder, costs and delays in restructuring foreign sovereign debt upon debtor countries, creditors, and the bond market itself, it is understandable that some are uncomfortable leaving such matters solely in the hands of private parties to contracts without a framework that assists in minimizing damage to contracting and non-contracting parties alike. The creation of an agreed upon framework that facilitates the interaction among private and public parties is a good alternative to the status quo if this approach can provide greater stability and efficiency in the restructuring process while allowing for sufficient flexibility and certainty (traditional benefits of the iterative development of contract language) for market participants. There are a broad variety of options to consider and analyses to be performed, particularly relating to political feasibility, before proposing a framework. As discussed herein, given the historic context of SDR, a framework that focuses upon consensual procedures seems to be a logical starting point since it could add value to the restructuring process without treading on the political terrain of sovereigns.
Topic:
Government, Politics, History, Inequality, Finance, and Sovereign Debt
Political Geography:
Global Focus

24. Gordian knot: A panoramic perspective on stemming illicit financial flows from Africa

Author:
Melvin Ayogu
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Pushing this strand of research brings a certain feeling of trepidation. It comes from recognizing that by openly elaborating on how to catch or deter a criminal, you thereby confer an undue advantage on the criminal through forewarning. Obtaining a head start in the race to prevail, they (criminals) are able to consider and possibly devise an effective circumvention strategy. But if the criminal must not see it coming then, what aspects of how to stop a thief shall we and shall we not reveal or discuss openly amongst all? There are no easy answers to the conundrum. For instance, one has to consider the signaling value of openly engaging in discussions on how to stop criminal activities and then, balance that benefit against the paradox of empowerment. The balancing act is important because some aspects of the preventive remedies can unintentionally enable the very thing which society is striving to prevent.
Topic:
Development, Government, Politics, History, Inequality, Finance, Microeconomics, and Trade
Political Geography:
Africa

25. Severing the Innovation-Inequality Link: Distribution Sensitive Science, Technology and Innovation Policies in Developed Nations

Author:
Amos Zehavi and Dan Breznitz
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Innovation is essential to economic growth. However, it appears that the ways in which we pursue innovation policies have aggravated inequality. Inequality is an increasingly contentious political issue in both wealthy and emerging economies. Yet, it is becoming clear that use of traditional state instruments to alleviate inequality by redistributive means, is no longer sufficient. For those reasons, in this paper we consider other state instruments that are rarely associated with distributive goals. Specifically, we inquire whether we can successfully devise and employ Distributive-Sensitive Science and Technology and Innovation Policies focused on disadvantaged groups of users and consumers of technology. Following an exploratory theoretical approach, the paper first develop four types of such programs, and then utilize a comparative approach to analyze existing programs that fit into these categories, first, in Israel, and then, in the United State, Germany, and Sweden. We conclude by arguing that although these programs are currently driven primarily by economic efficiency concerns and not by distributive ones, they show the promise of our approach of utilizing innovation policy to reach social policy goals.
Topic:
Development, Environment, Science and Technology, Inequality, Economic Growth, and Innovation
Political Geography:
Israel, Germany, Sweden, and United States of America

26. Leveraging the network: a stress-test framework based on DebtRank

Author:
Stefano Battiston, Guido Caldarelli, Marco D'Errico, and Stefano Gurciullo
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, estimate and disentangle not only first-round effects(i.e. shock on external assets) and second-round effects (i.e. distress induced in the interbank network), but also a third-round effect induced by possible fire sales. Second, monitor at the same time the impact of shocks on individual or groups of financial institutions as well as their vulnerability to shocks on counterparties or certain asset classes. Third, estimate loss distributions, thus combining network effects with familiar risk measures such as VaR and CVaR. Fourth, in order to do robustness analyses and cope with incomplete data, generate sets of networks of interbank exposures coherent with the total lending and borrowing of each bank. As an illustration, we carry out a stress–test exercise on a dataset of listed European banks over the years 2008-2013. We find that second-round and third-round effects dominate first-round effects, therefore suggesting that most current stress-test frameworks might lead to a severe underestimation of systemic risk.
Topic:
Debt, Science and Technology, Inequality, Finance, and Innovation
Political Geography:
Global Focus

27. Pseudo-wealth Fluctuations and Aggregate Demand Effects

Author:
Martin Guzman and Joseph E. Stiglitz
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper presents a theory of pseudo-wealth in a model that displays aggregate demand externalities. With heterogeneous beliefs and a market for exploiting those differences in beliefs, pseudo-wealth will be created–i.e. the sum of expected wealth of all the individuals will be larger than what it is feasible for the society. Under some conditions, those perceptions will lead to larger levels of consumption of (tradable and non-tradable) goods, leisure, and borrowing than in a world with common beliefs. If those differences in beliefs disappear, pseudo-wealth will disappear, leading to adjustments in behavior that amplify the initial decrease in expected wealth. That is, we provide a simple general equilibrium model in which the destruction of pseudo-wealth amplifies the effects of the initial disturbance, leading to large decreases in economic activity. Importantly, this downturn is not associated with any change in the state variables that describe the economy. More generally, the paper shows that completing markets (in this case by creating a market for bets) may imply lower output both in the present and in the future, raising unsettling questions on criteria for welfare analysis.
Topic:
Markets, Inequality, Finance, Macroeconomics, Welfare, and Wealth
Political Geography:
Global Focus

28. Board Gender Diversity, Audit Fees and Auditor Choice

Author:
Judy Tsui
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Using a sample of U.S. firms spanning 2001-2011, we examine whether female directors (female audit committee members) affect audit quality in terms of audit effort and auditor choice. After correcting for endogeneity and other board, firm and industry characteristics, we find that firms with gender-diverse boards pay higher audit fees and are more likely to choose specialist auditors compared to their peers. Our findings suggest that boards with female directors are likely to demand higher audit quality, ceteris paribus.
Topic:
Economics, Gender Issues, Race, Culture, Inequality, Diversity, Private Sector, and Audit
Political Geography:
Global Focus

29. Top incomes and the glass ceiling

Author:
Tony Atkinson, Alessandra Casarico, Sarah Voitchovsky, Facundo Alvaredo, Jorgen Modalsli, and Jakob Søgaard
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper studies the glass ceiling by analyzing the presence of women at the top of the income distribution using tax record data reported for a sample of countries with individual taxation. Extending most of the associated literature, the glass ceiling is examined in relation to the distribution of total incomes, thereby bringing self-employment and capital income into the picture. We show that female presence at the top of the distribution has increased, but that these changes do not seem to apply to the very top percentiles, especially in Denmark and the UK. When we look at the gradient in income as one moves up the distribution, we note that the difference between men and women has become larger in the UK, but not in Norway, although Norway displays a lower share of women in almost all top percentiles compared to the other countries in our sample. The analysis of the composition of income reveals that in the UK women have more investment income and less earned income, with the proportion from self-employment being similar for men and women over time. More dramatic changes in composition appear for Spain.
Topic:
Gender Issues, Women, Inequality, Income Inequality, Tax Systems, and Glass Ceiling
Political Geography:
Europe

30. Perverse and virtuous feedbacks between inequality and innovation: Which role for public institutions and public investment?

Author:
Alberto Botta
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
In this paper, we deal with the complex relationship connecting inequality to innovation, and the ways through which public investment, in particular public participation to R&D initiatives, may affect it. We first stress that multiple different equilibria may exist in the inequality-innovation space. The positive link that part of the economic theory often assumes between (initially) rising inequality and improving innovation performances emerges as only one among many other far less virtuous dynamics. We then analyze the specific case of the US. We put emphasis on the possible perverse effects that the financialization of the US economy may induce on the inequality-innovation nexus. We also note that the US developmental State that is very often neglected by the economic literature may effectively mitigate such undesirable outcomes. According to our interpretation of recent developments in the US economy, the widespread belief in the positive proinnovation effects of fierce cutthroat remuneration systems may prove to be ungrounded.
Topic:
Development, Inequality, Innovation, Financialisation, and Public Investment
Political Geography:
Global Focus

31. How Money Drives US Congressional Elections: More Evidence

Author:
Thomas Ferguson, Paul Jorgenson, and Jie Chen
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The protesters who swirled into parks, churches, and town squares around the world in the fall of 2011 to challenge the primacy of the “1%” hammered relentlessly on one theme above all others: that economic inequality has deep roots in the political system. Many social scientists and intellectuals who have picked up from where the Occupy movement left off share this conviction; they, too, have broken with the taboos that for so long segmented discussions of politics from economics. Piketty, in his monumental study, for example, avows that income distribution is a basically a question of “political economy” not pure economics. Stiglitz in The Price of Inequality is equally forthright – “increasingly, and especially in the United States, it seems that the political system is more akin to ‘one dollar one vote’ than to ‘one person one vote.’”
Topic:
Government, Politics, Science and Technology, History, Elections, Inequality, and Money
Political Geography:
North America and United States of America

32. Austeritarianism in Europe: What Options for Resistance?

Author:
Richard Hyman
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
In much of Europe, the social rights and social protections won in the first post-war decades, by labour movements in particular, have subsequently been seriously eroded, and are further threatened by neoliberal austerity. Efforts to resist have been largely unsuccessful; but is an effective fight-back possible? In this paper I first outline the role of the European Union (EU) as a key driver of the recommodification of labour, through its growing emphasis on market ‘freedoms’ as an overriding priority, and on ‘competitiveness’ as the central policy objective for national governments. I discuss how this orientation has been reinforced by the economic crisis, and the ensuing pursuit of austerity and the imposition of ‘new economic governance’. I then survey a range of forms of protest and opposition: trade union action, ‘new’ social movements and engagement in the formal political arena. I suggest that a nuanced evaluation of success and failure is necessary. In conclusion I propose that the articulation of different forms of resistance – cross-nationally and between different actors – is essential in order to stem the neoliberal hegemony.
Topic:
Race, Science and Technology, History, Culture, Inequality, Finance, Ethics, Philosophy, Macroeconomics, and Austerity
Political Geography:
Europe

33. A New Rational Expectations Hypothesis: What Can Economists Really Know About the Future?

Author:
Roman Frydman and Michael Goldberg
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
John Muth proposed the Rational Expectations Hypothesis (REH) to represent how the market (an aggregate of its participants) understands and forecasts outcomes. REH imposes internal consistency between the market’s forecasts and “the relevant economic theory” (Muth 1961, p. 316). In implementing REH, economists have relied on a class of models that rest on a key premise: an economist can ignore the importance of quantitative changes in the economy’s structure that he himself could not specify ex ante with a probabilistic rule. In the early 1970s, Robert Lucas pointed out that once such models are upheld as “the relevant economic theory,” it follows on purely logical grounds that REH models represent rational forecasting and its implications for market outcomes. There is ample evidence that quantitative structural change is an important driver of outcomes in real-world markets, most notably those for assets. The evidence also shows that this change often is triggered by historical events that are not exact repetitions of similar events in the past, for example, the appointment of a new Federal Reserve chair or company CEO. The timing of these events may be unknown, and their quantitative impact on the economy’s structure depends on the extent of their novelty and the particular historical context in which they occur. As such, no one can fully anticipate — even in probabilistic terms — the structural change triggered by such events.
Topic:
Economics, Inequality, Microeconomics, and Behavior
Political Geography:
Global Focus

34. Discrimination, Social Identity, and Coordination: An Experiment

Author:
Vessela Daskalova
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper presents an experiment investigating the effect of social identity on hiring decisions. The question is whether people discriminate between own and other group candidate This paper presents an experiment investigating the effect of social identity on hiring decisions. The question is whether people discriminate between own and other group candidates. Key features of the experiment are: First, to consider whether they do so in individual, as well as in joint decisions; Second, to document whether the identity of the co‐decision maker matters in joint decisions. Substantial discrimination occurs in both individual and joint decision‐making situations. In joint decisions, decision makers discriminate when deciding with someone from their own group, but not when deciding with someone from the other group.
Topic:
Economics, Race, Employment, Inequality, Discrimination, Job Creation, Social Order, and Identity
Political Geography:
Global Focus