Archive

Archive for the ‘Inequality’ Category

DW Documentary – “The Money Deluge”

July 11, 2017 Leave a comment

Below is a recent documentary from Deutsche Welle (DW – Germany’s international broadcaster) on the impact of exploding real estate prices, zero interest rate (see graph below) and a rising stock market. The higher income groups are benefiting greatly from these conditions but how does it effect middle income earners especially those in retirement. The DW documentary addresses these issues and explains how money deals have become detached from the real economy. Worth a look.

For years, the world’s central banks have been pursuing a policy of cheap money. The first and foremost is the ECB (European Central Bank), which buys bad stocks and bonds to save banks, tries to fuel economic growth and props up states that are in debt. But what relieves state budgets to the tune of hundreds of billions annoys savers: interest rates are close to zero.

The fiscal policies of the central banks are causing an uncontrolled global deluge of money. Experts are warning of new bubbles. In real estate, for example: it’s not just in German cities that prices are shooting up. In London, a one-bed apartment can easily cost more than a million Euro. More and more money is moving away from the real economy and into the speculative field. Highly complex financial bets are taking place in the global casino – gambling without checks and balances. The winners are set from the start: in Germany and around the world, the rich just get richer. Professor Max Otte says: “This flood of money has caused a dangerous redistribution.

ECB Rates.png

Those who have, get more.” But with low interest rates, any money in savings accounts just melts away. Those with debts can be happy. But big companies that want to swallow up others are also happy: they can borrow cheap money for their acquisitions. Coupled with the liberalization of the financial markets, money deals have become detached from the real economy. But it’s not just the banks that need a constant source of new, cheap money today. So do states. They need it to keep a grip on their mountains of debt. It’s a kind of snowball system. What happens to our money? Is a new crisis looming? The film ‘The Money Deluge’ casts a new and surprising light on our money in these times of zero interest rates.

The Elephant Curve – Inequality and Populism

July 3, 2017 Leave a comment

I blogged on this topic late last year – Inequality and the Elephant Curve – but is it correct? – and see that Paul Solman of PBS news has done his own evaluation on the topic – see video and image below. The curve shows the % change in income on the vertical axis and on the horizontal axis is the entire world population, arranged by their incomes – poorest over to the left, the richest to the right. The time period is from 1988 to 2008.

We knew that people in China and large numbers of groups in Asia who were not rich, compared to Americans, have done very well. We knew that lower and middle class Americans and Japanese and Germans have not done well. And that’s exactly what the chart shows. And we also knew that the top 1 percent in the rich countries have done well.

elephant curve.jpeg

Everybody on that chart is above the point where we actually have zero growth. If you really were to be very cosmopolitan and look at the world as if it were one country, you would say, “Look, we have a situation that a large hunk of people — two and a half billion — have done extremely well. The level of global poverty has actually gone down. These people not only now have sewage and electricity, some have even become tourists. They have better jobs.” This is mainly resurgent Asia.

So then you say, “Well, what’s the big deal?”

The problem is that this is a very abstract view of the world, which doesn’t take any cognizance of the political reality. Because the political reality is there are all these people who have done poorly relative to the rest of the world. They feel poor people in Asia breathing down their necks because of outsourcing, because of imports and so on. And then they also see that the top 1 percent in their own countries have done very well.

They are feeling fear from both ends — from one end because the other people are catching up to them and from the other, as people from their own countries are moving further and further ahead.

Source: Branko Milanovic Author, “Global Inequality”:

 

 

Categories: Inequality Tags:

Strong case for a Universal Basic Income in India but is it realistic?

April 13, 2017 Leave a comment

UBI IndiaI have blogged about the UBI and read about how India would provide a strong case for its implementation. The rationale for this is the fact that India’s welfare programmes (950 that the central government run) are numerous, inefficiently run and encourage corruption. Add to those the programmes run by each state and you have a bureaucratic nightmare unfolding. However this has been part of Indian society and not so long ago it took businesses 6 months to acquire a permit to import computers. The UBI was raised as an alternative to the inefficiency of welfare handouts and this unconditional cash payment be disbursed not just to the poor but to everyone. In more advanced countries the case for UBI is based on technology making many jobs obsolete and no new jobs being created in their place. Although this is not the case in India and it warrants the UBI for other reasons:

1. UBI is easier to administer than India’s current antipoverty programmes which largely take the form of subsidies paid to sellers of grain, fuel, fertilizer and other essentials. Current programmes are plagued by waste, corruption and abuse. UBI would save 2.07% of GDP.

2. By making everyone eligible, a universal basic income removes the messy task of identifying who is and who isn’t in need of assistance.

3. By paying money directly into bank accounts, it would allow India to do away with the vast administrative machinery currently needed to supply the poor with cheap wheat, rice and other goods.

4. By one estimate, around one-third of the grain set aside for India’s food-welfare program never reached the intended beneficiaries in 2012, the most recent year for which comprehensive data are available. Payments under a giant rural-work program are regularly delayed, leaving families in the lurch.

5. paying a basic income directly into bank accounts would encourage more people to use formal financial services, which would then help banks invest in expanding access to banks and ATMs.

Concerns

1.  households—“especially male members”—may fritter away their basic income on liquor and tobacco

2. India’s underdeveloped financial infrastructure could make it hard for many people to access their entitlements. According to the World Bank, there are only around 20 ATMs for every 100,000 adults in India, compared with 70 in South Africa, 114 in Brazil and 132 in the U.K. Although the government says it has helped open 260 million bank accounts since 2014, one-third of Indian adults remain unbanked.

3. The government paper suggests that 25% of the population should be excluded in order to make it more affordable. However deciding who is poor and who isn’t an easy task especially when over 35% of the richest 1% of Indians benefit from subsidized food to which they are not entitled.

4. There is a risk that a UBI would just supplement the welfare programmes rather than replacing them.

Source: The Economist – Wall Street Journal

Global change in real income – 1988-2008

February 7, 2017 Leave a comment

Below is graphic from ANZ Bank showing the change in real income between 1988 and 2008 at various percentiles of global income distribution (calculated in 2005 international dollars). Global inequality has improved except for the upper middle class.

income-inequality

Some comparisons of income distribution:

  • An American having the average income of the bottom U.S. decile is better-off than 2/3 of world population.
  • The richest 1% of people in the world receive as much as the bottom 57%, or in other words, less than 50 million richest people receive as much as 2.7 billion poor.
  • The three richest people possess more financial assets than the poorest 10% of the world’s population, combined.
  • In 2005, the three richest people in the world have total assets that exceed the annual combined GDP of the 47 countries with the least GDP.
  • In 2005, the 125 richest people in the world have assets that exceed the annual combined GDP of all the least developed countries.
  • In January this year Oxfam calculated that the eight richest men in the world own the same wealth as the 3.6 billion people who make up the poorest half of humanity.

The world’s 8 richest people are, in order of net worth:

1. Bill Gates: America founder of Microsoft (net worth $75 billion)
2. Amancio Ortega: Spanish founder of Inditex which owns the Zara fashion chain (net worth $67 billion)
3. Warren Buffett: American CEO and largest shareholder in Berkshire Hathaway (net worth $60.8 billion)
4. Carlos Slim Helu: Mexican owner of Grupo Carso (net worth: $50 billion)
5. Jeff Bezos: American founder, chairman and chief executive of Amazon (net worth: $45.2 billion)
6. Mark Zuckerberg: American chairman, chief executive officer, and co-founder of Facebook (net worth $44.6 billion)
7. Larry Ellison: American co-founder and CEO of Oracle  (net worth $43.6 billion)
8. Michael Bloomberg: American founder, owner and CEO of Bloomberg LP (net worth: $40 billion)

Sources: ANZ Bank, Wikipedia, Oxfam International

Categories: Inequality Tags:

Economics – Holiday Reading.

December 23, 2016 Leave a comment

I will be disappearing for a couple of weeks to the beach where there is no internet access. Therefore here are some books that might be worthwhile reading over the festive season – reviews are from amazon.com. I will be back again on 10th January – have a great xmas and new year.

makers-and-takersMakers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

Eight years on from the biggest market meltdown since the Great Depression, the key lessons of the crisis of 2008 still remain unlearned—and our financial system is just as vulnerable as ever. Many of us know that our government failed to fix the banking system after the subprime mortgage crisis. But what few of us realize is how the misguided financial practices and philosophies that nearly toppled the global financial system have come to infiltrate ALL American businesses, putting us on a collision course for another cataclysmic meltdown.

 

 

Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup by Andrew Zimbalist

Circus Maximus.jpgThe numbers are staggering: China spent $40 billion to host the 2008 Summer Olympic Games in Beijing and Russia spent $50 billion for the 2014 Sochi Winter Games. Brazil’s total expenditures are thought to have been as much as $20 billion for the World Cup this summer and Qatar, which will be the site of the 2022 World Cup, is estimating that it will spend $200 billion. How did we get here? And is it worth it? Both the Olympics and the World Cup are touted as major economic boons for the countries that host them, and the competition is fierce to win hosting rights. Developing countries especially see the events as a chance to stand in the world’s spotlight. This book is also reviewed here by Michael Cameron on his blog Sex, Drugs and Economics.

 

 

Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic

Global Inequality.jpgThis is a scholarly book about global inequality, that is, ‘income inequality among citizens of the world’. It is, as Milanovic explains, ‘the sum of all national inequalities plus the sum of all gaps in mean incomes among countries’.

In his study, Milanovic focusses on the Kuznets hypothesis – that in industrialized countries, inequality will initially increase and then decrease, resulting in an inverted U-shaped curve. In recent times, inequality seems to be rising when all the factors indicate that it should have followed the Kuznets curve. Milanovic explains why the projected pattern did not materialise. One can point to ‘the hollowing of the middle class and the rising political importance of the rich’, but there are other factors. Milanovic explains the phenomenon through the historical data of the Kuznets curve in countries across the world.

This is a learned, but dry and technical treatise on a subject that seems to evade comprehension even by renowned economists and political scientists. That is not to say that Milanovic is a boring writer. This book will be appealing to economic and political science students, but the general reader may find Milanovic’s 2011 book, ‘The Haves and the Have-nots’ more interesting and palatable.

Categories: Financial Markets, Inequality, Sport Tags:

US needs a new direction

October 14, 2016 Leave a comment

Jeffrey Sachs wrote a very good piece in the Boston Globe regarding the way forward for the US economy. Some interesting data:

  • 1.4% GDP between 2009-2015 when it was projected at 2.7%
  • 81% of Americans experienced flat or falling incomes between 2005-2014
  • 1980 – top 1% earn 10% of income
  • 2015 – top 1% earn 22% of income
  • 10% unemployment in October 2009 – dropped to 4.9% today. Mainly caused by those of working age leaving the labour force entirely.
  • Employment relative to working age (25-54) in 2000 was 81.5%. In 2015 it was 77.2%
  • US Treasury debt owed:
  • – 2007 = 35% of GDP
  • – 2015 = 75% of GDP
  • – 2026 = 86% of GDP – forecast
  • – 2036 = 110% of GDP – forecast

Issues with the US Economy

US manufacturing jobs have shifted overseas – remember NAFTA. Northern Mexico saw a huge influx of US companies as they took advantage of cheaper labour costs.

Automation – the advent of smart machines seems to be shifting income from workers to capital, driving down wages and leading to frustration of low wage workers.

As well as debt sustainability the US economy needs to shift its reliance on carbon-based energy to non carbon energy sources – hydro, wind, solar etc. Some have argued that the US has simply run out of big new inventions to sustain growth levels but ultimately the world has got to change its model as resources will eventually run out. We can’t keep relying on people buying more and more stuff to maintain growth or the Chinese building more cities and blowing up and rebuilding bridges.

Sustainable Development 

Jeffrey Sachs argues that sustainable development works best when it focuses simultaneously on 3 big issues:

  1. Promoting economic growth and decent jobs
  2. Promoting fairness to women, the poor, and minority groups
  3. Promoting environmental sustainability.

US growth has tended to focus on economic growth and neglect inequality and environmental issues. Future growth needs to focus less on current consumption but investment in future knowledge, education, skills, health, infrastructure and environmental protection. Furthermore if the investment is carried out efficiently the economy can growth in an environmentally safe as well as being fair. Good investment requires two things:

  1. Planning – need to overcome complex challenges for our future – e.g. energy
  2. Public investment  – replacement of a crumbling infrastructure – roads, bridges, water systems, seaports etc

Jeffrey Sachs recent research measured how 150 countries performed with regard to sustainable development and the progress that countries will need to make to achieve the recently adopted SDGs – see image below. The Scandinavian countries came in top – Sweden, Denmark, Norway – the US was 22nd out of the 34 high-income countries whilst Canada was 11th.

Click the link below for an article on income inequality from the Boston Globe by Jeffrey Sachs

Facing up to income inequality

Sustainable Development Goals_E_Final sizes

Inequality and the Elephant Curve – but is it correct?

October 1, 2016 Leave a comment

Below is a very interesting video from the FT about the Globalisation and Income Inequality. Globalisation is often held responsible for the problems of inequality in the world today. The elephant chart seems to explain why globalization has been blamed – see below. The chart shows income growth across the globe from 1988-2008 and how middle income people across the world (e.g.China) have had a significant growth in income as have the super rich. However some income groups have suffered namely the lower middle classes who have experienced almost no growth over the last 30 years.

elephant-curve

However the Resolution Foundation in the UK produced a paper entitled “Examining an elephant: globalisation and the lower middle class of the rich world” which focused on whether and to what extent the conclusions from the graph are justifed, by digging into the data underpinning the elephant curve.

Policy makers and commentators looking to understand how income growth has actually been experienced risk drawing the wrong, or overly- strong, conclusions without a detailed understanding of what lies behind the elephant curve. Their analysis of the underlying data shows:

  1. Overall income growth is understated because of changing country selection. The chart is not about the income growth rates of particular people. For example, the globally poor in 1988 and those in 2008 are not necessarily the same groups of people – so growth doesn’t refer to individuals. But furthermore, different countries are included in the 1988 and 2008 datasets that underpin the elephant curve.
  2. Uneven population shifts suppress the recorded income growth of parts of the global distribution. Population changes, rather than just income changes, have driven the income growth distribution in the elephant curve. Because the population of poorer countries has grown disproportionately, and the population share of mature economies has shrunk, average incomes have been dragged down.
  3. The aggregate data hides big variation between developed economies. Further exploring the apparent losers of globalisation, the weak figures for the mature economies as a whole are driven by Japan (reflecting in part its two ‘lost decades’ of growth post-bubble, but primarily due to likely awed data) and by Eastern European states (with large falls in incomes following the collapse of the Soviet Union after 1988).

 

Categories: Growth, Inequality Tags:
%d bloggers like this: