Inequality and Economic Shampoo Cycle (“bubble, bust, repeat”)

November 14th, 2014 at 1:04 pm

Over at PostEverything.

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4 comments in reply to "Inequality and Economic Shampoo Cycle (“bubble, bust, repeat”)"

  1. Tiree says:

    Excellent presentation.

    I want to add one thing I haven’t seen anyone address:

    There is an inherent acceptance of current distribution levels (inequality) and calling this depression a ‘savings glut’. Defining it as a savings glut implies directly that there’s nothing wrong with our distribution system. It implies that we must accept whatever distribution the markets create and the Keynesian interpretation is that the balance of savings has to be converted to investment by the government. I’m for Keynesian investment, but I don’t like that some Keynesian’s define the problem this way.

    There is another fix, and it is redistribution through tax and redistribution or by creating new monetary levers for helicopter money distribution. Both can accomplish the goal.

    My point is that using the term savings glut implies that everyone is saving too much. This isn’t the case. The rich are saving too much. But it could well be that even upper middle class people are saving too much in retirement funds. There is such thing as too much saving, but it is linked to distribution/inequality at the most fundamental level, and nobody has really made a point of this, at least not that I’ve seen. I think you’re starting to do that, and I’m glad to see it.

  2. smith says:

    I’m not sure any of your four points, including the wedge issue (income disconnected from productivity growth) get to the meat and potatoes of why income inequality is problem: less income period.

    Really, in the short term I don’t care whether there is any productivity growth, whether I can afford school (human capital investment), whether money buys politicians, or macro growth declines. I just want to earn more in real income.

    Economists, historians, and politicians who don’t understand this often fail to grasp why communist revolutions succeeded (for a good 50 or 60 years at least and then some). Productivity declined, access to education and advancement became more arbitrary, politicians became more corrupt, and macro growth declined. But despite all these problematic themes, inequality declined, the lower classes, peasants and proletariat were elevated while the aristocracy suffered. Great famines, death, exile and purges did not restore the previous levels of inequality.

    It is self defeating to lead with argument over inequality’s secondary effects. Great inequality is an evil unto itself. Make that the issue of prime importance. It is just as important to reduce the power of the super rich and profits available to mega corporations, as it is to raise earnings at the bottom.

    • Tiree says:

      There’s one political party in the US that is supposed to care about this. Unfortunately, some of the leaders of the party can’t admit that taking from the rich is imperative to maintaining a healthy system. It is a clear indication that the system is broken, that even the people who are supposed to care won’t make the case anymore, and it is presumably because they are rich themselves.

      It has become taboo to mention it because you’re accused of being communist. The only people that can stop this nonsense is the people at the top, the leaders, whomever they are at any particular time. Unfortunately, they’re all rich.

      Our media doesn’t allow ‘communists’ on the air.

  3. Kevin Rica says:

    Ah, the famous Jaws of the Snake diagram.

    From 1930 until 1970, every decennial census showed both the numbers and proportion of immigrants declining.

    In 1970, that trend suddenly and sharply reversed and the Jaws of the Snake opened.