(Return to the home page.)
Climate Change and the Economy: Facing Reality – Naomi Klein’s just-released book This Changes Everything: Capitalism and Climate should be high on our reading lists. In related articles, she argues points out that climate change is real and is destroying life on the planet, so it is crucial to overcome the vested interests poised to prevent necessary action. Worse, this post points out, unrestrained capitalism is destroying itself as well as the planet.
Labor Day Blues – Mourning the Death of Economics — Labor day articles on (1) the suppression of labor, (2) Karuthammer’s trickle-down theory and suggestion to further cut taxes at the top, and (3) Paul Krugman’s false idea that the is no developing budget problem combine to put us in a Labor Day funk.
False Forecasts and Dangerous Delusions – Returns to Keynes’s exposition of effective demand, including his discussion of Hobson and Mummery’s decisive 1889 attack on today’s “trickle-down” ideology. Sets fort h the details of CBO’s adoption of trickle-down in its baseline projections, and explains how ignoring shrinkling demand makes its baseline projections far too overoptimistic.
Inequality and Debt, Dysfunctional Forecasting, and the Discomfort Zone to the Left — Economic reality is to the “left” of Paul Krugman. Neoclassical economics puts blind faith in supply-side forecasting; CBO is actually “backcasting,” and S-S economics simply cannot make predictions from income data. This post summarizes the inequality/growth/ taxation mechanism, presents the long-term reduction of growth and the crucial role of wealth transfers and debt.
Inequality Suppresses Growth: A Serious Problem? — Eduardo Porter, along with many of the rest of us, understood that inequality depresses growth over three years ago; This post reviews the mechanism of suppression, and the importance of income tax progressivity.
Inequality Retards Growth: A “New View”? — Standard & Poor’s cautiously reports that inequality retards growth, citing the IMF studies among other things. Growth projections are falling around the country, and yet, mysteriously, Krugman’s report casts aspersions on the report.
Breaking News: CBO Infected with Trickle-Down Disease – CBO is actually covering up the interest growth, and pretending that a deficit crisis cn be averted out to 2024, and all the way to 2039. This is impossible, and the misrepresentation requires a heavy dose of Congressional majority leader Paul Ryan’s trickle-down fantasy.
The Fiscal Fiasco: A Real Budget and Debt Crisis – Paul Krugman backs CBO’s claim that the budget deficits are nothing to worry about, but CBO has failed to account for the rapid growth of interest on the national debt.
It’s the Wealth Transfers Stupid – A comprehensive post on the “bubble” phenomenon, and how steady inequality growth shrinks the economy. Discusses Hanauer, Krugman and secular stagnation, the IMF study, Reich on wealth concentration and growth, PAul Mattick, Irwin and the “everything bubble” and so on.
3. Picking Piketty Apart — Part III: Time’s Running Out – Production function-based growth models like Piketty’s “Second Fundamental Law of Capitalism” miss the true driver of income and wealth inequality, because they treat growing wealth inequality as conceptually equivalent to the accumulation of productive capital in a long-run equilibrium state that never occurs. Hence, this “neoclassical” concept of growth seriously understates the problem of decline and depression caused by wealth redistribution.
2. Picking Piketty Apart — Part II: His Laws of Capitalism – In the first half of his book Piketty develops a production-function based growth model, a variant of the “Harrod-Domar” model developed in the early 20th Century, summarized as the “Second Fundamental Law of Capitalism.” This post explains the model, its meaning, assumptions and limitations, with the help of Garner Ackley’s renowned 1963 textbook “Macroeconomic Theory.”
1. Picking Piketty Apart — Part I: His Contribution – Thomas Piketty along with fellow French economist Emmanuel Saez have opened our eyes to the great increase in income inequality in the U.S. over the last 30-40 years with a vast invaluable database of world income tax records. In His recent book “Capital in the Twenty-first Century” Piketty discusses the income inequality trend in the U.S., but first calls our attention to rising wealth concentration around the world, drawing much needed attention to the topic.
Walmart’s Game Plan and Capitalism’s Endgame – Walmart avoids taxation and imposes its labor costs on other taxpayers. It’s game plan is a template for the mechanism through which capitalism is gradually destroying itself.
Why Economics Failed: The Parable of the Minimum Wage – It has been 50 years since Gardner Ackley presented a proper explanation of macroeconomic theory, but that has been forgotten, and now the “science” of economics is lost. A series of posts is intended to present Ackley’s wisdom. We can begin to understand why Paul Krugman wonders why economics has failed by reflecting on the flaws of conventional economics: The same faulty thinking that obscures decline and depression obscures the reality about the effects of increasing the minimum wage. A CBO report applies the same false “supply-side” neoclassical presumptions in its finding that increasing the minimum wage will actually reduce employment.
Time-Warp and the Three Milliseconds – Tunneling through mountains to gain a three millisecond edge on information moving between the future markets in Chicago and the stock markets on Wall Street is designed to lock in financial gains in arbitrage trading. This unreedemably damages the economy through transfers of economic rent, and substantially increased inequality.
Inequality and the National Debt – The Common-sense analysis of classical economists Jean Baptiste Say and John Stuart Mill taught us lessons forgotten today: It is rarely beneficial to lay off payment of current obligations indefinitely, and in extreme cases like today can lead to perpetual annuitites for the rich (Say) and will, in any case, favor the wealthy classes (Mill). The hcurrent U.S. debt problem was not caused by increased government spending, but by reduced taxes from the very wealthy. The U.S. has borrowed over $17 trillion to financed increased inequality. The scope of the inequality problem problem has become unimaginably huge.
Inequality and Growth: Two Sides of the Same Coin – The essential point is that growth and inequality are inversely realated. This post explores Neil Buchanan’s probing questions as to why mainstream economics has avoided the issue, some of the main neoclassical ideology that has emerged to obscure economic reality (such as Okun’s “efficiency” argument and Martin Feldstein’s “magic bird” argument), and more fundamentally the dismissal of Keynes’s principle of aggregate demand. Direct statistical studies of the relationship between income inequality and growth by IMF economists challenged their neoclassical assumptions, confirming their suspicion that distribution and growth are “two sides of the same coin.”
Inequality, Taxation, and the Krugman Conundrum – In a discussion of the “sudden stop” accompanying a financial crisis, Paul Krugman again (as in the case of the “mutilated economy”) reveals the difference between ignoring the macroeconomic effects of redistribution in neoclassical and neo-Keynesian thinking and accounting for the crushing dynamic effects of redistribution.
Inequality, Money, and Taxation – Krugman attacked Bret Stephens year-end WSJ article “Obama’s Envy Problem” for playing fast and loose with nominal statistics, but Stephens was guilty of much greater sins, like insisting that there is no inequality problem except as the rich get richer at the expense of others. Well, guess what. . .
Poverty, Inequality, and Real Macroeconomics – In the 1990s, right-wing economist Martin Feldstein advanced a theory similar to that of David Brooks, adding a theoretical touch — the “Pareto Principle” — but he did not even try to demonstrate that (or how) the rich could get richer without the poor getting poorer, and he assumed a hypothetical example (the “magic bird” hypothetical) that is light-years from the magnitude of inequality growth that has actually been experienced.
Poverty, Inequality, and the Conventional Cluelessness – David Brooks is among those who reduce the income inequality problem to a matter of the cultural factors, and he says the factors determining incomes at the top are unrelated to the growing poverty at the bottom; in this 2014 analysis no macroeconomic systemic factors are considered. The declining middle class is ignored.
The Cult of the Invisible Hand – Opponents of government regulation and market intervention reinvented Adam Smith in their own image, completely (and quite apparently) mischaracterizing his beliefs and philosophy – Smith was opposed to corporate power and monopolies, which interfered with the natural operation of competition.
Economics: The Lost Science – Keynes showed that classical (and neoclassical) theory was based on the assumption of the “special case” of optimal output (which, for him, meant full employment), and, worse, it needed the false concepts of natural equilibrium and stability to sustain it – but the degree and pace to which natural instability could erode and destroy a market economy through a cycle of income and wealth concentration was lost on him, and everyone — until now.
Series on Krugman’s “The Mutilated Economy” (11/2013):
3. The Neoclassical Boondoggle and the “Mutilated” Economy – Part 3 – Krugman clings to the neoclassical framework with talk of a “permanent slump.” but the reality is continuous, accelerating decline do the powerful forces driving income and wealth concentration.
2 The Neoclassical Boondoggle and the “Mutilated” economy – Part 2 – The inability of supply-side modeling to explain stagnation in other than supply-side hits has blinded economists to the impact of redistribution on demand, growth and prosperity. Monetary injections cannot work unless they stimulate real production, and not merely redistribute economic rent. Mason Gaffney’s indictment of neoclassical economics is noted and discussed.
1. The Neoclassical Boondoggle and the “Mutilated” Economy – Part 1 – A FED study of U.S. long-term unemployment issued at an IMF conference in November of 2013 argued the U.S. economy had been diminished by 7% in the Great Recession, prompting Krugman’s op-ed on the “mutilated” economy; the FED study revealed limitations in the ability of “supply-side” modeling to explain high-level, long-term unemployment, causing speculation about a rise in “structural” unemployment and a concession that demand-side considerations might be needed.
The Bottom 99% Apocalypse: Paul Krugman’s strident refusal to see any downside to current economic trends suffers from his failure to understand comprehend a bottom 99% depression, while aggregate data, which include, extraordinary income gains for the top 1%, top 0.1% and top 0.01%, mask the decline below.
Is Economics a Science? Really? – In defending the choice for the 2013 Nobel Prize in economics of economists with opposing theories and conflicting results on financial market stability, Raj Chetty (the 2013 J. B. Clark Prize winner) argues it is hard to prove theories in economics and candidly admits that mainstream (neoclassical) economics still hasn’t comprehended the causes of decline and depression and, in effect, how the economy actually works.
The End of the Line: The Crash Following a Debt Default – Only a reestablishment of progressive taxation will halt the steady decline of America’s solvency, and a default of the debt (the consequence of a failure to raise the debt limit for which a majority majority of Congressional and Senate Republicans are still willing to vote) would mean immediate collapse into Great Depression II.
Inequality and the National Debt My best estimate as of October 2013, including off-shore deposits of American wealth, is that the net worth of the U.S. top 1% has increased by $22-25 trillion since 1980, about $5-8 trillion above the current national debt; hence, the national debt effectively financed $17 trillion and the rest was taken directly from the bottom 99%.
“Finding a New Macroeconomics” series (4/2013 – 8/2013):
12. Finding a New Macroeconomics: (12) Inequality and the Crisis in Higher Education – Most economists fail to consider inequality in connection with declining income and the growing student debt crisis in higher education; a new debt “bubble” is developing analogous to the housing bubble that burst in the 2008 Crash.
11. Finding a New Macroeconomics: (11) Escaping the Neoclassical Cloister – At the heart of the new “redistributional” macroeconomics is appreciation of the massive transfers of wealth to the top; the reported net worth of the U.S. top 1% (in 2005 $) rose by $16 trillion since 1980 (not counting “off-shore” deposits) slightly exceeding the growth over that period in the national debt.
10. Finding a New Macroeconomics: (10) Reinhart, Rogoff, and Redistribution – The explanation for decline with rising national debt is found in the redistribution of income and debt financed by the debt, a point not even conssidered by any of the participants in the debate; the Reinhart/Rogoff flap helps clarify the basic nature and scope of the growing inequality problem, especially the growth of wealth concentration.
9. Finding a New Macroeconomics: (9) Reinhart, Rogoff and Ideology – This follows up on the previous post by explaining why the Reinhart/Rogoff theory, theoretically unfounded, could be expected to be disproved by actual data: It actually proposed the converse of the austerity doctrine (and therefore was cited as “economic” evidence supporting Paul Ryan’s budget plan.
8. Finding a New Macroeconomics: (8) Reinhard, Rogoff, and Reality – This post presents a detailed report on the controversy surrounding the Reinhart/Rogoff study “Growth in a Time of Debt” and the conclusion, discredited due to errors found in their study, that over centuries of data the rate of growth is shown to decline as the level of government debt approaches the level of an economy’s GDP.
7. Finding a New Macroeconomics: (7) Inflatioin, “Conflation,” and the “Inequality Trap” – This post explores how continuous deficit spending and rising national debt, instead of resulting in a vicious inflationary cycle as predicted by monetarists has resulted in “conflation,” inflation coupled with depression.
6. Finding a New Macroeconomics: (6) Mainstream Normality and the Distraction of Behavioral Economics – Two factors instrumental in preventing a grasp of the full macroeconomic implications of income and wealth concentration are the neoclassical assumption that an economy can naturally return on its own to full employment, and that income gaps can be explained by “institutions and norms.”
5. Finding an New Macroeconomics: (5) Inequality and Taxation – Economists Piketty and Saez have shown conclusively that inequality growth is generated by insufficient taxation of top incomes and corporate earnings; Timothy Noah’s conclusion that reducing the top income rate did not result in reduced effective rates for the top 1% was based on an erroneous interpretation of their report.
4. Finding a New Macroeconics: (4) A Georgist-Keynesian Synthesis – Keynes did not consider the accumulation of “excess profits” which are in effect economic rents; money concentrates at the top without a real contribution to wealth from the top. This reduces consumption and the size of the economy, producing inequality and decline.
3. Finding a New Macroeconomics: (3) The Thirty-year Growth of U.S. Income Inequality – The 30-year growth of inequality in the U.S., the worst in the world, has demonstrated that redistribution of income and wealth naturally makes market economies unstable, and once underway, an inequality cycle naturally accelerates.
2. Finding a New Macroeconomics: (2) The Flawed Keynesian Model – A further exploration of the exclusion of distribution from Keynes’s model: “Keynes expressly assumed that optimal demand would produce full employment, and that maintaining full employment would solve the poverty problem. But importantly, in Keynes’s model the levels of demand, employment, and investment do not depend in any way on the distribution of income and wealth; aggregate income (GDP) does not change with growing inequality.”
1. Finding a New Macroeconomis: (1) Introduction – This post introduces Keynes’s full employment model and the erroneous assumptions he made that factored the overriding influences of income and wealth distribution out of economic thinking, marginalizing distribution issues.
Four posts on an overall perspective on inequality (1/2013-2/2013):
4. Pixie Dust – This noteworthy post puts the overriding importance of income and wealth distribution in the context of the development of economic theory: “Unrestrained capitalist economies are virtual inequality machines, relentlessly creating and compounding dysfunctional distributions of wealth and incomes; and the rest is pretty much inconsequential window dressing.”
3. Amygdalas Economicus: Perspectives on Taxation – The Reagan Revolution has not only drastically changed the way the economy works, it has also cleverly altered the way we think about economics. This post traces four perspectives on taxation from the neoclassical trickle-down ideology through progressive taxation and the taxation of economic rent.
2. Why Reducing Inequality Is Government’s Most Is Government’s Most Crucial Job – Current high level inequality has resulted from a continuous, steady growth in the concentration incomes over 35 year, with vast prosperity at the top and growing stagnation at the bottom. The economy is inherently unstable. It is no longer enough, or even feasible, to merely try to combat unemployment – progressive taxation is essential.
1. Falling Off the Inequality Cliff – Krugman’s strident anti-austerity argument that reducing the deficit is not an urgent priority, which he continues to press frequently on into 2014, overlooks the continuing massive concentration of income and wealth and the need for progressive taxation of corporations and the rich both to stem inequality growth and reverse the debt crisis.
Posts Before 2013
The New Promise of America – Exit polls revealed continuing economic unawareness, with answer to the questions whether the U.S. economic system (a) generally favors the wealthy and (b) is fair to most Americans, breaking down sharply along party lines.
Has Trickle-down Been Shot Down? – This noteworthy post discusses Stiglitz’s new book, and his observations about Chicago School “supply-side” economics, and a surprising reaction from the editor of Forbes Magazine acknowledging that inequality hurts the economy, and Jonathan Rauch’s report in the National Journal – all showing mainstream economics has become much detached from reality-based, Keynesian macroeconomics.
Afraid Yet? – On the eve of the midterm election, information from economists Piketty and Saez showed most new income was headed for the top 1%.
Romneyhood – More than Greed – Indications of decline in American consumer markets suggested by declining profits of corporations that rely on America’s economy, suggesting contibuing decline.
As the Rich Get Richer – Part II – Covers the topics of economic rent, Keynes’s demand-side macroeconomic dynamics, the fallacy of aggregate “equilibrium” theory, and trickle-down.
As the Rich Get Richer – Part I – An early summary of the “economics of inequality,” posted in the month Joseph Stiglitz book “The Price of Inequality” was issued. (My own intended book was in early preparation.)
Raise the top tax rate back to 70% – This is an early exploration of the amount of wealth transfers to the top 1% since 1980; the source of the full amount was speculatively attributed entirely to the bottom 99%, not accounting for the growth in the national debt.
The Trickle-down Budgeting Game – Paul Ryan’s budget manufactures projections of alleged growth from reduced government spending, a feat of pure trickle-down magic. As was the Heritage Foundation’s forecast of growth from the Bush tax cuts, this is dead wrong. Growth depends on growing income and demand, not austerity.
Posts before May 28, 2012
It’s the Marginal Efficiency of Capital, Stupid! – We’re almost out of Keynesians today: This post recounts an exchange between Krugman and Laffer on the Bill Maher show, in which Krugman correctly takes the Keynesian demand-side position on the cause of growth. It sets the stage for the issues that plagues us throughout – a contrary “supply-side” perspective by Krugman and other mainstream economists on the effects of income and wealth concentration.
Running Out of Gas – Current indications confirm that trickle-down economics has caused the loss of growth and prosperity and widening inequality, and is dragging America inevitably into Great Depression #2.
“Essays on Inequality”
Essays on Inequality XII – Inequality Growth, Taxes, and Federal Debt – The most recent inequality data from Emmanuel Saez show that there is virtually no income growth anymore below the top 1%, and as the process of inequality growth continues to erode the economy of the bottom 99% “the presumption of normalcy” obscures the true depth of the problem.
Essays on Inequality XI – Taxes and Inequality – In his State of the Union Address, President Obama set forth a stark, black-and-white choice between reclaiming the American promise and continuing to live with dangerous inequality growth fueled by the fantasy-based policies of the top 1%.
Essays on Inequality X – Optimal Inequality – Achieving an optimal level of inequality in the United States and saving the nation’s economy from a major depression go hand in hand, and will require a great deal more tax revenue from the wealthiest Americans.
Essays on Inequality IX – The Good, the Bad, and the Ignorant – The United States has become the wealthy nation with the highest levels of income inequality and social problems, and in 2012 we must fight against the malicious forces and ignorance that are driving our country into economic oblivion.
Essays on Inequality VIII – OWS and the “New” Income Inequality Data – Occupy Wall Street has prompted valuable media attention to inequality, and though there is no new data yet beyond 2007, the information that dooms the trickle-down Reaganomics lie is becoming more available and, hopefully, understood.
Essays on Inequality VII – Seven Big Lies, and the Next Depression – Robert Reich illuminates the seven big lies about economics, and we examine how destructive they have been, as the bottom 99% heads into the next depression.
Essays on Inequality VI – A Tale of Two Economies – The Global Financial economy of the top 1% has torn itself away from America, and I’ll officially declare that, after four years of stagnation and decline, the American economy of the bottom 99% is in a depression.
Essays on Inequality V – Deepening Recession/Looming Depression – As thousands of the “Other 99%” Occupy Wall Street, the need has arrived to act now to reverse a looming threat of depression. The bottom 99% has lost 1/3 of its wealth since 1979, more than $18 trillion, and inequality continues to grow.
Essays on Inequality IV – Taxing the Rich Is Essential – Economic recovery and investment in jobs in America requires a resurgent demand, and government fiscal policy funded by additional tax revenues is necessary to create that demand.
Essays on Inequality III – Taxing the Rich, A New Start – Obama’s call to tax the rich calls new attention to the inequality of wealth and incomes produced by taxes that were too low, and to the need for fairness and economic recovery.
Essays on Inequality II – Jobs and Recovery – Today’s politics is oblivious to the impacts of inequality. People, including some of the wealthiest Americans, are waking up to the fact that only higher taxes on the rich can produce the revenues that will bring the economy back.
Essays On Inequality I – Facing a Stark Reality – America’s future depends on how it deals with inequality. Undue pessimism is not called for, and at any rate must be avoided.
Redistribution of Wealth (posts through May 2012)
The Road to Oblivion: Wealth transfers from the big 5 oil companies’ profits serves as an excellent example of this continuing, deadly process.
Growth of Inequality of Wealth: 1979-2007: Beginning in the Reagan Administration wealth inequality has increased enormously. Up to 2007 about $8.8 trillion was transferred to the top 1% from the bottom 99% as a result of Reaganomic tax and regulatory policies.
Growth of Inequality of Wealth: After 2007: Wealth (at least an additional $1.2 trillion more) continues to transfer to the rich, and the 2008 Crash causes a huge loss of real estate value (by our estimate at least $5 trillion) to the bottom 99%.
Why We Must Raise Taxes on the Rich: Robert Reich describes the mushrooming inequality, and the associated declining tax responsibility of the rich.
A Similar Perspective: Another take on wealth redistribution, focusing on rising wealth in the financial sector.
Wealth Redistribution in a Recession: An excellent description of the process and the times: “The oligarch class is now prepared for its bold move to re-Medievalize the US social culture. The election in 2012 will either stop this tactic in its tracks or solidify it for the short remainder of US history.”
The Growing Inequality of Income
The 30-year Growth of Income Inequality: Over 30 years, income inequality has grown substantially, and it’s growth has closely tracked the reductions in the taxes paid by the rich.
A Progressive Income Tax System is Required for Stable Income Inequality: The GW Bush Administration presided over a huge increase in income inequality, and real incomes went down for the bottom 99%. The tax system perpetuates decline.
Appropriate Taxation for Stable, Reasonable Income Inequality: The top tax rate needed to preserve reasonable income and wealth inequaltiy is about 70%, and an economy with reasonable inequality would be more prosperous and experience (about 1.5%) more growth.
Other Related Early Posts (through 2011)
Occupy the Nation – The Occupy Wall Street revolution focuses attention on banking and its central role in the growth of inequality and decline of prosperity in America and around the globe.
Reaganomics – “Trickle down economics” and “don’t tax the job creators” are ideas that are wrong, in fact the exact opposite of the realities explained by economic science.
Budgets – The impacts of growing inequality on government revenues and budgets.
Federal Debt – The relationships between the goals of reducing Federal debt, increasing prosperity, and reducing inequality.
Taxation – Optimal taxation of corporations and the wealthy that will stop the growth of inequality and revive economic prosperity.
(Return to the home page.)