Archive for the ‘Political Economy’ Category

universal basic income

Thursday, November 13th, 2014

Timothy Taylor, in his regular column in  the current issue of Journal of Economic Perspectives (Fall 2014 , pp. 227-234) points us to an article that extols the virtues of a policy that promises to end poverty immediately, with administrative efficiency and maintenance of incentives to get up and go to work each morning. The author is Edwin G. Dolan (born 1943), an American economist with an impressive cv.

Are you frustrated by the interminable quest to end poverty in the face of ideological division and widespread cynicism? Why not just cut to the chase, sending everybody in the country a monthly check that covers the rudimentary needs of even the poorest among us? ….

The concept goes by many names: unconditional basic income, basic income guarantee, demo-grant. I prefer “universal basic income,” or UBI for short. Whatever you call it, though, the feature that distinguishes a UBI from other sorts of social safety nets is its universality. Unlike other income-support programs, it is not means-tested. Instead, a UBI would provide subsistence-level grants to everyone, regardless of need, earned income, age or job status. …

Hardly anyone sees a UBI as a perfect safety net. It offends conservatives by offering something for nothing. And it raises serious questions for progressives who worry there is more to poverty than a lack of income—that a UBI would not do enough to transform the culture of poverty that weighs down the underclass. But it has pragmatic advocates (including me) who believe that a UBI offers a better compromise than do other income-support programs among the mutually incompatible criteria of effectiveness in reducing poverty, maintenance of work incentives, administrative efficiency and accurate targeting.

A big worry, of course, is that a UBI would end up as budget-buster or require a raid on private wealth to finance it. However, as shown, it need be nothing of the sort—provided it were part of a bargain in which other antipoverty efforts (save medical care) were abandoned, and middle-income earners traded in a hodgepodge of tax breaks for the universal basic income grant.

The most encouraging sign is that the liveliest debates over a UBI today are taking place within, rather than between, the main ideological camps. At a time when macroeconomic forces and the politics of big money are leading to ever- greater inequality, perhaps America is still capable of finding common ground for a pragmatic antipoverty effort.

Ed Dolan, “The Pragmatic Case for a Universal Basic Income”, Milken Institute Review, Third Quarter 2014, pp. 14-23.

This is a universal age pension, with a qualifying age of 18 or even zero rather than 65 or 70. None of the links above are gated. Enjoy!

return of the neocons

Wednesday, November 12th, 2014

This is scary. American writer Jacob Heilbrunn (born around 1965) explains.

[T]he Republican party is resurrecting the unilateral foreign policy doctrines that first took hold under President George W Bush and his vice-president Dick Cheney.

Unlike the Democrats of the Kennedy and Johnson administrations, who later came to express regret over their role in the Vietnam war, leading Republican figures such as Mr Cheney and former deputy secretary of defence Paul Wolfowitz have never admitted to making missteps in Iraq or Afghanistan. On the contrary, they have argued that it is President Barack Obama who has erred by failing to prosecute combat in Iraq and Afghanistan vigorously enough.

Until recently they did not get much of a hearing. But recent events have blown fresh wind into the sails of the neocons. ….

Perhaps no one has been more impassioned in their support of the foreign policy of George W Bush than Tom Cotton, a 37-year-old Iraq war veteran who has won election as senator in Arkansas. Mr Cotton has called the Iraq war a “just and noble” cause and said that victory in Afghanistan is simply a matter of finding enough willpower. In Iowa incoming Republican senator Joni Ernst, another Iraq veteran, also lauded the war. Based on her service in Iraq, she said: “I do have reason to believe there were weapons of mass destruction in Iraq.”  [Emphasis added.] ….

Whether a Republican president would result in wholesale reversion to Bush-era policies is an open question. But the fact that the neocons are driving the debate in the Republican party and putting Mr Obama on the defensive is itself a remarkable tribute to their resilience. Indeed, to say that they are back may be something of a mistake. They never went away in the first place. The difference is that the Republican party is listening to them once again.

Jacob Heilbrunn, “Unvanquished Republican neocons surge back“, Financial Times, 12 November 2014.

Mr Heilbrunn is author of  They Knew They Were Right: The Rise of the Neocons (Doubleday, 2008) and editor of The National Interest (TNI), an American international affairs magazine. TNI was founded in 1985 by Irving Kristol.  Henry Kissinger is the magazine’s honorary chairman.

Candidate Joni Ernst (born 1970) was endorsed by the Tea Party.  According to Wikipedia, she opposes cap and trade, a federal minimum wage, and same-sex marriage while supporting gun rights and partial privatization of Social Security old-age pension accounts. She won the 2014 race for the US Senate 52.2% to 43.7%. Senator-elect Tom Cotton was also supported by the Tea Party movement.

global warming and US politics

Tuesday, November 11th, 2014

Martin Wolf looks at the implications for climate change of the Republican victory in recent midterm elections.

The most important consequence of this election may therefore be to bury what little hope remained of getting to grips with the risk of dangerous climate change. Countries cannot keep bits of the atmosphere to themselves. Moving off the world’s current trajectory is a collective task. Without US will and technological resources, the needed shift will not happen. Other countries will not – indeed cannot – compensate.

Many Republicans seem to have concluded man-made climate change is a hoax. If so, this is quite a hoax. Just read the synthesis report of the Intergovernmental Panel on Climate Change. One is asked to imagine that thousands of scientists have put together a complex fabrication in order to promote their not particularly remunerative careers, in the near certainty they will be found out. This hypothesis makes no sense.

Martin Wolf, “Republican midterm victory bodes ill for warming planet“, Financial Times, 12 November 2014.

Martin reminds us that the US is not only “the world’s largest and most technologically advanced economy, guarantor of the open world economy and greatest military power”. It “is also the world’s second-largest emitter of greenhouse gases and among the highest emitters per head”.

government spending and taxation in the UK

Sunday, November 2nd, 2014

The always sensible Martin Wolf, on the (im)morality of UK fiscal policy.

By choosing overall balance as its objective, rather than a balance on the budget for current spending, the Conservative party has chosen a demanding objective. This makes it all the more extraordinary that they propose to cut taxes, too. In the current parliament, all the fiscal consolidation has been due to such cuts. The same would happen again in the next parliament under the Conservatives – and then the government would cut spending some more.

The Conservative leadership says such an adjustment is the moral choice. Some do indeed argue that the moral choice is to leave money with the people who earn it. But that would also leave them without a state. In practice, then, morality necessitates a balance between meeting legitimate demands upon the state, on one hand, and the costs of taxation, on the other. This choice is at the very heart of democratic politics. [Emphasis added.]

Martin Wolf, “Improving public finances is both a moral and technical challenge“, Financial Times, 31 October 2014.

Overall balance takes into account expenditure on both capital and current accounts.

the pain in Spain continues

Thursday, October 30th, 2014

The Spanish economy is growing, and the recession is over, but living standards for many continue to fall.

[D]onations [to food banks] have risen sharply since the start of the Spanish crisis, but that demand has grown faster still. Over the past five years, the number of Spaniards who rely on the country’s 55 food banks has soared from 780,000 to 1.5m, and – despite growing signs of economic recovery – their numbers continue to rise.

“On the macroeconomic level you see that things are going better. But our people see no change,” says Nicolás Palacios, the president of Spain’s food bank federation. “There are more and more people whose unemployment benefits have run out, and who have used up all their financial reserves. And even if they have some income, a few hundred euros are just not enough to feed a family.” ….

The number of people receiving emergency aid from Caritas [the charity branch of the Roman Catholic Church] has leapt from 350,000 in 2007 to 1m today. Even one year after the end of the recession, the organisation says it sees no sign that the recovery is reaching the most vulnerable sectors of Spanish society: “We hear that economic growth is back, we hear that the banks are doing well. But people are desperate,” says Sebastián Mora, the secretary-general of Caritas España.

Tobias Buck, “Spanish recovery lays bare a social crisis“, Financial Times, 30 October 2014.

Hunger in Spain (people receiving food hand-outs)

Spanish unemployment rate (per cent)

material comfort and happiness

Sunday, October 26th, 2014

Three FT columnists – Undercover Economist Tim Harford, psychotherapist Antonia Macaro, and  philosopher Julian Baggini – discuss possible links between happiness and the consumption of material goods. (more…)

Reviewing Piketty’s Capital

Thursday, October 23rd, 2014

[Thomas Piketty’s] Capital in the Twenty-First Century is a very important book that is not really about capital, and is not really about the twenty-first century. It is predominantly a work of analytical economic history, focusing on the late nineteenth century to the present – with words of warning for the future, nestled among caveats regarding the pitfalls of economic predictions. And its subjects are the dynamics and distribution of incomes and wealth, where wealth is to capital what an hourly wage is to an hour of work: the market value, not the thing itself. ….

As inequality rises and wealth becomes increasingly unearned, how can a democratic capitalist society respond? Regarding income inequality, Piketty advocates taxing incomes above $500,000 or $1 million at a rate of 80 per cent. Importantly, the point is not to bring in revenue, because it would probably bring in very little – remuneration at the top end would probably fall dramatically, given the small return to higher salaries. But given that taxes at this rate did not slow down growth in the past, and that countries that still have high top income tax rates have not fallen behind the US and the UK, the evidence indicates that their loss would be everyone else’s gain.

How does this work? The knock-on effect of top incomes on everyone else’s incomes, or what economists call general equilibrium effects, are rarely acknowledged, and indeed Piketty does not spell them out. But next time you hear someone suggest that a concern with top incomes can only be driven by envy, recall that, one way or another, the rest of us have to pay for those incomes: as workers, higher pay at the top means our salaries have to be lower; or as consumers, it raises the prices we face; or as pension-holders, it lowers share prices and profits that fund our retirement. Again, since the evidence shows that excessive pay at the top does not increase the size of the pie, their ever-growing slice comes at everyone else’s expense, and trimming it would leave more for the rest of us. ….

In 1913, just before the outbreak of the First World War, the historian and socialist theorist R. H. Tawney observed that ‘what thoughtful rich people call the problem of poverty, thoughtful poor people call with equal justice a problem of riches’. Let us hope that this time around we find a solution to the problem of riches that does not require global catastrophe.

Paul Segal, “Review Essay: The problem of riches“, Renewal 22: 3/4 (2014).

HT: Mark Thoma

Paul Segal is Senior Lecturer in Economics at King’s International Development Institute, King’s College London. For more reviews, see the current issue (no. 69) of Real-World Economics Review (ungated, free access). This special issue on Piketty’s Capital contains essays by Robert Wade, James K. Galbraith, David Colander, Dean Baker and others.

Capital in the Twenty-First Century was translated from the French by Arthur Goldhammer and published by Belknap Press in 2014.

happiness, satisfaction, and GDP

Wednesday, October 22nd, 2014

I would like to call everyone’s attention to a superb article written by University of Southern California economist Richard Easterlin, a scholar who, years ago, touched off the booming field of “happiness studies”. I, for one, am not convinced that happiness – even life satisfaction or subjective well being – is something we can usefully measure, aggregate and use for policy purposes. Nonetheless, Easterlin makes a spirited, impassioned case for replacing GDP (Gross Domestic Product) with SWB (Subjective Well Being). He has succeeded in convincing me that SWB, with all its faults, is at least preferable to HDI (the UNDP’s Human Development Index) as a measure of welfare.

Here are two paragraphs from the introduction, and two from the conclusion of the essay. The entire essay (4 pages) can be downloaded, copied and printed without charge, so click on the link below. You will not be disappointed. (more…)

economic inequality and Hong Kong protests

Tuesday, October 21st, 2014

Hong Kong’s protest movement – now more than three weeks old – has largely focused on definitions of universal suffrage and various methods for electing political leaders. However, many of those taking part also feel economically disenfranchised ….

The territory’s per capita GDP has soared from below $7,000 two decades ago to about $38,000 now. ….

However, that economic dynamism has come at a price. A fifth of Hong Kong’s 7m people live in poverty, according to the charity Feeding Hong Kong, while the income gap is the widest in the developed world. ….

“The Hong Kong economy has been flying since 1997. It has skyrocketed. But a lot of people don’t enjoy the success,” says Eric Yeung, a 26-year old protester, who works in a hospital. “We are earning our money to feed this small group of people. They get richer, while we get more underprivileged. Our burden has become heavier.”

Josh Noble, “Economic inequality underpins Hong Kong’s great political divide“, Financial Times, 21 October 2014.

workers’ rights

Saturday, October 18th, 2014

FT columnist Simon Kuper complains that politicians routinely ignore the rights of workers, even as they focus on “‘Rights’ – for gay people, women and other suppressed groups”.

Politicians rarely mention them any more except to mock them. Barack Obama spoke of “bitter” jobless small-town Midwestern voters who “cling to guns or religion, or antipathy toward people who aren’t like them”. David Cameron evokes a “broken Britain” of dysfunctional jobless slackers. Mitt Romney identified 47 per cent of Americans “who believe that they are victims?.?.?.?who believe that they are entitled to healthcare, to food, to housing, to you-name-it”. And French president François Hollande, at least according to his angry ex-girlfriend Valérie Trierweiler, calls poor people “the toothless ones”. ….

Many working-class people are now shifting to parties that still promise community – a national or ethnic community. France’s Front National and the Scottish, Catalan and Flemish nationalists have never done better. The US Republicans own most white working-class votes. The UK Independence Party just won its first parliamentary by-election, on the largest increase in voting share for any British party in any by-election ever. Nigel Farage, Ukip’s leader, says: “We are now tearing great holes in the old Labour vote in the north of England.”

The left discovered rights. Now it ought to rediscover community.

Simon Kuper, “The working classes deserve respect“, Financial Times, 18 October 2014.