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20150522 The Price of Inequality

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MAIN IDEA:

It is simple: The income inequality is bad because it decreases productivity of society, causes social tensions, undermines rule of law, and even puts democracy in peril. The main causes of inequality are rent seeking, unregulated or under regulated markets, and misguided policies of balanced budgets and suppression of inflation. The remedy to decrease inequality is more government regulation of market, loose monetary policy, and massive wealth redistribution via government transfer programs.

DETAILS:

Chapter One: AMERICA’S 1 Percent Problem

Author defines difference in income and wealth as America’s biggest problem and then makes main points of this chapter:

  • Prosperity of the last 30 years did not do a lot for poor because they are still poor. It did a lot for rich so they did become richer.
  • Unemployment increased and safety net is not capable to handle it
  • Standard of living declined.
  • Opportunity is not equal because majority of poor kids grow up to be poor adults, and the same applies to rich.
  • Internationally US is behind of other countries in equality and opportunity as defined by Gini coefficient

All this analysis is done on monetary basis and abstract shares of population without any attempt to look at personalities such as if today’s richest 1% are the same people that they were 10 years ago, or what actual goods and services available to today poor? Nice example of this analysis is statement at the conclusion of the chapter that obesity-suffering poor today are worse off than hungry poor of the beginning of XX century.

Chapter Two: Rent Seeking and Making of Unequal Society

This is a nice chapter about rent seeking through government support and monopolies. While author attacks Chicago school for claiming that free market would destroy monopoly he seems to be unable to provide example of monopoly in really free market environment. For example his discussion of Microsoft monopoly on Windows does not explains that it was result of government intervention and that this monopoly failed to survive appearance of new technologies from open source operating system to Web based applications and mobile computing.

Chapter Three: Markets and Inequality

At the beginning of this chapter author declares intention to demonstrate how market creates inequality, but he still had to bring government as the force that defines market and therefore makes all discussion about market causing inequality mute. After that he is trying to rebuff attempts to justify inequality by presenting it a source of incentive for oversized effort to achieve prosperity. He also partially accepts role of technology in creating ability for some people produce a lot more than other people, but somehow he does not feel that it justifies for these people getting very high remuneration as well. Surprisingly he clearly sees that in reality government causes inequality, but he meshes it with unidentified “broader social forces”.

Chapter Four: Why it Matters?

The point here is that inequality matters because it makes system less productive by removing initiative at the lower level of society, especially when inequality is result of rent seeking. Somehow author relate it to tax cuts and deregulation obviously believing that government intervention could remove accesses despite presenting multiple facts that it was government, or more precise politicians whose intervention created bubbles, rent allocation in forms of subsidies or preferential taxation, and regulation designed to promote politicians’ agenda regardless of economic soundness of these measures. Author makes a point that inequality arises because private rewards are different from social returns due to difficulties of adapting “good policies” in United Sates where majority believes in free market rather than in benevolent and wise politicians.

Chapter Five: A Democracy in Peril

This chapter is combination of two points. One is that inequality undermines democracy through unequal access to political actions for rich and poor, making poor to lose trust in the system and potentially rebel. Another one points to the evils of globalization as it is practiced now, mainly in interests of rich and influential people.

Chapter Six: 1984 Is Upon Us

This chapter is about psychological aspects of politics and economics. The main point here is that perceptions and believes are malleable and rich and powerful frame believes of majority in such way that Americans support mainly free market capitalism instead of what author seems to believes is much better system: limited capitalism with market heavily regulated by wise elite. Obviously this evil manipulation is powerless against acute intellect of the author who can see through it, unlike typical Americans of smaller intelligence.

Chapter Seven: Justice for All? How Inequality is eroding the Rule of Law

Here author goes through impact of changes in legal system that are directed to benefit rich at expense of everybody else such as Predatory lending, Bankruptcy laws, Student loans, and Securities fraud.

Chapter Eight: The Battle of the Budget

This chapter is about budget, more precisely about which government expenses author believes are good and should be expanded: all forms of wealth transfer and infrastructure maintenance, and which are bad: military. Obviously the worst evil of all is austerity that deprives noble government of means to spend money. Lots of space here dedicated to justification of Obama’s stimulus mainly based on bulletproofed logic: It did not work as we said it would, but it was great and worked marvelously because otherwise everything would be even worse than it is.

Chapter Nine: A Macroeconomic Policy and a Central Bank by and for 1%

This chapter is mainly about FEDs policy with critic directed against policy of inflation containment. In author’s opinion monetary policy should be directed first and foremost against inequality and inflation be damned. The logic here is simple: inflation hurts people who have money now such as bondholders and lenders and help debtors and other people who do not have money.

Chapter Ten: The Way Forward: Another World Is Possible

The final chapter contains a number of proposals that author believes would dramatically improve American economy and decrease inequality. They are:

  1. Curb excesses at the top via more government intervention into financial organizations landing policies including compensation policy combined with clear rejection of any future bailouts
  2. Tax reform increasing progressive character of income taxes, estate tax, and closing loopholes.
  3. Additional wealth transfer to low-income population via expansion of government education, healthcare, and other transfers in all conceivable forms.
  4. Restrict globalization and trade
  5. Political reforms restricting use of money to promote political views for rich and corporations.

The final point author makes is about choice of alternatives for future: either America of haves and have-nots, or America of haves continuously having less for benefit of have-nots leading to happy time with liberty and justice for all.

MY TAKE ON IT:

There is an interesting contradiction in this entire thing about inequality: author constantly points at government as source of rents for rich, restrictions on poor, bad monetary and budgetary policies, and so on; while at the same time demanding more government intervention in economy including direct control over healthcare sector in edition to education, wealth redistribution, restrictions on political participation for rich and similar movements in direction of unlimited government. However this contradiction is easy to understand if one looks at position of author in the society as academician living off government educational expenses and grants. He seems to be saying that what is going on is not right and leads to dismal results because government is not robbing productive people enough and, even more important, it directs loot into hands of plutocrats rather than bureaucrats and academicians as himself. So it is not about government being too big or too small, but about who controls it so if right people in power, then government should be unlimited, huge, powerful, and unrestricted providing wise distribution of resources to eliminate inequality. In short it is typical progressive mutation of socialist ideas with productive part (economic superiority of socialism over capitalism) dropped due to overwhelming evidence of socialism failure in XX century. Author, as all other progressives, wants capitalism to stick around and keep generating wealth so superior intellectuals have something to redistribute for the best of all members of society. Too bad it is not going to happen as it did not happen in all previous socialist experiments because human beings hate to work without incentive so outcome of author’s ideas is quite predictable: stagnation, misery, and increase of all racial, class, religious, and other tensions in society with the latest demonstration of which provided by Obama’s administration. What is puzzling is why author believe that resulting explosion would not hurt and rather badly people like him. The experience of either international socialism of Chinese or Soviet type or National Socialism of German type demonstrated that their supporters from Academy fared not that well winding up at best in rural areas for reeducation or at worst in concentration camps. I guess history is not strong side of such progressives.


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