Drooping Green Shoots

Back in early 2009, commentators starting seeing “green shoots” of economic recovery. More than five years later they may finally be growing into GDP and employment.

Writing recently in the New York Times David Leonhardt saw green shoots of falling income inequality based on work by Stephen J. Rose of George Washington University. Rose in turn draws on the Berkeley economist Emmanuel Saez and the Congressional Budget Office. A closer look suggests that Leonhardt’s shoots will not sprout into sustained shared income growth very soon.

The CBO study is of particular interest because it presents estimates of income from different sources for groups of households all across the distribution, from 1986 through 2011. One can see how distributive slices have changed. In a project sponsored by the Institute for New Economic Thinking at the New School for Social Research we have rescaled the CBO numbers to be consistent with the national income and product accounts, to give insight into their macroeconomic significance.

Let’s look first at households in the top one percent of the income size distribution. These people generate most household saving and hold substantial wealth, including equity which produces capital gains. Figure 1 shows their mean income levels per household over time – late in the decade it was more than $2 million per year. The green segments toward the bottom of the bars show that the well-off do receive pre-tax income from labor compensation. But bigger chunks come from interest and dividends along with proprietors' incomes, like lawyers’ fees and big farmers’ subsidies and sales.

 
Figure 1. Real per household incomes top 1% 
 
 

The chart indicates that rich households steadily gained income until 2010. Over two decades their share of the household total rose by around 10% – a very large change for such an indicator. Thereafter their income growth dropped off for a couple years due to low interest rates and reduced capital gains. Figure 2, presenting indexes of incoming income flows per household, centered on levels of 100 in 2007, shows what happened. Financial returns declined, but at the same time labor compensation including wages and benefits from employers as well as proprietors’ incomes kept climbing. 

 
Figure 2. Growth plots top 1% omitting transfers
 
 

What about the period following 2011? Interest rates have remained low, but sooner or later they will rise. The S&P 500 stock market index, meanwhile, has gone up by 65% since early 2012, presumably generating substantial realized capital gains.

After Federal  taxes, income disparities remain large. The top one percent pay somewhat higher overall rates (23% of pre-tax income as opposed to 18% for all households). Their direct taxes are more progressive (rates of 24% and 10.5% respectively) but they are scarcely touched by regressive FICA employment taxes.

In 2011 there were 1.1 million households in the top one percent with a mean pre-tax income of $2.073 million, not including capital gains, for a total of $2.28 trillion. GDP (which does not include capital gains) was $15.52 trillion so the top group absorbed 14.7% of total output. Including capital gains, in 2014 they probably got close to three trillion. Fifteen percent of GDP represents enormous economic power.

The “middle class” broadly comprises households between the 60th and 99th percentiles of the size distribution. Figure 3 shows their income sources. Note the difference in the scales between Figures 1 and 3. The top one percent’s income is a factor of ten higher than the middle class’s. It simply does not fit with flows to the other 99% of households.

Middle class mean income is around $160,000, concentrated in the group’s top decile.  These households have positive saving rates and visible net worth, largely concentrated in housing. Figure 3 shows that labor compensation makes up almost 70% of their total income. The pre-tax level increased from around $95,000 per household in 1986 to $110,000 in 2011 – a modest growth rate of half a percent per year. In the USA, of course, around seven percent of compensation is absorbed by FICA, explaining the 21% tax rate that these households pay (their direct tax rate is 11%).

 Other significant income sources are interest and dividends, proprietors’ incomes and government transfers such as Social Security, Medicare, unemployment insurance, and (at lower income levels) food stamps and Medicaid.

 
Figure 3. Real  per household incomes 61-99%
 
 

After 2007, Figure 4 shows that middle class labor income continued to stagnate. Financial incomes went down and transfers went up, as is to be expected in a recession. Both will probably revert toward pre-recession levels, leaving overall income for these households dominated by trends in real wages.

 
Figure 4. Growth plots 61-99%, omitting capital gains and proprietors’ income
 
 

Figure 5 shows that households in the bottom 60% are highly dependent on labor income for their mean level of $55,000. In 2011, transfers were around two-thirds of wages. In reported consumer expenditure data, this group has a negative savings rate, meaning that people spend more than they receive. Their average wealth is close to zero, so that financial incomes are very small.

 
Figure 5. Real per household incomes bottom 60%
 
 

In Figure 6 one can see falling wages and rising transfers after the recession got underway. The latter will decline with recovery. Rising minimum wages in ranges currently being discussed could marginally benefit low income recipients but how widespread they will be remains to be seen.

 
Figure 6. Growth plots bottom 60%, omitting capital gains, interest and dividends and proprietors’ income
 
 

Figures 7 and 8 draw a similar picture for the bottom twenty percent. Their household income in the $30,000 range is dominated by labor compensation and transfers. With recession, wages dropped off but transfers rose sharply. Thanks to credits they have negative direct taxes but are still hammered by FICA.

 
Figure 7. Real  per household incomes bottom 20%
 
 
Figure 8.  Growth plots bottom 20%, omitting capital gains,  interest and dividends, and proprietors’ income
 
 

These comparisons can be summarized in a ratio named for Gabriel Palma of the University of Cambridge, the “Palma ratio” which draws a contrast between the rich and poor. Figures 9 and 10 present ratios of per household income of the top one percent to the other groups, with and without capital gains respectively. 

 
Figure 9.  Palma ratios for the top 1% vs the other groups (with capital gains)
 
 
Figure 10. Palma ratios for the top 1% vs the other groups (without capital gains)
 
 

With capital gains included the ratios were strikingly high before 2007, but then dropped off rapidly. The decrease in Figure 10 is less sharp, reflecting the instability of asset prices. For the reasons discussed above, the Palma ratios almost certainly increased after 2011.

This latest green shoots theory of income redistribution looks rather doubtful.

Cecilia Nahon: Argentina vs the Vultures

During the 1990s, Argentina had been the poster child for Neoliberal policies—they adopted virtually the whole of the so-called “Washington Consensus” agenda lock-stock-and-barrel. They even adopted a currency board. And unlike Euroland (which also adopted something like a currency board as each member adopted a foreign currency—the euro), Argentina would have consistently met the tight Maastricht criteria on budget deficits and debts over that period. The main purpose of the austere budgets and currency board constraints was to kill high inflation. It worked. But, over that period unemployment grew and GDP growth was moderate.  And because the peg was sold to the Argentinean public as “inviolable” it created great incentives to accumulate a lot of foreign debt, particularly dollar denominated.  By the late 1990s, however, growth slowed making it harder for Argentina to secure the dollars required to service its growing debt burden (it peaked at 180% of GDP) and the peg was ultimately abandoned. 

One of the first policy initiatives taken by then President Duhalde was a massive job creation program that guaranteed employment for poor heads of households. Within four months, the Plan Jefes y Jefas de Hogar (Head of Households Plan) had created jobs for 2 million participants which was around 13 per cent of the labour force. 

But the country still had to deal with the legacy of its defaulted foreign debit, and this was the main challenge faced by the Kirchner Administration.   His government did reach agreement with 92.5% of its creditors for a restructured deal (interestingly enough, using the GDP-linked growth bonds, which was part of Greece’s recent proposal to the European Union).  The problem that has plagued the conclusion of this debt restructuring is a small group of funds, led by NML Limited, has rejected the settlement and secured judgment in the NY courts demanding full payment at par.  The court has supported this action, which means the vast majority of the so-called ‘exchange’ bond holders, who took settlements in 2005 and 2010 after Argentina defaulted on its public debt obligations, cannot be paid until NML, who has a small amount of so-called ‘hold out’ Argentine government debt, is paid in full. What can the Argentine government do in this situation, given it has been fully servicing the exchange liabilities but claims it cannot meet the original liabilities held by NML?  These are many of the issues touched on below by Ambassador Cecilia Nahon, Argentina’s Ambassador to Washington, DC.

Rana Dasgupta: How India’s Traumatic Capitalism is Reshaping the World

A British national of Bengali origin, novelist Rana Dasgupta recently turned to nonfiction to explore the explosive social and economic changes in Delhi starting in 1991, when India launched a series of profoundly transformative economic reforms. In Capital: The Eruption of Delhi, he describes a city where the epic hopes of globalization have dimmed in the face of a sterner, more elitist world. In Part 1 of an interview with the Institute for New Economic Thinking, Dasgupta traces a turbulent time in which traditional ways of life are dissolving as a new class of entrepreneur-warriors wields unprecedented power. Delhi’s particular experience of capitalism, he argues, is a story that is changing the global landscape.

Lynn Parramore: Why did you decide to move from New York to Delhi in 2000, and then to write a book about the city?

Rana Dasgupta : I moved to be with my partner who lived in Delhi, and soon realized it was a great place to have landed. I was trying write a novel and there were a lot of people doing creative things. There was a fascinating intellectual climate, all linked to changes in society and the economy.  It was ten years since liberalization and a lot of the impact of that was just being felt and widely sensed.

There was a sense of opportunity, not any more just on the part of business people, but everyone. People felt that things were really going to change in a deep way — in every part of the political spectrum and every class of society. Products and technology spread, affecting even very poor people. Coke made ads about the rickshaw drivers with their mobile phones —people who had never had access to a landline. A lot of people sensed a new possibility for their own lives.

Amongst the artists and intellectuals that I found myself with, there were very big hopes for what kind of society Delhi could become and they were very interested in being part of creating that. They were setting up institutions, publications, publishing houses, and businesses. They were thinking new ideas. When I arrived, I felt: this is where stuff is happening. The scale of conversations, the philosophy of change was just amazing.

LP: You’ve interviewed many of the young tycoons who emerged during Delhi’s transformation. How would you describe this new figure? How does he (and I say ‘he’ because this figure is nearly always male) do business?

RD: Many of their fathers and grandfathers had run significant provincial businesses.  They were frugal in their habits and didn’t like to advertise themselves, and anyway their wealth remained local both in its magnitude and its reach. They had business and political associates that they drank with and whose weddings they went to, and so it was a tight-knit kind of wealth.

But the sons, who would probably be now between 35 and 45, had an entirely different experience. Their adult life happened after globalization. Because their fathers often didn’t have the skills or qualifications to tap into the forces of globalization, the sons were sent abroad, probably to do an MBA, so they could walk into a meeting with a management consultancy firm or a bank and give a presentation. When they came back they operated not from the local hubs where their fathers ruled but from Delhi, where they could plug into federal politics and global capital.

So you have these very powerful combinations of father/son businesses. The sons revere the fathers, these muscular, huge masculine figures who have often done much more risky and difficult work building their businesses and have cultivated relationships across the political spectrum. They are very savvy, charismatic people. They know who to give gifts to, how to do favors.

The sons often don’t have that set of skills, but they have corporate skills. They can talk finance in a kind of international language. Neither skill set is enough on its own by early 2000’s: they need each other. And what’s interesting about this package is that it’s very powerful elsewhere, too. It’s kind of a world-beating combination. The son fits into an American style world of business and finance, but the thing about American-style business is that there are lots of things in the world that are closed to it. It’s very difficult for an American real estate company or food company to go to the president of an African country and do a deal. They don’t have the skills for it. But even if they did, they are legally prevented from all the kinds of practices involved, the bribes and everything.

This Indian business combination can go into places like Africa and Central Asia and do all the things required. If they need to go to market and raise money, they can do that. But if they need to sit around and drink with some government guys and figure out who are the players that need to be kept happy, they can do that, too. They see a lot of the world open to themselves.

LP: How do these figures compare to American tycoons during, say, the Gilded Age?

RD: When American observers see these people they think, well, we had these guys between 1890 and 1920, but then they all kind of went under because there was a massive escalation of state power and state wealth and basically the state declared a kind of protracted war on them. 

Americans think this is a stage of development that will pass. But I think it’s not going to pass in our case. The Indian state is never going to have the same power over private interests as the U.S. state because lots of things have to happen. The Depression and the Second World War were very important in creating a U.S. state that was that powerful and a rationale for defeating these private interests. I think those private interests saw much more benefit in consenting to, collaborating in, and producing a stronger U.S. state. Over time, American business allied itself with the government, which did a lot to open up other markets for it. In India, I think these private interests will not for many years see a benefit in operating differently, precisely because continents like Africa, with their particular set of attributes, have such a bright future. It’s not just about what India’s like, but what other places are like, and how there aren’t that many people in the world that can do what they can do.

LP: What has been lost and gained in a place like Delhi under global capitalism?

RD: Undeniably there has been immense material gain in the city since 1991, including the very poorest people, who are richer and have more access to information. What my book tracks is a kind of spiritual and moral crisis that affects rich and poor alike.

One kind of malaise is political and economic. Even though the poorest are richer, they have less political influence. In a socialist system, everything is done in the name of the poor, for good or for bad, and the poor occupy center stage in political discourse. But since 1991 the poor have become much less prominent in political and economic ideology. As the proportion of wealth held by the richest few families of India has grown massively larger, the situation is very much like the break-up of the Soviet Union, which leads to a much more hierarchical economy where people closest to power have the best information, contacts, and access to capital. They can just expand massively. Suddenly there’s a state infrastructure that’s been built for 70 years or 60 years which is transferred to the private domain and that is hugely valuable. People gain access to telecommunication systems, mines, land, and forests for almost nothing. So ordinary people say, yes, we are richer, and we have all these products and things, but those making the decisions about our society are not elected and hugely wealthy.

Imagine the upper-middle class guy who has been to Harvard, works for a management consultancy firm or for an ad agency, and enjoys a kind of international- style middle class life. He thinks he deserves to make decisions about how the country is run and how resources are used. He feels himself to be a significant figure in his society. Then he realizes that he’s not. There’s another, infinitely wealthier class of people who are involved in all kinds of backroom deals that dramatically alter the landscape of his life. New private highways and new private townships are being built all around him. They’re sucking the water out of the ground. There’s a very rapid and seemingly reckless transformation of the landscape that’s being wrought and he has no part in it. If he did have a say, he might ask, is this really the way that we want this landscape to look?  Isn’t there enormous ecological damage? Have we not just kicked 10,000 farmers off their land?

All these conversations that democracies have are not being had. People think, this exactly what the socialists told us that capitalism was — it’s pillage and it creates a very wealthy elite exploiting the poor majority. To some extent, I think that explains a lot of why capitalism is so turbulent in places like India and China. No one ever expected capitalism to be tranquil. They had been told for the better part of a century that capitalism was the imperialist curse. So when it comes, and it’s very violent, and everyone thinks, well that’s what we expected. One of the reasons that it still has a lot of ideological consensus is that people are prepared for that. They go into it as an act of war, not as an act of peace, and all they know is that the rewards for the people at the top are very high, so you’d better be on the top.

The other kind of malaise is one of culture. Basically, America and Britain invented capitalism and they also invented the philosophical and cultural furniture to make it acceptable. Places where capitalism is going in anew do not have 200 years of cultural readiness. It’s just a huge shock. Of course, Indians are prepared for some aspects of it because many of them are trading communities and they understand money and deals. But a lot of those trading communities are actually incredibly conservative about culture — about what kind of lifestyle their daughters will have, what kinds of careers their sons will have. They don’t think that their son goes to Brown to become a professor of literature, but to come back and run the family business.

LP: What is changing between men and women?

RD: A lot of the fallout is about families. Will women work? If so, will they still cook and be the kind of wife they’re supposed to be? Will they be out on the street with their boyfriends dressed in Western clothes and going to movies and clearly advertising the fact that they are economically independent, sexually independent, socially independent? How will we deal with the backlash of violent crimes that have everything to do with all these changes?

This capitalist system has produced a new figure, which is the economically successful and independent middle-class woman. She’s extremely globalized in the sense of what she should be able to do in her life. It’s also created a set of lower middle-class men who had a much greater sense of stability both in their gender and professional situation 30 years ago, when they could rely on a family member or fellow caste member to keep them employed even if they didn’t have any marketable attributes. They had a wife who made sure that the culture of the family was intact — religion, cuisine, that kind of stuff.

30 years later, those guys are not going to get jobs because that whole caste value thing has no place in the very fast-moving market economy. Without a high school diploma, they just have nothing to offer. Those guys in the streets are thinking, I don’t have a claim on the economy, or on women anymore because I can’t earn anything. Women across the middle classes — and it’s not just across India, it’s across Asia —are trying to opt out of marriage for as long as they can because they see only a downside. Remaining single allows all kinds of benefits – social, romantic, professional. So those guys are pretty bitter and there’s a backlash that can become quite violent. We also have an upswing of Hindu fundamentalism as a way of trying to preserve things. It’s very appealing to people who think society is falling apart.

LP: You’ve described India’s experience of global capitalism as traumatic. How is the trauma distinct in Delhi, and in what ways is it universal?

RD: Delhi suffers specifically from the trauma of Partition, which has created a distinct society. When India became independent, it was divided into India and Pakistan. Pakistan was essentially a Muslim state, and Hindis and Sikhs left.  The border was about 400 kilometers from Delhi, which was a tiny, empty city, a British administrative town. Most of those Hindis and Sikhs settled in Delhi where they were allocated housing as refugees. Muslims went in the other direction to Pakistan, and as we know, something between 1 and 2 million were killed in that event.

The people who arrived in Delhi arrived traumatized, having lost their businesses, properties, friends, and communities, and having seen their family members murdered, raped, and abducted. Like the Jewish holocaust, everyone can tell the stories and everyone has experienced loss. When they all arrive in Delhi, they have a fairly homogeneous reaction: they’re never going to let this happen to them again. They become fiercely concerned with security, physical and financial. They’re not interested in having nice neighbors and the lighter things of life. They say, it was our neighbors that killed us, so we’re going to trust only our blood and run businesses with our brother and our sons. We’re going to build high walls around our houses.

When the grandchildren of these people grow up, it’s a problem because none of this has been exorcised. The families have not talked about it. The state has not dealt with it and wants to remember only that India became independent and that was a glorious moment. So the catastrophe actually becomes focused within families rather than the reverse. A lot of grandchildren are more fearful and hateful of Muslims than the grandparents, who remembered a time before when they actually had very deep friendships with Muslims.

Parents of my generation grew up with immense silence in their households and they knew that in that silence was Islam — a terrifying thing. When you’re one year old, you don’t even know yet what Islam is, you just know that it’s something which is the greatest horror in the universe.

The Punjabi businessman is a very distinct species. They have treated business as warfare, and they are still doing it like that 70 years later and they are very good at it. They enter the global economy at a time when it’s becoming much less civilized as well. In many cases they succeed not because they have a good idea, but because they know how to seize global assets and resources. Punjabi businessmen are not inventing Facebook. They are about mines and oil and water and food —things that everyone understands and needs.

In this moment of globalization, the world will have to realize that events like the Partition of India are not local history anymore but global history. Especially in this moment when the West no longer controls the whole system, these traumas explode onto the world and affect all of us, like the Holocaust. They introduce levels of turbulence into businesses and practices that we didn’t expect necessarily.

Then there’s the trauma of capitalism itself, and here I think it’s important for us to re-remember the West’s own history. Capitalism achieved a level of consensus in the second half of the 20th century very accidentally, and by a number of enormous forces, not all of which were intended. There’s no guarantee that such consensus will be achieved everywhere in the emerging world. India and China don’t have an empire to ship people off to as a safety valve when suffering become immense. They just have to absorb all that stuff.

For a century or so, people in power in Paris and London and Washington felt that they had to save the capitalist system from socialist revolution, so they gave enormous concessions to their populations. Very quickly, people in the West forgot that there was that level of dissent. They thought that everyone loved capitalism. I think as we come into the next period where the kind of consensus has already been dealt a huge blow in the West, we’re going to have to deal with some of those forces again.

LP: When you say that the consensus on capitalism has been dealt a blow, are you talking about the financial crisis?

RD: Yes, the sense that the nation-state — I’m talking about the U.S. context — can no longer control global capital, global processes, or, indeed, it’s own financial elite.

It’s a huge psychological dent in people’s faith in the system. I think what’s going to happen in the next few years is huge unemployment in the middle class in America because a lot of their jobs will be outsourced or automated. Then, if you have 30-40 percent unemployment in America, which has always been the ideological leader in capitalism, America will start to re-theorize capitalism very profoundly (and maybe the Institute of New Economic Thinking is part of that). Meanwhile, I think the middle class in India would not have these kinds of problems. It’s precisely because American technology and finance are so advanced that they’re going to hit a lot of those problems. I think in places like India there’s so much work to be done that no one needs to leap to the next stage of making the middle class obsolete. They’re still useful.

 

 

 

Paul Krugman on the MIT History

  My friend and "grown-up kid" Yann Giraud just called my attention to Paul Krugman's recent column, "Empire of the Institute", on Roy Weintraub's recently edited HOPE volume "MIT and the Transformation of American Economics" (to which three Playground kids contributed: Yann, Beatrice Cherrier and myself).

  Krugman wanted to give his personal views on the period (after the 1970s) when "the Institute", through its graduate students, really occupied key places in the world of policymaking and policy debate: figures like Rudi Dornbusch, Olivier Blanchard, Stanley Fischer, Ben Bernanke, Maurice Obstfeld, Kenneth Rogoff, and Mario Draghi (besides Krugman himself), all became internationally renowned players in the economic arena.

  To understand this phenomenom and to distinguish MIT from  Chicago economists, Krugman emphasizes the committment at MIT to "real-world" (or policy) relevant theories:

 

The result was that MIT macroeconomics was teched up — everyone learned how to write down and solve rational expectations models, everyone learned how to emulate Lucas disciples — but didn’t unlearn Keynesian insights. And MIT students developed a style that was either wonderfully pragmatic or disgustingly lacking in rigor, depending on your tastes (...)

  But then, taking the argument one step further, what about the other types of "relevant" Keynesian theories that were developed at the same time in places such as Harvard, Berkeley, and Yale, just to cite a few universities?

  Nicely, Krugman is conscious that he is exploring "the kind of question that should be handled by a professional historian of thought", and he nonetheless offers interesting insights into what was going on at MIT while he was a member of the Institute. Finally, take his opinion that the volume is "-- as Spock would say -- fascinating" as a welcoming invitation to dig into it!

What does Yanis Varoufakis want?

With the approval of the reform proposals by the Greek government, the Euozone has returned to calmer waters. But it is only a brief interlude. With renegotiations due in a few months, it is a matter of time before tensions resurface. The future of the Euro will hence continue to depend on one small country and its charismatic Minister of Finance. Who is this Yanis Varoufakis, and what does he want? Based on his academic publications, interviews and blogposts an interesting picture emerges. Read more

Finding Till Düppe

NB : once again, I am stepping out of my - self-inflicted - retreat to write on this blog, of which I am not supposed to be a permanent member anymore. Sorry for this self-indulgence. Read more

Thinking About Banking Crises

Statement on Banking and Banking Regulation* 
T
o The Joint Committee of Inquiry into the Banking Crisis
 

Leinster House, Dublin, Ireland
Speaking Version Used at Hearing, January 28, 2015

 

Thank you, Mr. Chairman, for inviting me here to testify today.  I want to congratulate you and your Committee for trying to get to the bottom of why the banking crisis this country experienced was so severe.  It is an honor to have a chance to help you in this work. Read more

The Wealthless Recovery

While attention has recently focused on the so-called “wageless recovery” coming out of the Great Recession, an equally pernicious trend is the “wealthless recovery.”  From 2007 to 2010, the wealth of the average household plunged by 44 percent. This was largely due to the collapse of home prices and the high degree of indebtedness of the middle class. However, from 2010 to 2013, despite sharp gains in asset prices, including homes, median wealth was virtually unchanged. This was mainly due to very high dissavings (negative savings) among the middle class. Read more

Why Don't Economists Go to Hollywood Parties?

   

 

 

 

 

 

 

 

 

 

 

 

 

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Kevin Gallagher: Emerging Markets and the Reregulation of Cross-Border Finance

Since the revival of global capital markets in the 1960s, cross-border capital flows have increased by orders of magnitude, so much so that international asset positions now outstrip global economic output. Most cross-border capital flows occur among industrialized nations, but emerging markets are increasing participants in the globalization of capital flows.

While it is widely recognized that investment is an important ingredient for economic growth, and that capital flows may under certain conditions be a valuable supplement to domestic savings for financing such investment, there is a growing concern that certain capital flows (such as short-term debt) can have destabilizing effects in developing countries. Read more

Reflexivity Between Micro and Macroeconomics

Co-Authored with Steven Bosworth
American Economic Association Meeting, Boston, 3 Jan. 2015
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Michael Greenberger: Setting the Stage for the Next Financial Crisis

Proprietary trading by Wall Street banks precipitated the 2008 financial crisis that resulted in a near 13 trillion dollar bailout by American taxpayers of Too Big To Fail financial institutions.  As early as 2007, Morgan Stanley lost $9 billion dollars due to bullish bets on complex derivatives related to mortgages and in 2008 American International Group famously lost billions of dollars betting on complex derivatives. Similarly, toward the end of 2008, Merrill Lynch lost nearly $16 billion and Deutsche Bank lost nearly $2 billion due to complex bets on risky securities. Read more

Lance Taylor: What Thomas Piketty and Larry Summers Don’t Tell You About Income Inequality

Featured: Huffington Post

In a new paper for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution, economist Lance Taylor and his colleagues examine income inequality using new tools and models that give us a more nuanced — and frightening —picture than we’ve had before.  Their simulation models show how so-called “reasonable” modifications like modest tax increases on the wealthy and boosting low wages are not going to be enough to stem the disproportionate tide of income rushing toward the rich. Taylor’s research challenges the approaches of American policy makers, the assumptions of traditional economists, and some of the conclusions drawn by Thomas Piketty and Larry Summers. Bottom line: We’re not yet talking about the kinds of major changes needed to keep us from becoming a Downton Abbey society. Read more

History of policy evaluation: a few questions

I need a history of policy evaluation. I want my students to know why and how the theories, tools and practices they will later use on a daily basis were conceived and spread, and a good 80% of them will participate in a policy evaluation in the next 10 years. This need also derives from my research program, aimed at understanding the transformation of applied economics between 1965 and 1985. Policy analysis is a large part of what economists mean by ''applying economics.” It is area of expertise most emphasized in the ongoing advertising campaign designed to reemphasize economists' contribution to society. Read more