Inequality & Distribution

HCEO’s new three-question series will regularly publish quick Q&As with members who will discuss their work, frontiers in the field of inequality that could use more knowledge, and advice for emerging scholars.

The Romer/Romer letter to Professor Gerald Friedman marks a turning point. It concedes that there are indeed important issues at stake when evaluating the proposed economic policies of Presidential Candidate Bernie Sanders. These issues go beyond the political debate and should be discussed seriously between and among professional economists.

Nobel laureate James Heckman is one of this year’s recipients of the Dan David Prize, an international honor which encourages innovative and interdisciplinary research, for his scholarship on poverty.

Nancy Folbre is an American feminist economist who focuses on economics and the family, non-market work and the economics of care. She is Professor Emirita of economics at the University of Massachusetts Amherst, who has written extensively about the economics of care and reciprocity.

It is high time to ditch this myth for at least the following five reasons.

Recently, our analysis has been questioned by Servaas Storm who has claimed that it is untenable to blame neo-mercantilist Germany for driving a wedge into the Eurozone. [i] It is shown below that Storm’s critique has a certain aplomb, but lacks substance.

Today’s richest Americans may soon blow past the tycoons of the Roaring Twenties. Lance Taylor explains why, and what to do about it.

The tragic crisis in Flint, Michigan, where residents have been poisoned by lead contamination, is not just about drinking water. And it’s not just about Flint. It’s about race and class, and the stark contradiction between the American dream of equal rights and opportunity for all and the American nightmare of metastasizing inequality of wealth and power.

We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced.

Comments on “German Wage Moderation and the Eurozone Crisis: A Critical Analysis” by Servaas Storm

Professor Casarico explains why her focus on gender and the “glass ceiling” can help us push forward economic thinking.

It is high time to look more closely at the labor cost competitiveness myth.

Join us for a reception at the ASSA conference in San Francisco

This research project focuses mainly on whether the wealth of the United States middle class recovered and whether wealth inequality continued to rise or moderated over the years 2010 to 2013 following the financial crisis of 2008.

This research project investigates whether rising inequality has contributed to the macroeconomic imbalances that erupted in the present crisis, based on a Kaleckian macroeconomic model.

A budget approach cloaked in the aura of science and technical jargon became a tool of manipulation.

Since Aristotle the question about the potential relationship between economic inequality and democratic changes has been studied and debated – but scientifically our ability as researchers to assess and understand how such complex social phenomena may be related is much more limited than recognised.

Can education stop the country’s backward slide?

The Cambridge UK vs USA capital theory debates of the 1960s showed that the workhorse mainstream growth model relies on unsustainable assumptions. Its standard interpretation is not consistent with the last four decades of data.

Lance Taylor explains how missing the big picture is too common in the field.

The United States economy has come apart, with the rich getting richer and workers’ incomes not advancing at all.

Exploring inequality, gender, and the North-South divide.

How much does the standard theory of externalities and public goods really say?

I describe the American economy in the twenty-first century as a dual economy in the spirit of W. Arthur Lewis.

This is almost certainly the highest level of relative, and certainly absolute, global inequality at any point in human history. Is there anything we can do to reverse or mitigate this trend?

We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance.

Sometimes a radical path is the most practical way out of a mess.

A panel featuring Thomas Piketty, Kevin Murphy, and Steven Durlauf

The Institute recently sponsored several panels at the Kiel Global Economic Symposium. In particular, the panel on Income Distribution and Mobility struck us as likely to be of especially wide interest. We are grateful for the participation of all the scholars on them and are pleased to present summaries of their presentations here.

Adair Turner discusses his new book, Between Debt and the Devil: Money, Credit, and Fixing Global Finance.

John Kay shares findings from his new book, Other People’s Money, and his insights on changing the financial sector.

Economists’ assumptions, even about seemingly “small” matters, make an enormous difference to global poverty estimates but their impact often goes unnoticed, and the choices made have been badly justified. We must stop pretending that the World Bank’s “$1 per day” estimates are at all reliable.

We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption-smoothing, provided by caste-based rural insurance networks, and the income-gains from migration.

Professor Heckman was invited to speak at the HDCA 2015 Conference as the keynote speaker for the Amartya Sen Lecture. The presentation offered recent research on the economics of creating flourishing lives, discussing the importance of cognitive skills, character skills and health.

Institute for New Economic Thinking at Oxford researcher Max Roser recently collaborated with world famous Swedish statistical showman Hans Rosling on the upcoming documentary ‘Don’t Panic: How To End Poverty In 15 Years’.

US household wealth concentration is not likely to decline in response to fiscal interventions alone.

A little-understood rule in the tax code is making headlines. What’s all the fuss?

Comparing outcomes for biological and adopted children sheds light on the intergenerational transmission of wealth.

Tony Atkinson’s new book points the way forward.

The Institute for New Economic Thinking has awarded $2 million in grants to fund 21 different projects as part of the latest round of its research grant program.

A four percent growth goal for first term of the next president is not only possible, but is what we should strive to achieve.

Exploiting three earthquakes in Italy as quasi-experiments, we analyse the response of homeowners’ consumption to transfers targeted to finance housing repair and reconstruction. To the extent that funds are made available up-front, these transfers are akin to loans, mainly affecting the liquidity of households’ wealth

Inequality, racism, and violence are the real killers in America.

America’s economic system has failed by not raising living standards for most.

There is a renewed interest in the size of labour supply elasticities and the discrepancy between micro and macro estimates. Recent contributions have stressed the distinction between changes in labour supply at the extensive and the intensive margin. In this paper, we stress the importance of individual heterogeneity and aggregation problems.

Janine Wedel charts the fast–evolving system of power and influence. Who is accountable? What are the remedies available to the average citizen?

People adopt diverse measures to protect from contagion. I propose a taxonomy of protection technologies, and present a model to study the implications of the technology on the prevalence of infections and on welfare at different levels of exposure.

Whilst progress has been made, the “glass ceiling” dividing men and women has yet to be broken definitively. Monika Queisser discusses the challenges still facing women in the workplace and beyond.

Most sociologists believe that formal and informal institutions are more critical in explaining the rising inequality observed in advanced economies. In this light, changing institutions such as the ascendance of shareholder-centered corporate governance model, finance-friendly policies since the late 70s, credentialism, and deunionization all contribute to the earnings dynamics at different parts of the distribution.

A member of the Austrian Central Bank tells us his research on wealth and income inequality in Europe.

This paper presents an experiment investigating the effect of social identity on hiring decisions. The question is whether people discriminate between own and other group candidate

The Institute for New Economic Thinking responds to an evident need for innovative approaches to understanding economic and financial processes.

John Muth proposed the Rational Expectations Hypothesis (REH) to represent how the market (an aggregate of its participants) understands and forecasts outcomes. REH imposes internal consistency between the market’s forecasts and “the relevant economic theory” (Muth 1961, p. 316).

This paper proposes a different interpretation of the Eurozone crisis, seeing as its “final” cause European policies which have forced private savings down too low.

Hubris might well head the list

This panel covers the teaching of economics at the university level.

In much of Europe, the social rights and social protections won in the first post-war decades, by labour movements in particular, have subsequently been seriously eroded, and are further threatened by neoliberal austerity.

This memo outlines key concepts and the methodological approach involved in a recently funded Institute for New Economic Thinking project. Our aim is to pinpoint the relationship between the reception of academic ideas, traced by citation networks with qualitative coding, and positions of institutional and political power.

Considerable academic and public attention has been drawn to the pulling away of the very rich—the so-called “one percent” whose gains have far outpaced those of everyone else (Piketty 2014). But the debate has reached well beyond the very top, especially in the United States.Indeed, the hollowing out of the middle class, continuing stagnation of wages, and new evidence on the lack of upward mobility across generations all strike at the very heart of the American ideal.

Italy was one of the worst hit during the 2007–2009 global financial crisis (GFC) among the major advanced economies. By year-end 2009, Italy’s economy had contracted by 6.6 percent; significantly larger than the recessions in the euro zone and the United States, for example, which saw their GDPs shrink by 4.4 and 3.1 percent, respectively.

“Because many interests come into play in the financing of an election campaign and then they ask you to pay back. So the election campaign should be independent from anyone who may finance it.” - Pope Francis

Pushing this strand of research brings a certain feeling of trepidation. It comes from recognizing that by openly elaborating on how to catch or deter a criminal, you thereby confer an undue advantage on the criminal through forewarning.

Initiatives to improve sovereign debt restructuring (“SDR”) began long before recent Argentine bond decisions but were redoubled in the aftermath of these rulings. At first glance, these cases identify problematic contract language that could be rectified by re-drafting critical boilerplate provisions such as the pari passu and collective action clauses (“CAC”).

The Cyclically Adjusted Budget (CAB) is the estimated size of the public budget at some previously defined level of output which may represent the ‘normal’ output or a policy target and that usually is considered to be unaffected by business fluctuations or cycles. Such an estimate is supposed to isolate the automatic movements of revenues and expenditures, given the current structure of tax and transfers, from discretionary fiscal interventions and indicate the “impact” and sustainability of fiscal action.

Inequality has emerged as a major economic issue: sharp increases in the share of income going to those at the very top of the income distribution, a rising share of income going to profits, stagnant real wages, and a fall in median family income have raised concern over the sustainability of our economies and societies.

Over the past decades African economies have exhibited two stunning paradoxes: growth acceleration coexisting with stubbornly high poverty rates; increasing capital flight along with widening development financing gaps. There has been no attempt to link the two in the literature.

The modern individual is the point of intersection of the processes of consumption and production. The subjective representation of these processes has been determined by two branches of the modern middle class, the bourgeoisie, which has privileged consumption, and the bureaucracy, which has privileged production.

This paper will address the problem of how we might gain economic understanding from literature. It will look at the aesthetic form of literature as being an efficient vehicle for economic thinking.

The largely unexpected arrival of the global economic crisis and the largely unpredicted slowness of the recovery from the Great Recession should be precipitating an intellectual crisis across economics and policy making. We require additional theories and additional methods to detect how an economy is evolving and to provide the basis for policy intervention (Haldane, 2014).

During the past year, there have been numerous and somber reflections, rather like those during a traditional period of mourning, about the great and tragic events that occurred just 100 years ago – the beginning of the First World War. And in the course of these melancholy reflections about the past, there naturally have arisen anxious concerns about the future.

What is at stake : Increasing doubt over the virtue of democracy. One cannot doubt the ubiquitous lack of confidence and hope in the so-called democratic institutions by a large majority of the people. The fundamental cause is the blatant contradiction between the principle of democracy, promoting the rule and thereby the welfare of the people, and the indomitable tendency of rising and unsustainable inequality in terms of income, standard of living and wealth.

The central concepts of Keynes’ macroeconomic theories concerning the behavior of labor markets, aggregate demand, and asset pricing can be formulated as special cases of a general social interaction model.

In this paper, we deal with the complex relationship connecting inequality to innovation, and the ways through which public investment, in particular public participation to R&D initiatives, may affect it. We first stress that multiple different equilibria may exist in the inequality-innovation space.

This paper studies the glass ceiling by analyzing the presence of women at the top of the income distribution using tax record data reported for a sample of countries with individual taxation.

Using a sample of U.S. firms spanning 2001-2011, we examine whether female directors (female audit committee members) affect audit quality in terms of audit effort and auditor choice.

This paper presents a theory of pseudo-wealth in a model that displays aggregate demand externalities.

A structural transformation is investing labour in Europe, accelerated by the crisis started in 2008. Job destruction is dominating employment trends in most EU countries and deep changes are taking place in labour relations, labour market institutions and wage regimes.

We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation.

Innovation is essential to economic growth. However, it appears that the ways in which we pursue innovation policies have aggravated inequality. Inequality is an increasingly contentious political issue in both wealthy and emerging economies.