Inequality

Difference between inequality and poverty and why we cannot just focus on poverty (Chang, Atkinson)

(Absolute) poverty: Failure to be in command of income to fulfil the most basic human needs for survival (food, clothes, shelter). Inequality: inequality in incomes/wealth etc. between rich and poor. It is the link between the two that determines inequality, where when you look at poverty you only look at the poor Poverty and inequality are connected. What happens at the top of the distribution affects the bottom. Impossible to reduce poverty without looking at inequality

Three formal institutions that could prevent oligarchy (McCormick)

1) Magistrate appointment procedures using lottery, 2) Assemblies excluding the wealthy from eligibility 3) political trials enlisting the entire citizenry in prosecutions and appeals

Three historical phases of inequality (Milanovic)

1900-1930: Stable high inequality. Rich own lot of wealth 1930-1980: Decrease in inequality. Destruction of wealth and bigger dependence on income - Pikettys explanations for decrease in capital: External shocks (WWI and WWII, Russian revolution, The great depression) - Milanovic explanation for decrease: High supply of well-educated labour, high demand for redistribution, low return on capital, wars 1980-today: Increase in inequality: Rich has rising share of wealth and highly rising incomes. - Pikettys explanation for rising share of wealth: Thatcher and Reagan administration, fall of Sovjet, financial globalization and deregulation - Milanovic explanation for rising inequality: Technological revolution rewards high skilled labour, higher return on capital, pro rich policies The Kuznets curve can explain the two first phases, but not the rising inequality after 1980 These phases only covers western economies. A lot of other economies have stayed in Malthusian trap

Progressive global tax on capital

A global progressive tax on individual wealth is an utopia, but one which we can strive to come closer to. To come closer to this we would need banks to shair information on peoples assets Contributive justification: The problems are that wealth inequality is rising (wealth becomes bigger part on national income r>g) and that income taxation is ineffective regarding very rich people. They often pay tax down to 1% of their economic income because they place income in companies, trust, holdings etc. Wealth is a better indicator of rich peoples contributive capacity, so this should be taxed Regulation justification: With a capital tax it would be easier to regulate the financial and banking system - because we would have more knowledge of their assets Incentive justification: Tax on capital is an incentive to seek the best possible return on capital stock - because a tax on 1% is less important if your return is 10% than 2-3% --> we get better investments

Elephant Curve - absolute gains (Milanovic)

Absolute gain in real per capita income by global income level, 1988-2008 - The richest 5% has had by far the biggest gains - The same relative gain for rich and middle class equals big differences in absolute gains

Neoliberalism as political movement and hegemonic policy paradigm (Harvey and Hacker & Pierson)

As political movement: Theoretical thoughts of Friedman, Hayek began to dominate, think thanks sought political influence. Move away from welfare society, redistribution etc. to state is a necessary evil, but it must solely focus on constructing and protecting the market As hegemonic policy paradigm: Reagan and Thatcher made neoliberal policy reforms: Tax cut (especially for rich), reduction of welfare benefits, deregulation of markets, privatization, attack on trade unions. In 90's also social democratic governments adopted neoliberal ideas eg. Tony Blairs third way - Hacker & Pierson: It is neoliberal policies that created the "winner-take-all" inequality in the US, not e.g. skill-biased change

The great divergence

Before industrialization no big differences in wealth between different countries and regions. With the industrialization came the great divergence where the west got rich and the rest stayed or became poor. - Industrial capitalism caused divergence - Causes of industrial capitalism - Internal: Technology, culture, coal, wages - Global: Colonisation, unequal terms of exchange - some had to grow poor for the west to grow rich - Pomeranz explanation in UK: UK could escape have both increasing population and growth because of coal (industrialization) and colonies

Why global income will not necessarily converge (Piketty)

Classic ecnomic theory: When return on investments are low in own country --> move investments where return is high (development countries) --> Convergence Pikettys critique: Investments only creates convergence in output not in income because the western companies will own capital. What creates convergence is diffusion of knowledge

Globalisation and populism (Rodrik)

Demand for populism: Globalization diminished global inequality but increased domestic inequality and thereby deepened the domestic economic fault lines (e.g. skilled vs. unskilled workers) -> Create potential for populism. But you need to look at supply side to understand what kind of populism Supply of populism: A populist narrative that can create social movement by exploiting certain cleavages e.g. class or ethnic. When globalization becomes salient in the form of immigration and refugees it leads to right-wing populism (Europe). When globalization takes form in trade, finance and foreign investment it leads to left-wing populism (sourhtern Europe and Latin America).

Oxfam report - recommendations to lower inequality

Each state should bind themselves to: - Deliver universal free health care, education and other public services - Free up womens time by easing the millions of unpaid hours they spend everyday caring for their families and home - End the under taxation of rich individuals and corporations

Embedded liberalism and neoliberalism - definition (Harvey)

Embedded liberalism: Market structures and processes surrounded by a web of social, political and regulatory constraints (Keynes) - From world wars to 1980 Neoliberalism: A theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade - wanted to remove the institutional constraints created by embedded liberalism (Friedman) - Became big in theory and practice from 1980 onwards

The malthusian trap (Milanovic)

Explanation for stabil wealth levels before industrialization. Economic growth --> population growth --> Population gets to big and economy collapses. The west escaped this trap during industrialization while the rest of the world did not

Arguments for top marginal income tax (Saez & Zucman)

Fair and efficient way to alleviate inequality. Safeguards democracy against oligarchy

Factors contributing to inequality: Rise of financial services (Glyn)

Finance has become a greater share of domestic economy e.g. because of removal of regulation of financial markets --> easier access for consumers to borrowing money - Managers and owners of financial companies are beneficiaries - large salary rises, often in form of stock options in the company - Shareholder value: Companies today focused on maximizing shareholder value --> Focus on short term profit

Gini coefficient vs. 10%/palmo ratio (Atkinson, Chang)

Gini-coefficient: Shows how much e.g. the income distribution differ from a situation, where everybody earns exactly the same (a perfectly equal distribution) (0=equal, 1=unequal) - It is difficult to meaningfully interpret the concrete gini coefficients 10%/palma ratio: Ratio between the income share of the top 10% and the bottom 40% - The Palma-ratio disregards the middle 50% of income)

Factors contributing to inequality: Classic economic explanations (Atkinson)

Globalization: - Wage competition drive down wages. Cheap low skilled labour in developing countries --> shift towards high skilled labour in rich countries --> big wage gap between low and high skilled labour - Global markets --> higher return on capital, because capital investments can go beyond own state Technology - Skill biased technological change: High demand for high skilled workers, low demand for low skilled workers (another thing: technology and globalisation also made tax havens possible)

Historical development of income inequality in Denmark

Income inequality have declined substantially over the last century with an income share for the top 1 per cent dropping from 27.6 per cent from its peak in 1917 to 6.4 in 2010 Possible explanations: - Increased labor force participation from 1970 - Marginal tax rates

Income vs. wealth/capital vs. consumption

Income: What you earn - From labour: wages, salaries, bonuses - From capital: rent, dividends, interest, profits, capital gains, royalties, real estate, financial instruments, industrial equipment Wealth/capital: What you own: Land, other real estate, and industrial and financial capital - Wealth is more unequally distributed than income Consumption: Consumption expenditures. Consumption is more equally distributed than income because wealthy people save more. Consumption only relevant when focusing on money as means for consumption

Kuznets Curve

Inequality everywhere can be expected to follow a "bell curve." It should first increase and then decrease over the course of industrialization and economic development.

Functional argument for why inequality is not a problem

Inequality is a by-product of other more important economic goals (growth, poverty reduction) -> so inequality is not a problem Inequality can create incentives to work harder Rawls: Inequality is permitted if it benefits the worst-off members of society - focus on poverty instead of inequality

Location based inequality vs. class based inequality (Milanovic)

Location based inequality (Fanon): Global inequality between countries. Fanon: Colonizers vs. colonized. Class based inequality (Marx): Domestic inequality What inequality matters today: Domestic inequality rises and global inequality falls -> Suggest class based inequality is more important. BUT: if you take asian economies out of the equation, global inequality is still very high, and you can talk about a citizenship premium: You have better changes if you are born in the right place

Intrinsic and instrumental reasons for carrying about inequality (Atkinson)

Intrinsic: Inequality is unjust in itself Instrumental: Inequality is bad, because it has bad effects on economic performance, social cohesion, crime, health etc.

Varieties of Liberalisation (Thelen)

It is an answer to the idea of the global dominance of neoliberal ideas and of a simplified notion of either coordinated market economies or liberal market economies. Not all countries are dominated by pure neoliberal ideas, and countries can't just be split into coordinated market economies with low inequality, and liberal market economies with high inequality She says that there has been a generel liberalisation, but that it happens in different ways in different types of economies. It is possible to combine e.g. market orientation and social policies that reduce inequality - this is the case in Denmark and Sweden.

Liberalization, inequality and discontent (Shäfer)

Liberalization -> inequality -> apathy and discontent -> Possibility for populism

Justice-based argument for why inequality is not a problem (Feldstein)

Pareto-principle: A change is good if it makes someone better off without making anyone else worse off. - If high income individuals get higher income without decreasing the income of others this increases inequality but still meets the pareto principle --> it is not a problem --> Only poverty not inequality is a problem

Malign and benign causes for falling inequality (Milanovic)

Malign: Wars, natural catastrophes, epidemics Benign: More widely accessible education, increased social transfers, progressive taxation

Wealth defense (Winter)

Oligarchs are mainly worried about defending their wealth - Property defense: securing basic claims to wealth and property (property rights are secured in modern democracies) - Income defense: Keeping as much of the flow of income and profit from ones wealth as possible under conditions of secure property rights Wealth defense strategies in civil oligarchies: Indirect - use lawyer, accountants, tax avoidance consultants, lobbyists etc. who help them keep their wealth and income out of state hands

Definition of oligarchy and oligarchs (Winter)

Oligarchs: Actors who command and control massive concentrations of material resources that can be deployed to defend or enhance their personal wealth and exclusive social position (oligarchs are always individuals) Oligarchy: The politics of wealth defense by materially endowed actors

Direct relationship between inequality and welfare/health (Wilkinson and Pickett)

Results: - Inequality has a direct negative effect on welfare/health. The effect does not go through lack of resources (affects the rich as well) - Ressources and health: after a certain threshold higher income does not affect health - Income inequality (uses both top 20%/bottom 20% and gini-coefficien) and health: In rich countries negative relationship between income inequality and different health/welfare measures (Trust, Mental illness, Obesity, Life expectancy, infant mortality, Teenage births, Homicides, prison rates, Social mobility) The causal psychological mechanism: Inequality -> status differences -> anxiety -> stress and bad health Conclusion: Inequality is a social pollutant. Inequality is bad for everybody also the rich -> We should focus on inequality, not just poverty

Elephant Curve - relative gains (Milanovic)

Shows relative gain in real per capita income by global income level, 1988-2008 - Point A - The emerging global middle class, the beneficiaries of globalization: Around median of global income distribution. These people have had the biggest real income growth. 9 out of 10 from emerging asian economies - Point B - Lower middle class of the rich world, losers of globalization: These people have experienced close to zero growth in real income. Three quarters from OECD countries - Point C - Global plutocrats", winners of globalization: These people have experienced high real income growth. Global top 1% - Interpretation regarding global inequality: Falling because of the rise of the global middle class from Asia - Interpretation regarding domestic inequality in the west: Rising because top 1% getting richer and lower middle class getting poorer

Factors contributing to inequality: Tax havens (Zucman)

The extent of the problem with tax havens: 8% of the global financial wealth is kept in tax havens, which equals $200 billion in lost government revenue (unpaid taxes) - Russia and gulf countries: Around 50% - Africa: 30% - Latin America: 22% - Europe and Canada: Around 10% - US and Asia: 4% Measuring tax havens: - Difficult because it is illegal and thus covered up, so you measure it indirectly, which means it is a minimal estimate that excludes some forms of wealth (non-financial wealth, physical money). - The measure: Difference between the value of assets (stocks, bonds, companies) registered as owned by foreigners, and the value of assets registered as in foreign ownership. - It is basically about finding out how much of the assets have no registered owner

Wild or tamed oligarchs (Winter)

The extent to which oligarchs are tamed refers to whether the system of rule is powerful enough to control the behavior of oligarchs by imposing costs on their most pathological social behaviors. For example taming them by limiting their ability to use material resources for influence

Recent development in inequality between and within countries (Milanovic)

The global inequality has been reduced due to development in asian economies, but domestic inequalities are rising

Difference between oligarchs and elites (Winter)

The source for elite power can be many different things (official position, coercive power, mobilizational power), while oligarchic power has to come from material wealth - Elite power has been challenged through democratic struggle and change - oligarchic power has not --> democracy haven't eliminated oligarchy

Factors contributing to inequality: Political (power) explanations (Atkinson and Milanovic)

Trade unions decreasing power: Less bargaining power --> lower wages (Atkinson - he says the explanation is contested Scaling back of the redistributive tax-and-transfer policy (Milanovic)

Relationship between unemployement and suicides (Stuckler et al.)

Unemployement --> more suicides Policy advice: Active labour market programmes that keep and reintegrate workers in jobs could mitigate some adverse health effects of economic downturns

Three kinds of inequality (Therborn)

Vital inequality: Unequal life-changes (health, life expectancy, child health, hunger) Existential inequality: Uneven allocation of personhood (sexual identity, race, gender, caste) Ressource inequality: Inequality in resources to act (income, wealth, education, power, cultural capital) All of these inequalities are interconnected. E.g. racial inequalities will be evident in data on economic inequality. But the inequalities are not reducible to one another

Types of oligarchies (Winter)

Warring oligarchy: Warlords. Directly engaged with coercion and rule. Fragmented ruling and wild oligarchs Ruling oligarchy: High and personal role in the provision of coercion, but rule collectively thorugh institutions Sultanistic oligarchy: The monopoly on means of coercion is in hands of one oligarch rather than an institutionalized state Civil Oligarchy: Oligarchs are fully disarmed and do not rule directly. They surrender power to state institutions and law and the state provide property defense. Thus, oligarchs focus more on income defense.

Capital-labour split r > g (Piketty)

When the rate of return on capital (r) is higher than the growth (g), capital income will constitute a larger share of national income. This can lead to more inequality because capital is more unequally distributed than income - Reason why capital from 1980's onwards constituted large share of national income: Thatcher and Reagan administration, fall of Sovjet, financial globalization and deregulation - Reason why earlier (1914-1945) capital constituted low share of national income: External shocks WWI and WWII, Russian revolution, The great depression

Political argument for why inequality is not a problem (Friedman)

You need capitalism to have freedom, and capitalism inevitably creates inequality, so inequality is a necessary evil Friedmans definition of freedom: Individual freedom from interference from the state