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January 22, 2013

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Metatone

What's interesting to me is that whether you reach for underconsumption or for "dearth of investment opportunities" we come back to the same basic problem - money isn't circulating and we're not sure why...

aragon

I am with Joseph Stiglitz on this, I do not think we can have an economy of meeting the need of the rich. Even if I may differ on details.

But the elephant in the room is the missing word 'Finacialisation'

But the Tories and Labour are trying to revive financialisation, which will result in another collapse, as financialisation is a broken model.

https://en.wikipedia.org/wiki/Financialization

"Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument, like currency, and thus make it easier for people to trade these financial instruments."

Financiaization is the looting the real economy.

http://news.bbc.co.uk/1/hi/2817995.stm
"financial weapons of mass destruction"

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

""the correlations between financial quantities are notoriously unstable." Wilmott, a quantitative-finance consultant and lecturer, argued that no theory should be built on such unpredictable parameters."

[...]

"Bankers securitizing mortgages knew that their models were highly sensitive to house-price appreciation. If it ever turned negative on a national scale, a lot of bonds that had been rated triple-A, or risk-free, by copula-powered computer models would blow up."


The economic model is broken, politians do not recognise this. I subscribe to a different economic model.

FromArseToElbow

As I read it, Stiglitz is arguing that inequality has a negative feedback impact on economic activity and long-term investment. Krugman is merely disputing the efficacy of some of the mechanisms.

The Benabou/Tirole paper, on the other hand, is arguing that both inequality and worse performance are effects of another cause, namely labour market flexibility in an era of skill-biased technical change.

I think it's worth thinking about this not just in terms of the 1%, but in terms of the 10%, i.e. skilled workers generally who can command well-above-average remuneration.

To give an example, the spread of contracting has not only reduced tax receipts (one of Stiglitz's points), but the bias against knowledge-sharing (you maximise your value by monopolising it) more than offsets the productivity gains from "buying in new thinking".

Meanwhile, the spread of precarious temp jobs at the other end of the wage spectrum, and the erosion of apprenticeships and inhouse skill development, has exacerbated skill shortages, so driving up the cost of incentives for skilled/flexible workers, and thus contributing to greater inequality.

Brad

Krugman's point is not that inequality does not hamper growth in general, it's that a rise in inequality has not been an important factor in the recovery from the recession.

Mario

I'm with Brad here: as far as I can tell, Krugman doesn't question that inequality leads to many negative economic outcomes, but that it doesn't explain the weak recovery during the last four years. That inequality leads to bubble inflation or inferior long-term growth prospects is irrelevant for answering the debated question. (or am I missing the causal links which aren't spelled out here?)

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