Andrew Simms writes: The world’s major religions all have economic teachings that apply to how we treat the planet and each other, and which often starkly contradict orthodox economic models.
Modern economics views itself as value free, but that wasn’t always the case and the major faiths all view economic prosperity through a moral lens. If that makes business leaders or economists squirm, it’s worth remembering that the grandfather of market economics, Adam Smith, wrote about The Theory of Moral Sentiments. To him, the economy was rooted in an explicitly moral universe. Whether we’re aware of it or not, and regardless of the fulminations of anti-environmental, extreme, right wing Republican Christians in the US, the economic teachings and moral frameworks of the great faiths profoundly shape how we view the path to prosperity, sometimes in surprising ways.
On this, the Catholic Church has form. Small is Beautiful by EF Schumacher is probably the most influential text on green economics ever written. As a collection of essays by a former industrial economist, who for two decades after the second world war was chief economic adviser to the National Coal Board, it did more than anything else to reimagine economics as servant to a convivial society living in balance with the environment.
But its most enduring idea from which the book’s title is derived, about the importance of scale, was taken straight from a papal encyclical. Schumacher took subsidiarity, the principle that things are always best done at the lowest practical level, from an encyclical of Pope Pius XII issued in 1931 in the wake of the economic catastrophe of the Great Depression. It is an injustice and disturbance of right order to push power up rather than down, it said, insisting that nations which do the latter will be happier and more prosperous. Today local democracy, decentralised food and energy systems and local participatory budgeting are arguably better paths for progress. [Continue reading…]
Harvard Magazine: Toward the end of World War II, while thousands of Europeans were dying of hunger, 36 men at the University of Minnesota volunteered for a study that would send them to the brink of starvation. Allied troops advancing into German-occupied territories with supplies and food were encountering droves of skeletal people they had no idea how to safely renourish, and researchers at the university had designed a study they hoped might reveal the best methods of doing so. But first, their volunteers had to agree to starve.
The physical toll on these men was alarming: their metabolism slowed by 40 percent; sitting on atrophied muscles became painful; though their limbs were skeletal, their fluid-filled bellies looked curiously stout. But researchers also observed disturbing mental effects they hadn’t expected: obsessions about cookbooks and recipes developed; men with no previous interest in food thought — and talked — about nothing else. Overwhelming, uncontrollable thoughts had taken over, and as one participant later recalled, “Food became the one central and only thing really in one’s life.” There was no room left for anything else.
Though these odd behaviors were just a footnote in the original Minnesota study, to professor of economics Sendhil Mullainathan, who works on contemporary issues of poverty, they were among the most intriguing findings. Nearly 70 years after publication, that “footnote” showed something remarkable: scarcity had stolen more than flesh and muscle. It had captured the starving men’s minds.
Mullainathan is not a psychologist, but he has long been fascinated by how the mind works. As a behavioral economist, he looks at how people’s mental states and social and physical environments affect their economic actions. Research like the Minnesota study raised important questions: What happens to our minds — and our decisions — when we feel we have too little of something? Why, in the face of scarcity, do people so often make seemingly irrational, even counter-productive decisions? And if this is true in large populations, why do so few policies and programs take it into account?
In 2008, Mullainathan joined Eldar Shafir, Tod professor of psychology and public affairs at Princeton, to write a book exploring these questions. Scarcity: Why Having Too Little Means So Much (2013) presented years of findings from the fields of psychology and economics, as well as new empirical research of their own. Based on their analysis of the data, they sought to show that, just as food had possessed the minds of the starving volunteers in Minnesota, scarcity steals mental capacity wherever it occurs—from the hungry, to the lonely, to the time-strapped, to the poor.
That’s a phenomenon well-documented by psychologists: if the mind is focused on one thing, other abilities and skills — attention, self-control, and long-term planning — often suffer. Like a computer running multiple programs, Mullainathan and Shafir explain, our mental processors begin to slow down. We don’t lose any inherent capacities, just the ability to access the full complement ordinarily available for use.
But what’s most striking — and in some circles, controversial — about their work is not what they reveal about the effects of scarcity. It’s their assertion that scarcity affects anyone in its grip. Their argument: qualities often considered part of someone’s basic character — impulsive behavior, poor performance in school, poor financial decisions — may in fact be the products of a pervasive feeling of scarcity. And when that feeling is constant, as it is for people mired in poverty, it captures and compromises the mind.
This is one of scarcity’s most insidious effects, they argue: creating mindsets that rarely consider long-term best interests. “To put it bluntly,” says Mullainathan, “if I made you poor tomorrow, you’d probably start behaving in many of the same ways we associate with poor people.” And just like many poor people, he adds, you’d likely get stuck in the scarcity trap. [Continue reading…]
Amy Myers Jaffe writes: When it comes to oil demand, the conventional wisdom is clear: Population growth and a rising global middle class guarantee that demand — and prices — will rise over the coming decades. It is a story line that is almost universally accepted by investors, governments and industry alike.
But like many such consensus views, it is one that should be treated with caution.
The world’s economy is experiencing transformational changes that, I believe, will dramatically alter patterns of energy use over the next 20 years. Exponential gains in industrial productivity, software-assisted logistics, rapid urbanization, increased political turmoil in key regions of the developing world, and large bets on renewable energy are among the many factors that will combine to slow the previous breakneck growth for oil.
The result, in my opinion, is as startling as it is world-changing: Global oil demand will peak within the next two decades.
The geopolitical and economic implications of peaking demand will be huge. The fall in the importance of Saudi Arabia is already palpable, with all the major powers from the U.S. to China more willing to accommodate Saudi archrival Iran. In addition, Russia’s ability to use oil as a weapon will wane, as will the economic leverage of the Organization of the Petroleum Exporting Countries. As economic growth becomes increasingly disconnected from oil, world powers will likely shift their attention to other increasingly scarce resources that will be equally critical to economic well-being, such as food, water and minerals. A greater interest in Africa, for example, is already starting to emerge. [Continue reading…]
Terje Osmundsen writes: Something remarkable is taking place that is bound to lead to a deep reshaping of the energy debate, starting in Europe and North America. It used to be the visionaries and the NGOs who talked about a 100% renewable future, but now leading number-crunchers and energy experts are joining the chorus. In California, the government energy regulator were recently quoted saying that California’s power grid could handle 100% renewables.
The city of Vancouver is an example of a big city that recently committed to run 100% on renewables for power, heating and transportation within 20 years. New studies have been released showing the US can get to 100% renewables by 2050, at marginal extra cost.
“Vers un mix électrique 100% renouvable en 2050″ is the name of the brand new report from ADEME (French Agency for Environment and Energy Management), the government agency responsible for green and renewable energy in France. The publication of the report was considered controversial by the French government currently busy securing a majority in the Senate for the new energy transiton law that recommends an electricity mix with 50 % nuclear, down from 75% today.
A political decision was therefore made to postpone the publication of the study, but after the media house Mediapart got hold of it, it has now been published by ADEME.
The 120-page report (exluding attachments) provides a number of interesting and surprising insights. First of all, the study demonstrates that a 100% renewable power system in France is both possible and economically attractive, also when taking into account a number of alternative scenarios including extreme weather, stricter regulations against wind, solar and high-voltage connections, slower technology development, and the like. [Continue reading…]
Hunter Lovins argues that investors don’t need to decide whether they believe in climate change: In early 2012 Seeking Alpha, an energy industries financial advisory service with more than three million registered clients cautioned against panicking and selling coal stocks, concluding that even though Peabody Coal’s stock value had fallen 45%, it was nicely undervalued, and after all, such companies had always grown: “Currently, Peabody Energy’s share price is at just over $36 (£25), but I think it has the potential to hit the $45 barrier before the end of 2012 because its Australian interests are likely to be snapped up by China and Indian Steel companies”, the advisors wrote. Seems like a strong argument for staying invested in coal, doesn’t it?
Unfortunately for Peabody’s investors, their trust in China’s insatiable hunger for coal was ill-advised: A 2015 report by the Institute for Energy Economics and Financial Analysis, (IEEFA) noted that although “China’s coal demand grew 10% annually over the decade to 2011, the rate of growth halved to 4-6% in 2012 and 2013. In 2014, China’s coal demand has actually declined by 2.1% year-on-year.”
I know these are a lot of numbers for a simple bar talk. And, usually, the China argument doesn’t even come up before the third drink when everyone feels they can win any fight just by quoting a big number. But the changing reality in China might make you want to wait with that second sip.
“While real economic growth exceeded 7%, electricity demand grew by less than 4%”, the IEEFA study said. Rapid supply diversification saw China’s coal consumption decline 2% and coal imports fall by 11% in 2014.
China’s coal demand will permanently peak by 2016 and decline thereafter, the report predicts.
“Coal companies’ underperformance against the global equity market is unprecedented,” said IEEFA’s Tim Buckley. “A more than 50% decline in coal prices has seen most listed coal companies globally lose 80-90% of their equity market value in the last four years. While the sun will undoubtedly rise for renewable energy in 2015, for coal, there remains a lot further to fall.”
Today Peabody Energy, the world’s largest private-sector coal company, is trading below $5 per share. Investors betting that coal will rebound are very likely to find their assets stranded.
Conversely, renewable industries are prospering. A recent study by Agora Energiewende, a German think-tank, found that solar electricity is already a low-cost renewable energy technology. Large-scale photovoltaic installations in Germany fell from over 40 cents per kilowatt-hour (c/kWh) in 2005 to 9 c/kWh in 2014. Even lower prices have been reported in sunnier regions of the world. Most interesting for investors, solar will soon be the cheapest form of electricity in many regions of the world. Even conservative scenarios which assumed no dramatic technological breakthroughs saw no end to cost reduction, with costs of 4-6 c/kWh expected by 2025, and 2-4 c/kWh by 2050.
The New York Times reports: The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.
His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.
“Is anyone else freaking out right now?” Mr. Price asked after the clapping and whooping died down into a few moments of stunned silence. “I’m kind of freaking out.”
If it’s a publicity stunt, it’s a costly one. Mr. Price, who started the Seattle-based credit-card payment processing firm in 2004 at the age of 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year. [Continue reading…]
The Guardian talks to the anarchist author and academic, David Graeber: In 2011, at New York’s Zuccotti Park, he became involved in Occupy Wall Street, which he describes as an “experiment in a post-bureaucratic society”. He was responsible for the slogan “We are the 99%”. “We wanted to demonstrate we could do all the services that social service providers do without endless bureaucracy. In fact at one point at Zuccotti Park there was a giant plastic garbage bag that had $800,000 in it. People kept giving us money but we weren’t going to put it in the bank. You have all these rules and regulations. And Occupy Wall Street can’t have a bank account. I always say the principle of direct action is the defiant insistence on acting as if one is already free.”
He quotes with approval the anarchist collective Crimethinc: “Putting yourself in new situations constantly is the only way to ensure that you make your decisions unencumbered by the nature of habit, law, custom or prejudice – and it’s up to you to create the situations.” Academia was, he muses, once a haven for oddballs – it was one of the reasons he went into it. “It was a place of refuge. Not any more. Now, if you can’t act a little like a professional executive, you can kiss goodbye to the idea of an academic career.”
Why is that so terrible? “It means we’re taking a very large percentage of the greatest creative talent in our society and telling them to go to hell … The eccentrics have been drummed out of all institutions.” Well, perhaps not all of them. “I am an offbeat person. I am one of those guys who wouldn’t be allowed in the academy these days.” Indeed, he claims to have been blackballed by the American academy and found refuge in Britain. In 2005, he went on a year’s sabbatical from Yale, “and did a lot of direct action and was in the media”. When he returned he was, he says, snubbed by colleagues and did not have his contract renewed. Why? Partly, he believes, because his countercultural activities were an embarrassment to Yale.
Born in 1961 to working-class Jewish parents in New York, Graeber had a radical heritage. His father, Kenneth, was a plate stripper who fought in the Spanish civil war, and his mother, Ruth, was a garment worker who played the lead role in Pins and Needles, a 1930s musical revue staged by the international Ladies’ Garment Workers’ Union.
Their son was calling himself an anarchist at the age of 16, but only got heavily involved in politics in 1999 when he became part of the protests against the World Trade Organisation meeting in Seattle. Later, while teaching at Yale, he joined the activists, artists and pranksters of the Direct Action Network in New York. Would he have got further at Yale if he hadn’t been an anarchist? “Maybe. I guess I had two strikes against me. One, I seemed to be enjoying my work too much. Plus I’m from the wrong class: I come from a working-class background.” The US’s loss is the UK’s gain: Graeber became a reader in anthropology at Goldsmiths, University of London, in 2008 and professor at the LSE two years ago. [Continue reading…]
The Guardian reports: The west’s leading economic thinktank on Tuesday dismissed the concept of trickle-down economics as it found that the UK economy would have been more than 20% bigger had the gap between rich and poor not widened since the 1980s.
Publishing its first clear evidence of the strong link between inequality and growth, the Paris-based Organisation for Economic Cooperation and Development proposed higher taxes on the rich and policies aimed at improving the lot of the bottom 40% of the population, identified by Ed Miliband as the “squeezed middle”.
Trickle-down economics was a central policy for Margaret Thatcher and Ronald Reagan in the 1980s, with the Conservatives in the UK and the Republicans in the US confident that all groups would benefit from policies designed to weaken trade unions and encourage wealth creation.
The OECD said that the richest 10% of the population now earned 9.5 times the income of the poorest 10%, up from seven times in the 1980s. However, the result had been slower, not faster, growth. [Continue reading…]
Joseph E. Stiglitz writes: When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history.
Comparing the gross domestic product of different economies is very difficult. Technical committees come up with estimates, based on the best judgments possible, of what are called “purchasing-power parities,” which enable the comparison of incomes in various countries. These shouldn’t be taken as precise numbers, but they do provide a good basis for assessing the relative size of different economies. Early in 2014, the body that conducts these international assessments — the World Bank’s International Comparison Program — came out with new numbers. (The complexity of the task is such that there have been only three reports in 20 years.) The latest assessment, released last spring, was more contentious and, in some ways, more momentous than those in previous years. It was more contentious precisely because it was more momentous: the new numbers showed that China would become the world’s largest economy far sooner than anyone had expected — it was on track to do so before the end of 2014.
The source of contention would surprise many Americans, and it says a lot about the differences between China and the U.S. — and about the dangers of projecting onto the Chinese some of our own attitudes. Americans want very much to be No. 1—we enjoy having that status. In contrast, China is not so eager. According to some reports, the Chinese participants even threatened to walk out of the technical discussions. For one thing, China did not want to stick its head above the parapet — being No. 1 comes with a cost. It means paying more to support international bodies such as the United Nations. It could bring pressure to take an enlightened leadership role on issues such as climate change. It might very well prompt ordinary Chinese to wonder if more of the country’s wealth should be spent on them. (The news about China’s change in status was in fact blacked out at home.) There was one more concern, and it was a big one: China understands full well America’s psychological preoccupation with being No. 1 — and was deeply worried about what our reaction would be when we no longer were. [Continue reading…]
The Associated Press reports: The cost to poor countries of adjusting to ever-hotter temperatures will be twice or even three times higher than previously thought, the U.N.’s environment agency said Friday—and that assumes a best-case scenario in which greenhouse gas emissions are dramatically reduced.
“If you don’t cut emissions, we’re just going to have to ask for more money because the damage is going to be worse,” Ronald Jumeau of the Seychelles said at U.N. climate talks.
The report was bound to sharpen disputes in Lima over who pays the bills for the impacts of global warming, whose primary cause is the burning of coal, oil and gas but which also includes deforestation. It has long been the thorniest issue at the U.N. negotiations, now in their 20th round.
Rich countries have pledged to help the developing world convert to clean energy and adapt to shifts in global weather that are already adversely affecting crops, human health and economies. But poor countries say they’re not seeing enough cash.
Projecting the annual costs that poor countries will face by 2050 just to adapt, the United Nations Environment Program report deemed the previous estimate of $70 billion to $100 billion “a significant underestimate.” It had been based on 2010 World Bank numbers.
The report says new studies indicate the costs will likely be “two to three times higher,” possibly even as high as $500 billion. [Continue reading…]
Live Science: Rich families stay rich and poor families stay poor, according to a new study that finds that English people whose ancestors were elite in the 1100s are still likely part of the upper crust today.
The study echoes work in other countries that has found that social status budges little over generations, even in the face of massive social changes, said study researcher Gregory Clark, an economist at the University of California, Davis.
Clark began his research on social mobility expecting that families would generally tend toward the average — a particular surname might stand out among the elite for a generation or two, but their descendants would probably regress in notability.
“To our surprise, when we started getting the data, we found this surprising persistence,” Clark told Live Science. Names retain their status (low or high) for 500 years or more in some cases, he said. [Continue reading…]
Jeremy Caradonna writes: The stock narrative of the Industrial Revolution is one of moral and economic progress. Indeed, economic progress is cast as moral progress.
The story tends to go something like this: Inventors, economists, and statesmen in Western Europe dreamed up a new industrialized world. Fueled by the optimism and scientific know-how of the Enlightenment, a series of heroic men — James Watt, Adam Smith, William Huskisson, and so on — fought back against the stultifying effects of regulated economies, irrational laws and customs, and a traditional guild structure that quashed innovation. By the mid-19th century, they had managed to implement a laissez-faire (“free”) economy that ran on new machines and was centered around modern factories and an urban working class. It was a long and difficult process, but this revolution eventually brought Europeans to a new plateau of civilization. In the end, Europeans lived in a new world based on wage labor, easy mobility, and the consumption of sparkling products.
Europe had rescued itself from the pre-industrial misery that had hampered humankind since the dawn of time. Cheap and abundant fossil fuel powered the trains and other steam engines that drove humankind into this brave new future. Later, around the time that Europeans decided that colonial slavery wasn’t such a good idea, they exported this revolution to other parts of the world, so that everyone could participate in freedom and industrialized modernity. They did this, in part, by “opening up markets” in primitive agrarian societies. The net result has been increased human happiness, wealth, and productivity — the attainment of our true potential as a species.
Sadly, this saccharine story still sweetens our societal self-image. Indeed, it is deeply ingrained in the collective identity of the industrialized world. The narrative has gotten more complex but remains à la base a triumphalist story. Consider, for instance, the closing lines of Joel Mokyr’s 2009 The Enlightened Economy: An Economic History of Britain, 1700–1850: “Material life in Britain and in the industrialized world that followed it is far better today than could have been imagined by the most wild-eyed optimistic 18th-century philosophe — and whereas this outcome may have been an unforeseen consequence, most economists, at least, would regard it as an undivided blessing.”
The idea that the Industrial Revolution has made us not only more technologically advanced and materially furnished but also better for it is a powerful narrative and one that’s hard to shake. It makes it difficult to dissent from the idea that new technologies, economic growth, and a consumer society are absolutely necessary. To criticize industrial modernity is somehow to criticize the moral advancement of humankind, since a central theme in this narrative is the idea that industrialization revolutionized our humanity, too. Those who criticize industrial society are often met with defensive snarkiness: “So you’d like us to go back to living in caves, would ya?” or “you can’t stop progress!”
Narratives are inevitably moralistic; they are never created spontaneously from “the facts” but are rather stories imposed upon a range of phenomena that always include implicit ideas about what’s right and what’s wrong. The proponents of the Industrial Revolution inherited from the philosophers of the Enlightenment the narrative of human (read: European) progress over time but placed technological advancement and economic liberalization at the center of their conception of progress. This narrative remains today an ingrained operating principle that propels us in a seemingly unstoppable way toward more growth and more technology, because the assumption is that these things are ultimately beneficial for humanity.
Advocates of sustainability are not opposed to industrialization per se, and don’t seek a return to the Stone Age. But what they do oppose is the dubious narrative of progress caricatured above. Along with Jean-Jacques Rousseau, they acknowledge the objective advancement of technology, but they don’t necessarily think that it has made us more virtuous, and they don’t assume that the key values of the Industrial Revolution are beyond reproach: social inequality for the sake of private wealth; economic growth at the expense of everything, including the integrity of the environment; and the assumption that mechanized newness is always a positive thing. Above all, sustainability-minded thinkers question whether the Industrial Revolution has jeopardized humankind’s ability to live happily and sustainably upon the Earth. Have the fossil-fueled good times put future generations at risk of returning to the same misery that industrialists were in such a rush to leave behind? [Continue reading…]
George Monbiot writes: Let us imagine that in 3030BC the total possessions of the people of Egypt filled one cubic metre. Let us propose that these possessions grew by 4.5% a year. How big would that stash have been by the Battle of Actium in 30BC? This is the calculation performed by the investment banker Jeremy Grantham.
Go on, take a guess. Ten times the size of the pyramids? All the sand in the Sahara? The Atlantic ocean? The volume of the planet? A little more? It’s 2.5 billion billion solar systems. It does not take you long, pondering this outcome, to reach the paradoxical position that salvation lies in collapse.
To succeed is to destroy ourselves. To fail is to destroy ourselves. That is the bind we have created. Ignore if you must climate change, biodiversity collapse, the depletion of water, soil, minerals, oil; even if all these issues miraculously vanished, the mathematics of compound growth make continuity impossible.
Economic growth is an artefact of the use of fossil fuels. Before large amounts of coal were extracted, every upswing in industrial production would be met with a downswing in agricultural production, as the charcoal or horse power required by industry reduced the land available for growing food. Every prior industrial revolution collapsed, as growth could not be sustained. But coal broke this cycle and enabled – for a few hundred years – the phenomenon we now call sustained growth. [Continue reading…]
Orion magazine: In the mid-1960s, when author, historian, and political economist Gar Alperovitz was working as legislative director for Senator Gaylord Nelson, change was in the air. Ink had dried on an early version of the Clean Air Act, the civil rights movement had won major victories, and the first Earth Day was in the works. The U.S. still faced plenty of serious challenges, but many Americans felt their country was capable of dealing with them successfully.
Today, things feel very different. “From climate change to a medieval level of wealth disparity, what we face in this country is no longer a regulatory crisis,” says Alperovitz. “We face a systemic crisis. And if you begin there, you begin to wonder: Is capitalism itself in profound trouble?”
Alperovitz believes it is. The author of several books on the subject, including America Beyond Capitalism, and a professor of political economy at the University of Maryland, he points to capitalism’s increasing dysfunction as the impetus for the rise of another economy, one built from the ground up by democratically owned organizations like cooperatives, community land trusts, and municipal institutions.
Orion editor Scott Gast spoke with Alperovitz after the publication of his most recent book, What Then Must We Do?: Straight Talk about the Next American Revolution, which explores whether the cooperative economy can provide the seeds for a system that isn’t capitalism and isn’t socialism, but something entirely new. [Continue reading…]
Scott Carlson writes: David Harvey would implore you to imagine life without capitalism—that is, if you can. Chances are, even if you’re puzzled by the manipulation of phantom money on Wall Street, troubled by society’s growing inequality, or disgusted with the platinum parachutes of corporate executives, you probably still conceive the world in terms of profits, private property, and free markets, the invisible hand always on the tiller.
To Harvey, a professor of anthropology and geography at the Graduate Center of the City University of New York, that world is coming to an end. In Seventeen Contradictions and the End of Capitalism (Oxford University Press), Harvey examines what he sees as the untenable elements of capital, and he analyzes how they can produce an unequal, destructive, crisis-prone system. The book represents a distillation of Harvey’s 40-year study of Karl Marx, and in its own way a bid to change the conversation about what’s not working and what’s possible—especially when many have consigned Marx to history’s dustbin.
“I was tired of hearing Marx quoted in ways that struck me as completely wrong,” Harvey says in his office at CUNY, around the corner from the Empire State Building. “Who I am writing for is, in a sense, anybody who says, Who is this guy Marx? I wanted to make it simple enough so that people could get into it, without being simplistic.” [Continue reading…]
Jacob S. Hacker and Paul Pierson write: When Alexis de Tocqueville visited America in the early 1830s, the aspect of the new republic that most stimulated him was its remarkable social equality. “America, then, exhibits in her social state an extraordinary phenomenon,” Tocqueville marveled. “Men are there seen on a greater equality in point of fortune and intellect … than in any other country of the world, or in any age of which history has preserved the remembrance.”
To Tocqueville, who largely ignored the grim exception of the South, America’s progress toward greater equality was inevitable, the expansion of its democratic spirit unstoppable. Europe, he believed, would soon follow America’s lead. He was right—sort of. Democracy was on the rise, but so too was inequality. Only with the 20th century’s Great Depression, two terrible wars, and the creation of the modern welfare state did concentrations of economic advantage in rich democracies start to dissipate and the fruits of rapid growth begin to accrue generously to ordinary workers.
Now another Frenchman with a panoramic vista — and far more precise evidence — wants us to think anew about the progress of equality and democracy. Though an heir to Tocqueville’s tradition of analytic history, Thomas Piketty has a message that could not be more different: Unless we act, inequality will grow much worse, eventually making a mockery of our democratic institutions. With wealth more and more concentrated, countries racing to cut taxes on capital, and inheritance coming to rival entrepreneurship as a source of riches, a new patrimonial elite may prove as inevitable as Tocqueville once believed democratic equality was.
This forecast is based not on speculation but on facts assembled through prodigious research. Piketty’s startling numbers show that the share of national income coming from capital — once comfortingly believed to be stable — is on the rise. Private wealth has reached new highs relative to national income and is approaching levels of concentration not seen since before 1929. [Continue reading…]
John Cassidy writes: Piketty believes that the rise in inequality can’t be understood independently of politics. For his new book, he chose a title evoking Marx, but he doesn’t think that capitalism is doomed, or that ever-rising inequality is inevitable. There are circumstances, he concedes, in which incomes can converge and the living standards of the masses can increase steadily — as happened in the so-called Golden Age, from 1945 to 1973. But Piketty argues that this state of affairs, which many of us regard as normal, may well have been a historical exception. The “forces of divergence can at any point regain the upper hand, as seems to be happening now, at the beginning of the twenty-first century,” he writes. And, if current trends continue, “the consequences for the long-term dynamics of the wealth distribution are potentially terrifying.”
In the nineteen-fifties, the average American chief executive was paid about twenty times as much as the typical employee of his firm. These days, at Fortune 500 companies, the pay ratio between the corner office and the shop floor is more than two hundred to one, and many C.E.O.s do even better. In 2011, Apple’s Tim Cook received three hundred and seventy-eight million dollars in salary, stock, and other benefits, which was sixty-two hundred and fifty-eight times the wage of an average Apple employee. A typical worker at Walmart earns less than twenty-five thousand dollars a year; Michael Duke, the retailer’s former chief executive, was paid more than twenty-three million dollars in 2012. The trend is evident everywhere. According to a recent report by Oxfam, the richest eighty-five people in the world — the likes of Bill Gates, Warren Buffett, and Carlos Slim — own more wealth than the roughly 3.5 billion people who make up the poorest half of the world’s population.
Eventually, Piketty says, we could see the reëmergence of a world familiar to nineteenth-century Europeans; he cites the novels of Austen and Balzac. In this “patrimonial society,” a small group of wealthy rentiers lives lavishly on the fruits of its inherited wealth, and the rest struggle to keep up. For the United States, in particular, this would be a cruel and ironic fate. “The egalitarian pioneer ideal has faded into oblivion,” Piketty writes, “and the New World may be on the verge of becoming the Old Europe of the twenty-first century’s globalized economy.”
What are the “forces of divergence” that produce enormous riches for some and leave the majority scrabbling to make a decent living? Piketty is clear that there are different factors behind stagnation in the middle and riches at the top. But, during periods of modest economic growth, such as the one that many advanced economies have experienced in recent decades, income tends to shift from labor to capital. Because of enmeshed economic, social, and political pressures, Piketty fears “levels of inequality never before seen.”
To back up his arguments, he provides a trove of data. He and Saez pioneered the construction of simple charts showing the shares of over-all income received by the richest ten per cent, the richest one per cent, and, even, the richest 0.1 per cent. When the data are presented in this way, Piketty notes, it is easy for people to “grasp their position in the contemporary hierarchy (always a useful exercise, particularly when one belongs to the upper centiles of the distribution and tends to forget it, as is often the case with economists).” Anybody who reads the newspaper will be aware that, in the United States, the “one per cent” is taking an ever-larger slice of the economic pie. But did you know that the share of the top income percentile is bigger than it was in South Africa in the nineteen-sixties and about the same as it is in Colombia, another deeply divided society, today? In terms of income generated by work, the level of inequality in the United States is “probably higher than in any other society at any time in the past, anywhere in the world,” Piketty writes. [Continue reading…]
The New York Times reports: Microsoft has lost customers, including the government of Brazil.
IBM is spending more than a billion dollars to build data centers overseas to reassure foreign customers that their information is safe from prying eyes in the United States government.
And tech companies abroad, from Europe to South America, say they are gaining customers that are shunning United States providers, suspicious because of the revelations by Edward J. Snowden that tied these providers to the National Security Agency’s vast surveillance program.
Even as Washington grapples with the diplomatic and political fallout of Mr. Snowden’s leaks, the more urgent issue, companies and analysts say, is economic. Technology executives, including Mark Zuckerberg of Facebook, raised the issue when they went to the White House on Friday for a meeting with President Obama.
It is impossible to see now the full economic ramifications of the spying disclosures — in part because most companies are locked in multiyear contracts — but the pieces are beginning to add up as businesses question the trustworthiness of American technology products. [Continue reading…]
CNN reports: While the world watches the escalating crisis in Ukraine, investors and world leaders are considering how the instability could roil the global economy.
The political turmoil is rooted in the country’s strategic economic position. It is an important conduit between Russia and major European markets, as well as a significant exporter of grain.
But in the post-Soviet era, it’s a weakened economy. Now, the government is in need of an economic rescue — and torn between whether Russia or the Western economies (including the European Union) is the savior it needs.
Here are five reasons the world’s largest economies are watching what happens in Ukraine. [Continue reading…]