Thursday, October 30, 2014
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The Instability of Inequality

NEW YORK – This year has witnessed a global wave of social and political turmoil and instability, with masses of people pouring into the real and virtual streets: the Arab Spring; riots in London; Israel’s middle-class protests against high housing prices and an inflationary squeeze on living standards; protesting Chilean students; the destruction in Germany of the expensive cars of “fat cats”; India’s movement against corruption; mounting unhappiness with corruption and inequality in China; and now the “Occupy Wall Street” movement in New York and across the United States.

While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalized world; resentment against corruption, including legalized forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.

Of course, the malaise that so many people feel cannot be reduced to one factor. For example, the rise in inequality has many causes: the addition of 2.3 billion Chinese and Indians to the global labor force, which is reducing the jobs and wages of unskilled blue-collar and off-shorable white-collar workers in advanced economies; skill-biased technological change; winner-take-all effects; early emergence of income and wealth disparities in rapidly growing, previously low-income economies; and less progressive taxation.

The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. In Anglo-Saxon countries, the response was to democratize credit – via financial liberalization – thereby fueling a rise in private debt as households borrowed to make up the difference. In Europe, the gap was filled by public services – free education, health care, etc. – that were not fully financed by taxes, fueling public deficits and debt. In both cases, debt levels eventually became unsustainable.

Firms in advanced economies are now cutting jobs, owing to inadequate final demand, which has led to excess capacity, and to uncertainty about future demand. But cutting jobs weakens final demand further, because it reduces labor income and increases inequality. Because a firm’s labor costs are someone else’s labor income and demand, what is individually rational for one firm is destructive in the aggregate.

The result is that free markets don’t generate enough final demand. In the US, for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth – from labor to capital, from wages to profits, from poor to rich, and from households to corporate firms – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.

The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of over-capacity, under-consumption, and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.

Even before the Great Depression, Europe’s enlightened “bourgeois” classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved, and a welfare state created to redistribute wealth and finance public goods – education, health care, and a social safety net. The push towards a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization – a role that required the maintenance of a large middle class by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.

Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism, and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940’s until the mid-1970’s, a period when inequality fell sharply and median incomes grew rapidly.

Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created in part by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill, and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign-debt crisis now.

But the laissez-faire Anglo-Saxon model has also now failed miserably. To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of unregulated markets and the continental European model of deficit-driven welfare states. Even an alternative “Asian” growth model – if there really is one – has not prevented a rise in inequality in China, India, and elsewhere.

Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.

Read more from our "The Roubini Factor" Focal Point.

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  1. CommentedChris Elliott

    Perhaps injustice and inequality. Related to the economies of the world, I have been discussing Free Energy with a young european friend Ilie Panda and how to bring Free Energy into the human collective consciousness as something that is real and already happening. Which it is. His passion and drive to make this information and technology available and accessible to the entire human collective, knows no bounds. I support and work actively towards a Peoples free Power Collective. So I would like to share his email to us as a group, with you and see if it resonates in your heart too.


    Everything runs on Energy

    Something that escapes most people is that all the processes in and around us are powered by various forms of Energy.

    Most of the Energy we use today on our planet is Solar energy. This solar energy has been captured by the plants in the past and converted over a very long period of time in coal or oil, that we are burning today to power our homes, our cars and our factories.

    Our own bodies also take up energy in the form of food. This energy is used to grow and repair the body and a lot if it is used up by our brain. To grow this food, to package it, to transport it and store it in places where you can buy it, you also require Energy.

    The idea is that everything on the planet right now is an Energy game. How this energy is produced (extracted), how it is exchanged and how it is converted in forms that are useful to the Human Species.

    Introducing Free Energy

    Ever since we have discovered fire, humans have been on a fast track to harness more and more energy for their use. More energy always meant a higher standard of living. Slavery was made obsolete by more energy. Women's status has improved as soon as more energy was available. Large families stopped making sense, when child labor stopped making sense, and that was due to more energy being available. Life in US is so much better than other parts of the world, because there is more energy available for each person living there. And we are just scratching the surface of what is possible.

    At some point along this line, what I will call the Global Controllers had a realization: as soon as any human on the planet has access to abundant, unlimited clean energy their "power over others" games would be over. They would have to leave and play their games elsewhere. At that time, a campaign was started to suppress, by ridicule, the idea of Free Abundant Energy. It has been declared "proven to be impossible" as it "violates the laws of physics". Even so, some scientists (starting most likely with Nikola Tesla) have been able to tap into various forms of Energy that are not powered by fossil fuels or radio active material. This Energy source has sometimes been called "Zero Point Energy".

    The proof of this is beyond this writing, but anyone reading is invited to look this up, and read about it. For a few days just ignore the "laws of physics" and pretend this is actually possible. Have a look a it. If it were possible, how would it work? What would change in our world?



    We the creators

    The greatest victory of the Global Controllers is that they have made Abundance and Free Energy unimaginable. We are all familiar with "You can't have something for nothing...", "You gotta work for a living.", "There is no such thing a free lunch". And so on.

    All the above are bits and pieces of what I call "The Scarcity Program" that is deeply embedded into our subconscious minds.

    I don't want us to fall into the "victim/aggressor" paradigm. I acknowledge that the Global Controllers act as a parasite but their actions are made possible by our collective agreement to "not even imagine abundance".

    So while I acknowledge the suppression and the vested interests to keep us addicted to fossil fuel, I choose to act as a creator and focus on abundance instead. Let's choose to make the Global Controllers obsolete. If they have no one to control, they have no choice but to either join the party on our terms or pack and leave.

    Free Energy, Sentience, Love, Joy and Abundance are linked together. And I will not be surprised if one day we will discover that in essence they are the same thing.

    There may be many, many ways to raise our awareness and make manifest Heaven on Earth, but as far as I know, none of them will work faster and help more Humans (and other lifeforms on the planet) as bringing Free Energy out in the open.

    There is a bit of a catch 22 here: Free Energy will make it so much easier to raise our awareness and yet it seems that we need to raise our awareness of Free Energy technologies first and how they would change the world, before we are able to manifest it into our reality.

    An abundant, Free Energy based world
    So let's pretend for a moment that we have Free Energy now. Suspend your beliefs that it is not possible.

    Each and every one of us has access to unlimited clean Energy and devices to convert that energy to various useful forms for us: electric, thermal and mechanic.

    How would our lives change, now that you will not have to work for a living? What would you do if money or survival will no longer be an issue.

    Free Energy would make profit obsolete. And once profit is out of the equation, then quality will take its place. Now every product we make, we make it out of joy, out of a desire to express our creativity, to be of service to us and our fellow humans and non-human life. We no longer work for money and we no longer work in jobs we don't like. Just imagine how would that feel?

    With abundant, clean energy the war for resources will stop making sense. Taking it from others so I can have it will no longer be required. Mining the Earth for oil will no longer be required. Free sharing of technology and information will come naturally once you no longer have a "profit margin" to maintain, or a competitor to wipe out. I can easily imagine a joyful coming together to eliminate poverty and hunger from all over the planet. With Free Energy that can be done in mater of days. Just think of the human potential unleashed, of all that creativity waiting to express it self in safe, abundant environment.

    Virtually every aspect of our lives would be impacted and greatly improved with the advent of unlimited clean Energy. The way we think about family, relationships, sex, marriage, work, creativity, boundaries, nations, language, health, learning, traveling, food production, relationship with nature and the Planet. Everything would change.

    The most important change however, would be within. In an abundant society, you would have to become a "response-able" Creator. There will be no one left to blame, no one to complain about. You will no longer be able to act as a victim (or aggressor for that matter). You will have full freedom and with that comes full responsibility for your life. We will truly be "self determined grown-ups" :).

    And this, is just the beginning of the journey.

    Ilie Panda

  2. Commentedradek tanski

    But this is usually the result of constant government intervention and ratcheting up expansionary monetary policy. The only capitalism that exists is the fettered kind, where the politicians impose their arbitrary whims, and rationalize it with cherry picked economics.

    The present situation is completely government created, where expansionary policy was used to incorrectly allocate capital to "moral" and "social" arbitrary values like housing loans, free education and health care for everyone, instead of decent sustainable investments. And now the result.

    Lets not also forget the crony capitalist mimic frauds & government politicians willing to protect them to the detriment of everyone else. Meddle Meddle Meddle.
    Corruption....

    Lenin the master of economic bait and switch, a demagogue pandering to the ignorant masses still is taken seriously?

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