Inequality and growth: the perverse relation between the productive and the non-productive assets of the economy (original) (raw)
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HAL (Le Centre pour la Communication Scientifique Directe), 2015
The explosion of the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed re-establishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain the different view that the financial crisis and the ensuing real crisis have roots in the strong increase in incomes inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non-productive assets of the economy. In this context the way out of the crisis is re-establishing the right distributive conditions: which cannot be obtained by a policy aimed at relieving the weight of private or public debts but calls for a redistribution through taxes on the incomes of non-productive sectors, according to a fine tuning that should prevent from excessive taxations transforming positive into negative effects
2013
The explosion of the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed reestablishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain the different view that the financial crisis and the ensuing real crisis have roots in the strong increase in incomes inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non‐productive assets of the economy. In this context the way out of the crisis is re‐establishing the right distributive conditions: which cannot be obtained by a policy aimed at ...
2012
The ongoing financial crisis and economic slump have re-opened the question of the link, if any, between inequality and growth. A large part of this literature has focused on the impact of inequality on consumption. In the past, inequality was seen as reducing growth through its dampening of aggregate demand as income moved away from the'spending classes'. Attention has now turned to the alleged relationship between inequality and financial crisis, though consumption continues to play a role.
A case for redistribution? Income inequality and wealth concentration in the recent crisis
2014
Several Nobel laureates economists have called for redistributive policies. This paper shows that there is a strong case for redistributive policies because the global increase of income inequality and wealth concentration was an important driver for the financial and Eurozone crisis. The high levels of income inequality resulted in balance of payment imbalances and rising debt levels. Rising wealth concentration contributed to the crisis because the increasing asset demand from the rich played a key role in the rise of the structured credit market and enabled poor and middle-income households to accumulate increasing amounts of debt. To tame the inherent instability of the current mode of capitalism it is necessary to reduce inequality.
Income Inequality and Wealth Concentration in the Recent Crisis
Development and Change, 2016
This article shows that the increase of income inequality and global wealth concentration was an important driver for the financial and Eurozone crisis. The high levels of income inequality resulted in balance of payment imbalances and growing debt levels. Rising wealth concentration contributed to the crisis because the increasing asset demand from the rich played a key role in the growth of the structured credit market and enabled poor and middle-income households to accumulate increasing amounts of debt. This analysis thereby puts both income and wealth inequality to the epicentre of the recent crisis, and is crucial for social scientists analysing the causes of the crisis. Our findings suggest that the policy response to the crisis must not be limited to financial regulation but has to involve policies to address inequality by increasing the bargaining power of labour as well as redistributive tax policies. ________________________________________ We would like to thank Matt Vidal and three anonymous referees for their helpful comments. Moreover, we are grateful to Photis Lysandrou without whom this article would not have been possible. Engelbert Stockhammer acknowledges financial support from the INET project 'Rising inequality as a structural cause of the present financial and economic crisis' (INO13-00012).
The Increasing Inequality in Income distribution: A Note
Working Papers, 2011
In the last 20 years the within countries income inequality has continuously increased. This is a global phenomenon which is observable both advanced and developing countries. Excessive income and wealth inequalities played a role in the genesis of the recent financial crisis and may impair the recovery of the world economy. The long term trend of rising inequalities is the result of different forces. On the one side technological change modified the demand for labour in favour of skilled workers widening the skill premium in wages. From the other side, globalization in trade and finance have contributed to the problem. In particular, fast financial liberalization seems to be a major source of increased inequalities.
Inequality and redistribution revisited
Economics Letters, 1999
Several recent papers on the political economy of growth have argued that increased income inequality induces more redistribution or public spending, which in turn chokes off private investment and growth. We show that public spending is not necessarily increasing in inequality when there is a class of individuals who cannot invest beyond the state-financed education, possibly due to the imperfection in capital market. We show that as inequality rises taxation can be less efficient in the sense that a given tax rate produces a smaller tax base. If this tax base effect outweighs the conventional political effect, then increasing inequality can induce less public spending and increase private investment.
Law of Conservation of Real Wealth 1 and Rising Inequality
Nonfinancial and financial capital conflated in modern economy. Using accounting approach we separated them and compared the corresponding total values of nonfinancial capital and wealth. We consider these values to be equal. This statement is named "law of conservation of real wealth": real value of aggregate wealth is equal to the total value of nonfinancial assets. The law holds automatically by virtue of balance sheet identity, if financial assets' value equal to the counterpart obligations securing them. However such equality can be violated when securities freely circulating in modern financial markets lose their link with corresponding obligations. The resulting difference is equal to the divergence between the aggregate wealth and total value of nonfinancial assets, which indicates a violation of the law in nominal terms. We consider this divergence as excess unsecured component of wealth, whereas the real wealth continues to match the nonfinancial assets' value. Such unsecured wealth can only arise due to discrepancy between savings and investment, along with difference between total Haig-Simons income (including capital gains) and expenditures in real sector. It makes impossible to display correctly flows simultaneously with stocks. Deviations of securities' value from corresponding obligations commonly accepted as temporary. However, along with cyclical fluctuations the unsecured US financial assets value has been steadily growing since the 1980s, exceeding $11 trillion in 2016. We consider the observed nominal violation of the law of conservation of wealth is a consequence of unlimited capitalists' enrichment aspirations. Marketable securities are the tools they use to embody such desire; the effect enhanced by the procedures of corporate mergers and acquisitions. Yet, the unsecured wealth inflate financial bubbles; its growth turns out a sufficient condition for wealth and income inequality rising. Then the aggregate consumer demand growth is hindered, and appetite for capital investment decreases. Unsecured component of capitalists' profit is absorbed by an (unsecured) increase in the value of financial assets; it is not a source of capital investment; on the contrary, high financial returns contribute to crowding out investment from the real sector. Productivity growth slows down. Thus, increase in inequality reduces both aggregate demand and supply, which inhibits economic growth. US statistics confirms the above trends which led to the global crisis of 2007-2008. It has not cured the economy; unsecured wealth continues to grow increasing inequality, which dumps output growth. Black swans in 2020 have inspired inevitable arriving of new crisis.
Global Inequality and the Global Financial Crisis: The New Transmission Mechanism
The Handbook of Globalisation, Second Edition, 2011
According to Marx the root cause of crisis always lies in the inequality of wealth engendered by the commoditisation of labour power. If he was right it follows that the globalization of commodity relations must lead to a crisis on a corresponding global scale unless the growth in inequality is held in check. The fact that it was not checked but allowed to reach epic proportions by the time the global financial crisis broke out is for many people confirmation that Marx was right. This paper seeks to give weight to this view by explaining the new mechanism through which the effects of exploitation are transmitted into crisis: prevented from finding expression in an excess supply of products in GDP space, these effects have instead found expression in an excess demand for securities in capital market space. Most economists put the major blame for the financial crisis on the banks because it was they who created the toxic securities that caused the financial system to seize up. My interpretation is different. The banks certainly overreached themselves in creating these securities but the principal reason why they did so was to augment the wealth storage capacity of existing securities stocks in order to accommodate the build-up of private wealth.