Category Archives: Economics

@BillMoyersHQ: Bankers and Politicians: A Symbiotic Relationship | Money & Politics

Although they can put in place any laws and regulations that they see fit, politicians are not in the driver’s seat in their relation with banks. Bankers know more about banking than politicians. Moreover, politicians want the bankers’ cooperation to make the investments the politicians favor — or campaign contributions. When bankers warn that capital requirements will hurt bank lending and reduce economic growth, they are rarely challenged by politicians, not only because politicians do not see through the banks’ claims but also because they do not want to upset their symbiosis with bankers.

Bankers and politicians have a two-way dependence. In this situation, politicians can forget their responsibilities, and the political system fails to protect the economy from banking risk. Even after the financial crisis, as one politician admitted, the banks “own the place.” Continue reading @BillMoyersHQ: Bankers and Politicians: A Symbiotic Relationship | Money & Politics

CNN Money: Middle class Americans: Not so wealthy by global standards

June 11, 2014

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The numbers seem to back it up. Americans’ average wealth tops $301,000 per adult, enough to rank us fourth on the latest Credit Suisse Global Wealth report.

Americans’ median wealth is a mere $44,900 per adult — half have more, half have less. That’s only good enough for 19th place, below Japan, Canada, Australia and much of Western Europe. Continue reading CNN Money: Middle class Americans: Not so wealthy by global standards

@BillMoyersHQ Preview: #TooBigtoFail and Getting Bigger

In Washington, DC a bi-partisan effort is underway to chip away at the 2010 Dodd-Frank financial reform law, which is supposed to prevent the type of economic meltdown that brought the world to the brink in 2008.

Wall Street banks are lobbying to de-fang sections of the law related to derivatives — the complex financial contracts at the core of the meltdown. One deregulation bill, the “London Whale Loophole Act,” would allow American banks to skip Dodd-Frank’s trading rules on derivatives if they are traded in countries that have similar regulatory structures. Continue reading @BillMoyersHQ Preview: #TooBigtoFail and Getting Bigger

Moisés Naím: The Problem With Piketty’s Inequality Formula – The Atlantic

Moises NaimWho is to blame for the dramatic rise in inequality in recent years? The bankers, many people say. According to this view, the financial sector is guilty of triggering the global economic crisis that began in 2008 and still affects millions of middle-class families in Europe and the United States, who’ve seen their purchasing power diminish and job prospects wither. The outrage is amplified by the fact that not only have the bankers and financial speculators escaped punishment for their blunders, but many are now even richer than they were before the crash. Others blame growing inequality on wages in countries like China and India, where low salaries depress incomes of workers in the rest of the world. Asia’s cheap labor compounds the problem because it creates unemployment in countries where companies close factories and “export” jobs to cheaper markets overseas. Still others see technology as the culprit. Robots, computers, the Internet, and greater use of machines in factories, they say, are replacing workers and thus boosting inequality.

The true explanation is a lot more complicated, says Thomas Piketty, the French economist whose influential Capital in the Twenty-First Century has turned into a global sensation. In many countries, Piketty argues, capital (which he equates with wealth in the form of real estate, financial assets, etc.) is growing at a faster rate than the economy. The income produced by capital tends to be concentrated in the hands of a small group of people, whereas income from labor is dispersed throughout the entire population. Therefore, when capital earnings increase faster than wages, inequality grows because those who own capital accumulate a higher proportion of income. And given that growth in wages is directly dependent on the growth of the economy as a whole, economic inequality is bound to get worse if the economy expands at a slower clip than capital earnings.

Piketty summarizes this complicated theory with the formula “r > g” where “r” is the rate of return on capital and “g” is the rate of growth in the economy. The future is dire, he concludes, because he expects the economies of the countries he surveyed to grow at a rate of 1 to 1.5 percent per year, while the average return on capital increases at a rate of 4 to 5 percent per year. Inequality, in other words, is bound to rise. To avoid this, Piketty calls for a progressive tax on wealth in large countries—an idea that even he concludes is utopian. He acknowledges the enormous political hurdles that his proposal would face and the huge practical difficulties that would accompany its implementation. Last week, the Financial Times claimed that it had found grave defects in Piketty’s work, provoking an ongoing debate about his analysis. Nonetheless, most impartial observers believe that the issues with Piketty’s data are not serious enough to completely discredit his overall conclusions.

[. . .]

In order for this discussion to be valuable, however, the problem requires a more complete diagnosis. It is not accurate to assert that in countries like Russia, Nigeria, Brazil, and China, the main driver of economic inequality is a rate of return on capital that is larger than the rate of economic growth. A more holistic explanation would need to include the massive fortunes regularly created by corruption and all kinds of illicit activities. In many countries, wealth grows more as a result of thievery and malfeasance than as a consequence of the returns on capital invested by elites (a factor that is surely at work too).

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