BlogSpot - April 25th, 2014
The Inequality Divide
With the translation Thomas Piketty’s latest book, the Gilen and Page report on American politics, and IMF analyses on inequality circulating, experts on both sides of the pond and all sides of politics are offering their two cents.
The usual suspects include Paul Krugman, who underlines the centrality of this season’s issue (hat tip Bill Moyers), but warns against political disenchantment and abandoning electoral politics. Gregory Mankiw and Thomas Hirschil (NYT) claim the 1% to be less static as portrayed in present debate, while Jeffrey Frankel in The Oligarchy Fallacy, argues the singling out of the 1% to be much less efficient than targeting particular policies to reduce poverty specifically.
Mainly Macro points to inheritance tax in the UK as a central policy issue for addressing inequality and sure to gain attention in the comings elections. Adair Turner at Project Syndicate, argues for policies of “inclusive growth” that target urban land prices and technology advance in the U.K. Policy alternatives for reducing inequality without sacrificing efficiency which may include taxes, social benefits, and investment in human capital are outlined in a VoxEU article here. The increasing returns to education, globalization, and skill-biased technological change are offered as an explanation for the discrepancy between a decrease in human capital inequality and an increase in wage inequality, in another VoxEU piece, suggesting areas in need of policy attention and development potential. Echoing Piketty’s call for a global progressive income tax, Europp similarly entreats US and European coordination to face inequality for the long haul.
Kemal Dervis (at Project Syndicate) includes the importance of income distribution among four principal factors that will define a new paradigm for growth and the future of economic progress. The Chartbook of Economic Inequality continues to circulate, providing a cross country account of secular changes in economic inequality over the past 100+ years.
Returning to Capital with a C, Bloomberg offers a critical response to the catalytic work. Free Exchange, in defense, highlights the importance of living standards and paying attention to inequality even if it is not the “defining issue of the era.” Martin Wolf offers a review of the book shaping the discussion and in a FT piece claims that a reduction in inequality can’t hurt growth. Further spillover from Piketty’s book is likely. Free exchange will continue its series on the tomb over the coming weeks. (Most recent installment here.) Staying tuned, Bill Moyers provides a live interview with Piketty and Krugman, discussing the book that has in the host’s words, shaken the foundation and rattled clichés. Also, Stiglitz and Durlaf join Krugman and Piketty live here. Political discourse appears to be alive and well.
Threats and Optimism in Europe
The growing specter of deflation has come into greater focus in recent weeks (See Bloomberg 3-part series). Jacob Funk Kirkegaard outlines short-term policy options for the ECB and scenarios for the last two quarters of 2014 (Part I and Part II). Sweden’s deflationary tailspin as described by Krugman (here and here) reiterates distaste for what he calls “sadomonetarism” and cautions all who consider such a path. Spiegel suggests ECB deflationary worries as an unnecessary response to natural readjustments.
Silvia Merler (Bruegel) reports a drying of European liquidity and calls for unconventional measures. David Keohane, continues support of negative deposit rates to signal the ECB means business (FT Alphaville). But, Mr. Sinn, (in Project Syndicate) forecasts a seventh phase in the euro crisis: increased moral hazard. Amidst Andalucian investigations, uncertainty in Italian politics (Eurointelligence) and a Greek surplus that may involve a parallax view on the part of Eurostat, (Real Time Brussels), one is reminded (Eurointelligence) that much is in the eye of the beholder.
Offering a way forward, VoxEU looks at innovation activities and productivity growth in Closing the US-EU Productivity Gap. Much of the gains are deemed to be coming from peripheral economies, noteworthy as the question of German leadership hangs in limbo (Project Syndicate). According to Michael Spence, also in Project Syndicate, Spain is on the rise and given many of its adjustments may show a way forward.
Russia and the Ukraine Question
Jeffery Sachs (at Project Syndicate) highlights the risks of extended tensions between Russia and the European and American economies. With capital outflows rising, credit availability and joint venture initiative already strained before extensive sanctions, the question is raised if Mr. Putin can see the potential detriment of a second Cold (or Hot) War. Multilateralism, Western trade linkages, and technology transfers in key sectors should not be easily dismissed but considered critical to a healthy Russian economy. Other key indicators of stress in the Russian economy include high inflation, a declining ruble, stocks heading south, growth at 1% and shrinking (Dan Crum, FT Alphaville).
Jim O’Neil (Bruegel) underscores a lack of international financial support—deemed a necessary component for Ukraine—due to friction in the U.S. Congress but Vice President Biden, may produce more results, with possible sanctions to come next week. Meanwhile, Europe remains divided on an appropriate strategy. OpenEurope reports disparate interests and differing views on the efficacy and outcome of intervention. Quantifying the lack of policy cohesion, OpenEurope reports the average European ranking as .4 (-5 to +5 scale, dove to hawk), indicating weak inclination to intermediate. Diplomacy and intervention outcomes remain are uncertain.
The Short View… “Japan is back and thriving”
Japan is poised and preparing for a second opening, as described by Prime Minister Abe in Project Syndicate and here. Increased foreign investment and trade agreements are on the table (elaboration of TTP), “womenomics” plays a central part of the strategy, and security concerns take their shape. Macroeconomic reverberations may or may not be subject of concern as with the case of China (see previous blogspot on the Japanese dynamic and here and here for a look at the yuan). What is clear is Japan’s desire to take on a greater leadership role in the region and beyond.
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