More on this book
Community
Kindle Notes & Highlights
Read between
July 23 - August 24, 2015
Yet, among the countries with the greatest inequality are those with the most natural resources. Evidently,
None of them, who made such large contributions to our well-being, are among those most rewarded by our economic system.
Many of Russia’s current oligarchs, for example, obtained their initial wealth by buying state assets at below-market prices and then ensuring continuing profits through monopoly power.
Three factors contributed to this increased monopolization of markets. First, there was a battle over ideas about the role that government should take in ensuring competition. Chicago school economists (like Milton Friedman
A second factor giving rise to increased monopoly is related to changes in our economy. The creation of monopoly power was easier in some of the new growth industries.
An obvious example is the computer operating system: just as it’s very convenient for everyone to speak the same language, it’s very convenient for everyone to use the same operating system. Increasing interconnectivity across the world naturally leads to standardization. Those with a monopoly over the standard that is chosen benefit. As we have noted, competition naturally works
That’s where the third factor that has increased monopoly power in the United States comes in: businesses found new ways of resisting entry, of reducing competitive pressures. Microsoft provides the example par excellence. Because it enjoyed a near-monopoly on PC operating systems, it stood to lose a lot if alternative technologies undermined its monopoly.
Microsoft decided to squelch this potential competitor. It offered its own product, Internet Explorer, but the product couldn’t compete in the open market. The company decided to use its monopoly power in PC operating systems
creating anxiety about compatibility among users by programming
Modern auction theory has shown how changing the design of the auction can generate much more revenue for the government. These theories were tested out in the auction of the spectrum used for telecommunications beginning in the 1990s, and they worked remarkably well, generating billions for the government.
The persistence of such distortionary subsidies stems from a single source: politics.
The design of the program reveals its true objective: to redistribute money from the rest of us to the rich and corporate
Immigration, legal and illegal alike, can increase the supply of labor. Increasing the availability of education may reduce the supply of unskilled labor and increase the supply of skilled labor. Changes in technology can lead to reduced demands for labor in some sectors, or reduced demands for some types of labor, and increases in the demand for labor of other types.
American workers were, in a sense, victims of their own success: their increased productivity did them in. As
they’ve helped write a set of rules that allows them to do well, even in the crises that they help create.
imagine, for a moment, what the world would be like if there was free mobility of labor, but no mobility of capital.26 Countries would compete to attract workers. They would promise good schools and a good environment, as well as low taxes on workers. This could be financed by high taxes on capital. But that’s not the world we live in, and that’s partly because
They threaten the country: unless you lower our taxes, we will go elsewhere, where we are taxed at lower rates. As corporations have pushed a political agenda
There are two critical aspects to this contention. The first is that globalization will increase the country’s overall output as measured, for instance, by GDP. The second is that if GDP is increased, trickle-down economics will ensure that all will benefit. Neither argument is correct. It
But markets often don’t work so nicely. For example, workers displaced by imports often can’t find another job. They become unemployed. Moving from a low-productivity job in a protected sector to unemployment lowers national output. This is what has been happening in the United States. It happens when there is bad
Among the winners from globalization in the United States and some European countries, as it’s been managed, are the people at the top. Among the losers are those at the bottom, and increasingly even those in the middle.
Many of the poor have traditionally lived in close proximity to the rich—partly because they provided services to them.
U.S. neighborhoods are even segregated between homeowners and renters. This pattern cannot be explained by race or the presence of children in the household, because it occurs within racial groups and among households with children.
The more divided a society becomes in terms of wealth, the more reluctant the wealthy are to spend money on common needs. The rich don’t need to rely on government for parks or education or medical care or personal security. They can buy all these things for themselves. In the process, they become more distant from ordinary people.
More persuasive as an explanation of the Iraq War than Bush’s avowed determination to eliminate one dictator
was the attraction of Iraqi oil (and perhaps the huge profits that would accrue to Bush devotees, including Vice President Richard Cheney’s Halliburton Corporation).
Fuel costs are critical for airlines, meaning that airline CEOs got a bonus anytime the price of oil fell. A good incentive system might base pay on how the company performs relative to others in the industry, but few firms do this. That’s
In some circumstances, a focus on extrinsic rewards (money) can actually diminish effort. Most (or at least many) teachers enter their profession not because of the money but because of their love for children and their dedication to teaching.
In short, contrary to the assertion of the Right that incentive pay is necessary to the country’s maintaining its high level of productivity, the kinds of incentive pay schemes employed by many corporations, while they create more inequality, are actually counterproductive.
have estimated that the tax rate at the top should be around 70 percent—what it was before President Reagan started his campaign for the rich.68
those trying to disenfranchise the poor don’t describe it that way. Economists and statisticians distinguish two kinds of errors: someone who is qualified to vote not being allowed to vote, and someone who is not qualified to vote being allowed to vote. Republicans tend to claim that the latter is the more important problem, Democrats
The result is that one in four of those eligible to vote—51 million Americans or more—are not registered.
Information that is consistent is remembered, seen as relevant, and reinforces beliefs. Information that is inconsistent is more likely to be ignored, discounted, or forgotten. This distortion is called “confirmatory bias.”14
beliefs about how atoms behave don’t affect how atoms actually behave, but beliefs about how the economic system functions affect how it actually functions. George
paid lower wages than other equally qualified individuals, they will and should feel that they are being treated unfairly—but the lower productivity that results can, and likely will, lead employers to pay lower wages. There can be a “discriminatory equilibrium.”
In promoting products, many firms have felt few qualms about providing distorted information—or even lying. Thus the cigarette companies succeeded in casting doubt on the scientific evidence of the health hazards of smoking, even though they had in their own possession evidence to the contrary. Similarly, Exxon exhibited no compunction in supporting so-called think tanks casting doubt on the scientific evidence on the risks of global warming—even though there was overwhelming evidence to the contrary.
However ideas get disseminated, much of the battle is, as I have suggested, over framing; and in that battle, words are pivotal.
The money was supposed to recapitalize the banks, and recapitalizing the banks was supposed to lead to more lending. But money given to the banks that went to pay bonuses couldn’t simultaneously be used to recapitalize the banks. The bankers and their backers won the momentary battle—they got the money into the coffers of the banks and the bankers.
There is a simple reason for the failure of liberalization: when social returns and private rewards are misaligned, all economic activity gets distorted, including innovation.
The innovation of the financial sector was directed not to improving the well-being of Americans but to improving the well-being of bankers. At
It is obvious now that the standard way of measuring economic performance, the level of real per capita GDP (the sum of all of the goods and services produced inside the country, divided by the number of people in the country, adjusted for inflation) and the rate at which it is growing, is not a good measure of success. America has been doing fairly well in terms of real per capita GDP, and those numbers lulled it into thinking that all was going well.
We unanimously agreed not only that GDP was a bad, and potentially badly misleading, measure but that it could be improved upon.75 I
This chapter has shown that the wealthy have the instruments, resources, and incentives to shape beliefs in ways that serve their interests. They don’t always win—but it’s far from an even battle.
While investors lost $700 million in the deal, Citibank made $160 million.
Growing inequality, combined with a flawed system of campaign finance, risks turning America’s legal system into a travesty of justice. Some may still call it the “rule of law,” but in today’s America the proud claim of “justice for all” is being replaced by the more modest claim of “justice for those who can afford it.” And the number of people who can afford it is rapidly diminishing.
Since money has been increasingly going to the top, that’s where additional tax revenues have to come from. It’s
When an economy has high unemployment, the simple rule does not apply to the national budget. This is because an expansion of spending can actually expand production by creating jobs that will be filled by people who would otherwise be unemployed. A single household, by spending more than its revenues, cannot change the macroeconomy. A
Banks can also deposit money into the Federal Reserve, and they now, for the first time, receive interest on those deposits—another hidden transfer from taxpayers to the banks.15 Curiously, this latest gift may have discouraged lending. Paying banks not to lend meant that the incremental returns banks got from lending were lowered.
In a modern democratic society, governance is a central concern. How are those responsible for making critical decisions chosen? How are the decisions made? Is there sufficient transparency that there can be meaningful public scrutiny?
The focus on inflation distracted attention from things that were far more important: the losses from even moderate inflation were negligible in comparison to the losses from the financial
But ask someone who has been out of a job for four years what he would prefer—another year of unemployment or a slight increase in inflation from, say, 1 percent to 2 percent.
