DOI•
Inequality and Economic Growth
01 Jan 2016-pp 134-155
TL;DR: In this paper, the authors argue that, far from being either necessary or good for economic growth, excessive inequality tends to lead to weaker economic performance, and argue for a range of policies that would increase both equity and economic well-being.
Abstract: IN 1HE middle of the twentieth century, it came to be believed that 'a rising tide lifts all boats': economic growth would bring increasing wealth and higher living standards to all sections of society. At the time, there was some evidence behind that claim. In industrialised countries in the 1950s and 1960s every group was advancing, and those with lower incomes were rising most rapidly. In the ensuing economic and political debate, this 'rising-tide hypothesis' evolved into a much more specific idea, according to which regressive economic policies-policies that favour the richer classes-would end up benefiting everyone. Resources given to the rich would inevitably 'trickle down' to the rest. It is important to clarify that this version of old-fashioned 'trickle-down economics' did not follow from the postwar evidence. The 'rising-tide hypothesis' was equally consistent with a 'trickle-up' theory-give more money to those at the bottom and everyone will benefit; or with a 'build-out from the middle' theory-help those at the centre, and both those above and below will benefit. Today the trend to greater equality of incomes which characterised the postwar period has been reversed. Inequality is now rising rapidly. Contrary to the rising-tide hypothesis, the rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks. This is partly because the extraordinary growth in top incomes has coincided with an economic slowdown. The trickle-down notion-along with its theoretical justification, marginal productivity theory-needs urgent rethinking. That theory attempts both to explain inequality-why it occurs-and to justify it-why it would be beneficial for the economy as a whole. This chapter looks critically at both claims. It argues in favour of alternative explanations of inequality, with particular reference to the theory of rent-seeking and to the influence of institutional and political factors, which have shaped labour markets and patterns of remuneration. And it shows that, far from being either necessary or good for economic growth, excessive inequality tends to lead to weaker economic performance. In light of this, it argues for a range of policies that would increase both equity and economic well-being.
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TL;DR: In this article, the authors developed the EIRIN flow-of-funds behavioural model to simulate the introduction of green fiscal policies and green sovereign bonds, and display their effects on firms' investments in the brown and green sector, on unemployment, on the credit and bonds market.
138 citations
TL;DR: The New Jim Crow as discussed by the authors examines the legal and social framework that supports the regime of mass incarceration of black men in the United States and reveals disturbing parallels between the racial caste systems of slavery, Jim Crow, and today's mass incarceration in our country.
Abstract: In The New Jim Crow, civil rights lawyer and Ohio State University law professor Michelle Alexander examines the legal and social framework that supports the regime of mass incarceration of black men in the United States. As Alexander carefully recounts, beginning in the early 1980s with President Reagan’s declaration of a ‘‘War on Drugs,’’ a number of policy initiatives, Supreme Court decisions, and vested interests, aided and abetted by political divisiveness and public apathy, coalesced to create the social, legal, and political environment that has supported mass incarceration ever since. Alexander’s analysis reveals disturbing parallels between the racial caste systems of slavery, Jim Crow, and today’s mass incarceration of black men in our country. In the end, however, Alexander shies away from proposing a potentially successful strategy for redressing the dilemma she so carefully depicts. Rather, she ‘‘punts,’’ or ‘‘cops out,’’ as we would have said in earlier eras. Alexander begins her analysis with a brief history of the several hundred years of variously oppressive race relations between whites and blacks in the United States. Quite correctly, Alexander observes that this history may be fruitfully understood as a sequence of renascent forms of social control refashioned to the new tenor of the times. Thus, Alexander traces the history of American political rhetoric in the latter half of the twentieth century where ‘‘law and order’’ comes to constitute code for ‘‘the race problem’’ and a policy of malign neglect toward African Americans is transmuted into an active political strategy devised to develop Republican political dominance in the southern states. Ultimately, as we know, the twin themes of crime and welfare propelled Ronald Reagan into the presidency. Searching for a follow-up initiative to define his early presidency, Reagan settled on increased attention to street crime, especially drug law enforcement. In short, the War on Drugs was not some disembodied social agenda, nor was it driven by public demand, as only two percent of Americans believed crime was an important issue at the time. Rather, as Alexander shows, the War on Drugs was a direct outgrowth of race-based politics and therefore the fact that it has had a disproportionate impact on young black men should come as no surprise. Alexander next turns her attention to the interwoven details of the social, legal, and political fabric that wrap the War on Drugs in supportive garb. As Alexander recites, the War on Drugs is the cornerstone on which the current regime of race-based mass incarceration rests because: (a) convictions for drug offenses are the single most important cause of the explosion in incarceration rates since 1980, and (b) black Americans are disproportionately arrested, convicted, and subjected to lengthy sentences for drug offenses when compared to white Americans, even though drug use rates among white Americans have been consistently shown to be higher than for black Americans. Thus, any practices or policies that support the execution of the War on Drugs support the continuation of our movement toward mass incarceration of an entire category of Americans. Among the many developments Alexander reviews, one may note: changes in Supreme Court doctrine with respect to police stops, warrantless searches, consent searches, and suspicionless police sweeps for drug activity; federal initiatives to offer grants to support narcotics task forces; the development and expansion of modern drug forfeiture laws which permitted state and local law enforcement agencies to keep the vast majority of seized cash and assets in drug raids; and the legislative enactment of mandatory minimum and ‘‘three strikes’’ sentencing schemes, and their ready
114 citations
TL;DR: Contractor argues that the coronavirus outbreak only had temporary effects on the global economy, and that post COVID-19 globalization will resume as mentioned in this paper, but the pandemic will have significant long-lasting effects on globalization.
Abstract: Contractor argues that the coronavirus outbreak only had temporary effects on the global economy, and that post COVID-19 globalization will resume. We posit that the pandemic will have significant long-lasting effects on globalization. Our arguments are grounded in three observations. First, the pandemic has increased inter- and intra-country inequalities and has reversed trends in poverty reduction, which will intensify anti-globalization sentiments in the future. Second, the pandemic has fueled populism, nationalism, and the return of the interventionist state in the economy, which has paved the way for a rise in protectionism. Third, governmental responses to the COVID-19 crisis have undermined the multilateral institutions that have thus far facilitated globalization. These forces have resulted in growing global uncertainty and higher costs in international transactions. We argue that global value chains’ reconfiguration will result in a less globalized, and more regionally fragmented world economy. We conclude by suggesting two fertile opportunities for international business scholars: researching commitment failure in international transactions and studying resilience, as illustrative examples of lines of inquiry that can help explain why this latest pandemic will compromise trends in globalization that have dominated the world economy for a long time.
55 citations
Posted Content•
TL;DR: In this paper, the authors introduce a new specification of the Kuznets curve, where turning point per capita income is conditioned to the level of financial development and provide new evidence on real income convergence for the euro area (EA) since the mid-1980s, with a special focus on the subprime and sovereign debt financial crises.
Abstract: The paper introduces a new specification of the Kuznets curve, where turning point per capita income is conditioned to the level of financial development. Within the proposed framework, it then provides new evidence on real income convergence for the euro area (EA) since the mid-1980s, with a special focus on the subprime and sovereign debt financial crises. We find strong empirical evidence in favor of an EA-wide steady-state financial Kuznets curve and of ongoing convergence across EA members toward a common per capita income turning point level. By means of a counterfactual analysis, we then detect a worsening in income inequality for all the EA countries during the financial crises, and not only for the peripheral countries, which were most strongly hit. From a policy perspective, our findings highlight the role of financial stability in fostering not only economic growth, but also to achieve a more even distribution of income.
51 citations
TL;DR: In this article, the authors show that a well-functioning financial system and its smooth development appear to be instrumental not only to economic growth, but also to a more egalitarian income distribution.
46 citations
References
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TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Abstract: Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of their firms' stock, and ownership levels have declined over the past 50 years. We hypothesize that public and private political forces impose constraints that reduce the pay-performance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis.
4,859 citations
TL;DR: This Time Is Different as mentioned in this paper presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes.
Abstract: Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.
4,595 citations
Book•
01 Jan 2012
TL;DR: In this article, Stiglitz argues that inequality is both the cause and consequence of the failure of political systems and can lead to economic systems and identifies three major themes: how markets don't work the way they are supposed to; how political systems fail to correct the shortcomings of the market; and how current economic and political systems are fundamentally unfair.
Abstract: In this timely book, Stiglitz argues that inequality is both the cause and consequence of the failure of political systems and can lead to the failure of economic systems. He identifies three major themes: how markets don't work the way they are supposed to; how political systems fail to correct the shortcomings of the market; and how current economic and political systems are fundamentally unfair. Stiglitz draws on his deep understanding of economics to show that inequality is not inevitable.
1,371 citations
TL;DR: The authors analyzes the role of competitive compensation schemes (in which pay depends on relative performance) in economies and imperfect information, showing that when environmental uncertainty is large, such schemes are preferable to individualistic reward structures; in the limit, as the number of contestants becomes large, expected utility may approach the first best (perfect information) level.
Abstract: This article analyzes the role of competitive compensation schemes (in which pay depends on relative performance) in economies and imperfect information. These compensation schemes have desirable risk, incentive, and flexibility properties; they provide for an automatic adjustment of rewards and incentives in response to common changes in the environment. When environmental uncertainty is large, such schemes are shown to be preferable to individualistic reward structures; in the limit, as the number of contestants becomes large, expected utility may approach the first-best (perfect information) level. We study the design of contests, including the optimal use of prizes versus punishments and absolute versus relative performance standards. The analysis can also be viewed as a contribution to the multiagent, single-principal problem.
1,295 citations
01 Jan 2004
TL;DR: Pay without performance: The Unfulfilled Promise of Executive Compensation (Harvard University Press, September 2004) as mentioned in this paper provides a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and produced widespread distortions in pay arrangements.
Abstract: This paper contains a draft of Part III of our forthcoming book, Pay without Performance: The Unfulfilled Promise of Executive Compensation (Harvard University Press, September 2004). The book provides a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and produced widespread distortions in pay arrangements. The book also examines how these flaws and distortions can best be addressed. Part III of the book examines how managerial influence has operated to reduce the performance-sensitivity of executive pay. Among other things, we examine the structure of non-equity compensation, the design of conventional option plans, the use of restricted stock grants, and managers’ freedom to unload options and shares.
1,193 citations