The real deal

It’s ironic that one of the most formative speeches in American history, that of Theodore Roosevelt on August 31, 1910, was not well received by many of the his former supporters while he’d been President. It was labeled “communistic”, “socialistic”, and “anarchistic”. It was also hailed as one of the greatest orations ever given on American soil.

Roosevelt argued:

“In every wise struggle for human betterment one of the main objects, and often the only object, has been to achieve in large measure equality of opportunity. In the struggle for this great end, nations rise from barbarism to civilization, and through it people press forward from one stage of enlightenment to the next. One of the chief factors in progress is the destruction of special privilege.”

Now with the benefit of hindsight and the availability of data, Roosevelt’s belief has been vindicated.

The speech influenced policies directed at providing equality of opportunity, primarily through education. That same thinking influenced the introduction of the G.I. Bill, which as an expression of gratitude to the soldiers that had survived the second world war, also gave back to the nation through the tremendous years of economic growth that followed.

Given the abundance of academic support, the dearth of any informed argument to the contrary, it is surprising that neither of the candidates for the upcoming presidential election has seized this obvious opportunity to reestablish America’s economic progress.

Perhaps it’s because the descendents of those earlier critics still have too much influence.

More at:
The New Nationalism
Inequality from generation to generation: the United States in Comparison Miles Corak
Community-Driven Development, Participation, and Inequality: What Does the Evidence Say?
Inequality and Growth: What Can the Data Say?∗ Abhijit V. Banerjee and Esther Duflo
Having your cake
A True Progressivism

That’s rich

It’s not unusual to hear a political debate where socialism and capitalism are portrayed as opposites.

In these discussions socialism is often depicted as Robin Hood taking from the rich to give to the poor.

The proponent for capitalism argues that entrepreneurs create jobs, and diminishing their returns acts as a disincentive, that if sufficiently severe will eventually drive the capitalist onto another country’s shores. Low taxes, they continue, will retain the entrepreneur’s skills and capital, and with them the jobs that they create.

The counterargument is that the capitalists contribution does not exist in a vacuum, and that their skills are frequently the product of a privileged background. The gross inequality between the rich and the poor is unjust and undeserved.

Often the parties accept the premise that capitalism generates greater aggregate wealth for the country – so a bigger cake, and so the capitalist argues everyone is better off, although it is the risk taker, the entrepreneur, that gains the most.

It seems from recent research that that belief is wrong. Socialist systems, at least those where the disparity between the richest and the poorest is small generate more aggregate wealth than those where the imbalance is huge.

Switzerland, the country with arguably the best socialist system in the world, also has the highest wealth per person ($468,200). Next down the list is Australia ($355,000), also with a good social system. Then Norway ($326,000) with a social system comparable with the best. The wealth per capita in the U.S. ($262,400) does not offer a convincing argument that raw capitalism makes everyone wealthier.

Part of the reason for this mistaken belief is the metric that is most often used to portray national wealth, the Gross Domestic Product (GDP). GDP is a measure of economic activity for a year, not the accumulation of wealth.

The narrowing of inequality in the United States in the period between in the mid-20th century also coincides with one of its strongest periods of economic growth. Claudia Golden and Larry Katz, two economists at Harvard, attribute this success to a dramatic boost in education earlier in the century.

Roosevelt designed trust busting regulation to weaken America’s robber barons, so making the American dream a realistic proposition to those reaching for it. Banking, a big source of wealth in the early 20th century, was heavily regulated after the depression.

Since the 1970s the inequality gap has widened again. This is coincided with a relaxation in the banking regulations and a fourfold accumulation of wealth in the top 0.01% of all households in the United States. In spite of globalization and the IT revolution economic growth during this period has slowed dramatically in the developed world.

So, the research suggests, a progressive balance of legislation, informed tax regulations, equitable social systems designed to protect the poor, without corruption and cronyism, makes the country’s people wealthier.

And that requires good leadership.

More at:
As you were
Credit Suisse Global Wealth Databook 2012
Credit Suisse Global Wealth Report 2012 
Inequality among World Citizens: 1820-1992 François Bourguignon; Christian Morrisson
English Workers’ Living Standards During the Industrial Revolution: A New Look* By PETER H. LINDERT AND JEFFREY G. WILLIAMSON
MEASURING ANCIENT INEQUALITY Branko Milanovic Peter H. Lindert Jeffrey G. Williamson
AMERICAN INCOMES BEFORE AND AFTER THE REVOLUTION Peter H. Lindert Jeffrey G. Williamson
AMERICAN INCOMES 1774-1860 Peter H. Lindert Jeffrey G. Williamson
Intergenerational Economic Mobility in the U.S., 1940 to 2000 Daniel Aaronson and Bhashkar Mazumder

Poor people

There are more than one billion people living on less than $1 dollar per day. Anyone interested in knowing what that’s like should read Katherine Boo’s compelling book “Behind the Beautiful Forevers”.

It follows the daily life of a group of slum dwellers surviving in the shadow of the extravagant five star hotels that have risen alongside Mumbai’s international airport. Through the eyes of children it shows how hope, the most powerful escape from the poverty trap, is demolished by deceit and corruption.

There is a great deal of academic literature trying to explain why the rich world’s efforts to provide aid to the poor have failed. The story of these peoples’ lives provides a better answer.

Another author, also one who has spent years living with the poorest of the poor, Esther Duflo provides academic insights in her book “Poor Economics” coauthored with Abhijit V. Banerjee. She agrees that hope is the key ingredient to defeating the poverty trap.

And that hope is what politicians, in many countries, abuse to get themselves elected.

Whose fault is that?

The recovery from the great recession of 2008 has been extraordinarily slow.

Now, as more data is available, the reasons for this sluggish convalescence are becoming evident. Businesses, uncertain of what the future holds, are not investing. The piles of cash that large American and Western European businesses are now hoarding provides proof.

Interviewed executives of Western European companies have explained that uncertainty about the euro is the reason. In America it’s the “fiscal cliff”.

Recently announced statistics reveal that unemployment is now below the magical 8% figure. Two researchers from the Federal Reserve Bank of San Francisco have established that unemployment would be 1% lower, were it not for the uncertainty.

The politicians will be pointing at each other, and for once they’ll be right.

More at:
Uncertainty Shocks are Aggregate Demand Shocks
Employment will decide the election. Really?
Give us a brake
Iron enters the soul

Open letter to the chairman of Volkswagen

Monday, October 1, 2012

Attention Mr Piëch
The Chairman
Volkswagen AG
Wolfsburg
Germany

Dear Sir

For most people purchasing a new car is the second largest single outlay that they make. As the vehicle is driven from the showroom its value drops by as much as 30%, and that is the start of a steady decline.

As the leading motor industry executive, you will certainly be familiar with the huge expenses that the business incurs in advertising designed to help reassure recent buyers that their decision to procure your product was a wise one. It will also be familiar knowledge that converting a new customer is 10 times more difficult than keeping an existing one.

You will surely be disappointed to hear that the expense in successfully converting me to the Volkswagen brand was wasted. Volkswagen Delhi South, the dealer with which I wanted to place the order, after numerous requests, has failed to produce the a Pro Forma invoice, in the format required by the Ministry of External Affairs for diplomatically registered vehicles.

Although they have received specific instruction, as well as examples from dealers selling other brands, after weeks they continue to produce nothing but excuses and more false promises.

This leaves me no choice other than to place the order for another brand, from one of the dealers who know what is required, and can produce this simple document without delay.

Sincerely,
Roy Dalle Vedove