October 15, 2016


Free Market of Ideas

Date Post / Link Title


21 Post Robert Putnam: Freedom And Justice For All
20 Post Scott Heron: Pause? What Pause?
Dean Ashenden: Who Killed Gonski?
19 Post Anne Case & Angus Deaton: Rising mortality among white middle-aged Americans in the 21st century
Link Dean Ashenden: Fact checking school funding
13 Post William Goetzmann: Debt and Deficit in 18th Century Britain
12 Post Fillette Uwase: Rice and Chips
11 Post George W Bush: Saving Lives
Erasmus Darwin: World Without End!
Link Ian Lowe: The Lucky Country?
9 Post Friedrich Nietzsche: The Recreation of the Warrior
7 Link Background Briefing: Agricultural Impacts of Climate Change
1 Link Paddy Manning: A Good Hard Look At The Greens
In Our Time: Zeno's Paradoxes


30 Post John Quiggin: Crisis? What Crisis?
Link John Quiggin: Innovation — the test is yet to come
John Quiggin: How New Zealand fell further behind
26 Post Robert Menzies: Lifters and Leaners
13 Post George Megalogenis: Tax Cuts for the Rich, Spending Cuts for the Poor
9 Link Michael Marmot: Advvancing Australia Fairly — Social Justice and the Health Gap


19 Post Roy Spencer: Christians For Carbon
13 Post Grattan Institute: Orange Book 2016 — Priorities for the next Commonwealth Government
7 Post Scott Stevens: The Augmented Reality Apocalypse


27 Post Babbage and Lovelace
18 Post Malcolm Turnbull: The Pretty Face Of An Ugly Party
16 Link Andrew Solomon: Family
15 Link Madeline Gleeso: Offshore processing of asylum seekers
Bill Schneider: Donald Trump
Big Ideas: Grattan Institute's election policy
12 Post Tom Switzer: Bring On The Culture Wars
11 Post First Australians: There is No Other Law
9 Post Malcolm Turnbull: The Australian Gulag
6 Post John Stuart Mill: Culture Without Freedom
5 Post Alexis de Tocqueville: Materialism


27 Post Amanda Vanstone: Small Government Liberalism
21 Link John Veron: The End of Coral
17 Post Francis Fukuyama: Political Order and Decay
11 Post Larry Marshall: No profit in climate change research
3 Link Background Briefing: The Inconvenient Scientists


11 Link TED Radio Hour: How Do We Move Beyond The Darkest Moments In Our Lives?
9 Post Live Long and Prosper: The Needs of the Many


20 Link Rear Vision: Australia's Mining Boom — A Missed Opportunity
12 Post Scientific American: Population vs Religion
10 Link Melissa Fleming: More Children Overboard


28 Link Science Show: Been there done that — CSIRO's attitude to climate science
16 Post Live Long and Prosper: Love is a Warm Gun


28 Post Tony Abbott: The Logic of Bigotry — Muslims, Terrorists, and Refugees
21 Post Isaiah Berlin: The bright and cloudless civilisation of the future
11 Link David Eagleman: The story of your brain
8 Post Milton Friedman: The Great Vacation
8 Link A History of Ideas: Ayn Rand and Selfishness
7 Link The Report: Iraq, 2003
5 Link The Infinite Monkey Cage: What is Race?
Seriously: Trump and the Politics of Paranoia
Costing The Earth: In Conversation with David Attenborough


Link Catalyst: World Fire
17 Post Rudyard Kipling: Mesopotamia
16 Post Karl Popper: Faith in Reason
13 Post David Hume: The Merit of Ignorance
10 Post Georg Hegel: The End of History

Robert Putnam

Green Army: Persons of Interest

Edmund Burke (1729–1797):
The laws of commerce are the laws of nature, and therefore the laws of God.
(Thoughts and Details on Scarcity, 1800)

John D Rockefeller, Jr (1874–1960):
The growth of a large business is merely a survival of the fittest …
The American Beauty rose can be produced in the splendor and fragrance which bring cheer to its beholder only by sacrificing the early buds which grow around it.
This is not an evil tendency in business.
It is merely the working out of a law of nature and a law of God.

Robert Putnam:
The dominant public ideology of the Gilded Age had been social Darwinism.
Its advocates had argued that social progress required the survival of the fittest — with little or no interference by government with the “natural laws of the marketplace.”
In a society so organized, the ablest would succeed, the feckless would fail, and the unhindered process of elimination would ensure social progress.
In important respects this [late 19th century] philosophy foreshadowed the libertarian worship of the unconstrained market that has once again become popular in [late 20th century] America.
(Bowling Alone, 2001, p 378)

Sean Reardon [Sociologist, Stanford University]:
The achievement gap [in education] between children from high- and low- income families is roughly 30–40% larger among children born in 2001 than among those born twenty-five years earlier.
(The Widening Academic Achievement Gap Between the Rich and the Poor: New Evidence and Possible Explanations, in Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances, Greg J Duncan and Richard M Murnane (Eds), Russell Sage Foundation, 2011)

Andrew Cherlin:
The wages of men without college degrees have fallen since the early 1970s, and the wages of women without college degrees have failed to grow.
(Demographic Trends in the United States: A Review of Research in the 2000s, Journal of Marriage and Family, 72, June, 2010, p 404)

Freedom and Justice for All

Robert Putnam

In the quarter century between 1979 and 2005, average after-tax income (adjusted for inflation) grew
  • by $900 a year for the bottom fifth of American households,
  • by $8,700 a year for the middle fifth, and
  • by $745,000 a year for the top 1% of households. …
(p 35)

From 2009 to 2012, the real incomes of the top 1% of American families rose 31%, while the real incomes of the bottom 99% barely budged (up less than half a percentage point).
(p 36)

In terms of average wages, a college degree was worth 50% more than a regular high school degree in 1980, but by 2008 the college degree was worth 95% more.
(p 184)

[The] net worth of college-educated American households with children rose by 47% between 1989 and 2013, whereas among high school-educated households net worth actually fell by 17% during that quarter century.
(p 36, emphasis added)

[The] growing access by poor kids to college does not mean growing access to selective colleges and universities.
Increasingly, poor kids who go on to college are concentrated in community colleges …
Community colleges can play a valuable role as a ladder out of poverty …
[However, in] terms of entry into more selective institutions, which … offer the best prospects for success in America, the class gap has actually widened in recent years. …
By 2004, in the nation’s “most competitive” colleges and universities … kids from the top quartile of the socioeconomic scale outnumbered kids from the bottom quartile by about 14 to one.
(p 185)

[Furthermore, much] of the recent growth in enrollment in postsecondary institutions by low-income students has been concentrated in the rapidly expanding for-profit sector …
In 2013 this sector attracted 13% of all full-time undergraduates, compared to 2% in 1991.
These students are disproportionately from low-income backgrounds (as well as older and ethnic minorities).
Giving a leg up to such students could narrow the opportunity gap …
[However,] for-profit institutions are twice as expensive for students as public universities — and have much worse records in terms of
  • graduation rates,
  • employment rates, and
  • earnings.
Not surprisingly, therefore, students at for-profit institutions have
  • much higher debt burdens (especially government-backed loans) and
  • much higher default rates.
(p 186)

David J Deming, Claudia Goldin, and Lawrence F Katz, “The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?,” Journal of Economic Perspectives 26 (Winter 2012): 139–64, show that the outcomes from for-profit institutions are worse, even holding constant the students’ background characteristics.
(Note 78, p 338)

The class gap in college completion, which was already substantial 30 to 40 years ago, has steadily expanded.
This matters hugely, because completing college is much more important than entering college on all sorts of levels:
  • socioeconomic success,
  • physical and mental health,
  • longevity,
  • life satisfaction, and more. …
(p 187, emphasis added)

Kids from low-income backgrounds … are working more or less diligently to improve their prospects in life, but no matter how talented and hardworking they are, at best they are improving their play at checkers, while upper-class kids are widening their lead at three-dimensional chess. …

[Changes in family] structure, parenting, childhood development, peer groups, [and] extracurricular opportunities [have all] contributed to the widening gap in college graduation rates in recent decades, along with the neighborhood and community influences …
(p 188)

The burdens on the poor kids have been gathering weight since they were very young.
Rising tuition costs and student debt are the final straw, not the main load. …

As the twenty-first century opened, a family’s socioeconomic status had become even more important than test scores in predicting which eighth graders would graduate from college. …
[Most shockingly,] high-scoring poor kids are now slightly less likely (29%) to get a college degree than low-scoring rich kids (30%).
(p 190)

[Social] capital can protect privileged kids from the ordinary risks of adolescence.
Studies during the past 40 years have consistently shown that, if anything, drug usage and binge drinking are more common among privileged teenagers than among their less affluent peers.
What is different, however, are the family and community “air bags” that deploy to minimize the negative consequences of drugs and other misadventures among rich kids. …
To be sure, social capital is not the only advantage that privileged kids have in confronting unexpected risks; … financial capital [also provides significant protection from the potentially catastrophic consequences of wayward behavior.]
(p 210)

[Class] segregation across America has been growing for decades, so fewer affluent kids live in poor neighborhoods, and fewer poor kids live in rich neighborhoods.
(p 217)

The pervasive growth of neighborhood economic segregation [first became evident shortly] after the rise in nationwide economic inequality in the 1970s.
The onset and aftermath of the Great Recession in 2008 only accelerated these disparities.
Given the manifold ways in which neighborhood economic differences affect the lives and opportunities open to young people, it is hardly surprising that neighborhood inequality across metropolitan areas is associated with less equality of opportunity.
[Unlike in the mixed neighborhoods of the past:]
  • the benefits of neighborhood affluence are [now] concentrated on rich kids [while]
  • the costs of neighborhood poverty are concentrated on poor kids.
The greater the inequality across neighborhoods,
  • the lower the rate of upward social mobility and
  • the greater the opportunity gap.
[Social] context (even apart from families and schools) powerfully conditions our kids’ chances of success in life.
(p 223)

Throughout [US] history, a pendulum has slowly swung between the poles of individualism and community, both in our public philosophy and in our daily lives.
In the past half century we have witnessed … a giant swing toward the individualist (or libertarian) pole in our culture, society, and politics.
At the same time, researchers have steadily piled up evidence of how important social context, social institutions, and social networks — in short, our communities — remain for our well-being and our kids’ opportunities.
(p 206)

(Our Kids: The American Dream in Crisis, 2015)

A half century [of] increased competition in the global marketplace, improved information technology, greater focus on short-term financial returns, and new management techniques have combined to make virtually all jobs more "contingent". …
One consequence of these changes has been increased employee anxiety, but there have been winners as well as losers.
More independence from the firm, flatter hierarchies, less paternalism, and more reward for merit and creativity rather than seniority and loyalty have been good for many firms and their employees.
Even when corporate morale and employee commitment have been badly damaged, as they typically are, research often finds that corporate productivity has improved.
[Nevertheless, in terms of] their impact on trust and social connectedness in the workplace … the balance sheet is negative.

(Bowling Alone, Touchstone, 2001, p 88)

Inequality of Outcome = Inequality of Opportunity

John Quiggin: Professor of Economics, Queensland University

Among the developed countries,
  • the United States has the lowest social mobility on nearly all measures, and
  • the European social democracies [have] the highest.
(p 162)

If inequality of outcomes is entrenched for a long period, it inexorably erodes equality of opportunity.
Parents want the best for their children.
In a highly unequal society, wealthy parents will always find a way to guarantee their children a substantial head start {[—] most obviously through private schooling, expansion of which has been a central demand of market liberals. …}
(pp 164-5)

[Between] 1985 and 2000, the proportion of high-income (top 25 percent) students among freshmen at elite [US] institutions rose steadily, from 46 to 55 percent.
[By contrast, the] proportion of middle-income students (between the 25th and 75th percentiles) fell from 41 to 33 percent.
(p 159)

Those with old money, but less than stellar intellectual resources, have their highly effective affirmative action program — the (formal or informal) legacy admission system by which the children of alumni gain preferential admission. …
William Bowen and Derek Bok:
[The] overall admission rate for legacies was almost twice that for all other candidates.
(The Shape of the River: Long-Term Consequences of Considering Race in College and University Admissions, PUP, 1998)
(p 164)

A British study [has also] found that “low ability children with high economic status” … experienced the largest increases in educational attainment.
(p 164, emphasis added)

The Gini coefficient is a standard statistical measure of inequality.
It is equal to half of the average income gap between households, divided by the mean income.
So if average income is $10,000, then a Gini of 0.25 means that the expected income gap between two randomly selected individuals is:
2 × 0.25 × $10,000 = $5000. …

[In] the 1980s [the] most striking increases in inequality were in Britain under the Thatcher government, where the Gini coefficient rose from 0.25, a value comparable to that of Scandinavian social democracies to 0.33, which is among the highest values for developed countries.

New Zealand [cut] the top marginal rate of income tax from
  • 66% in 1986 to
  • 33% by 1990.
Unsurprisingly, this pushed the Gini index from an initial value 0.26 to 0.33 by the mid-1990s.
(p 140)

When the dust cleared, however, income per person in New Zealand had fallen from broad parity with Australia (a position sustained from European settlement to the late 1970s) to two-thirds of the Australian level.
The gap stabilized around 2000, but has not been reduced.
(p 221)

While the problem is worse in the United States than elsewhere because of highly unequal access to health care, high levels of inequality produce unequal health outcomes even in countries with universal public systems.
Children growing up with the poor health that is systematically associated with poverty can never be said to have a truly equal opportunity.
(p 165)

(Zombie Economics, PUP, 2012)

Rising mortality among white middle-aged Americans in the 21st century

Anne Case & Angus Deaton: Woodrow Wilson School of Public and International Affairs and Department of Economics, Princeton University

[There has been] a marked increase in the all-cause mortality of middle-aged white non-Hispanic men and women in the United States between 1999 and 2013.
This change reversed decades of progress in mortality and was unique to the United States; no other rich country saw a similar turnaround.
The midlife mortality reversal was confined to white non-Hispanics …
[In all other] racial and ethnic [groups and age cohorts] mortality rates [have continued to] fall.
This increase for whites was largely accounted for by increasing death rates from
  • drug and alcohol poisonings,
  • suicide, and
  • chronic liver diseases [including] cirrhosis.

Although all education groups saw increases in mortality from suicide and poisonings, and an overall increase in external cause mortality, those with less education saw the most marked increases.
Rising midlife mortality rates of white non-Hispanics were paralleled by increases in midlife morbidity.
Self-reported declines in health, mental health, and ability to conduct activities of daily living, and increases in chronic pain and inability to work, as well as clinically measured deteriorations in liver function, all point to growing distress in this population. …

From 1978 to 1998, the mortality rate for US whites aged 45–54 fell by 2% per year on average, which matched … the average over all other industrialized countries. …
After 1998, other rich countries’ mortality rates continued to decline by 2% a year.
[By] contrast, US white non-Hispanic mortality rose by half a percent a year. …
If it had continued to fall at its previous (1979‒1998) rate of decline of 1.8% per year, 488,500 deaths would have been avoided in the period 1999‒2013, [including] 54,000 in 2013 [alone.]
(p 15078)

[In fact, all white non-hispanic] 5-y age groups between [30–64] have witnessed marked and similar increases in mortality from the sum of drug and alcohol poisoning, suicide, and chronic liver disease and cirrhosis over the period 1999–2013; the midlife group [differed] only in that the sum of these deaths is large enough that the common growth rate changes the direction of all-cause mortality.
(p 15080)

The fraction reporting being unable to work doubled for white non-Hispanics aged 45–54 [over the] 15-y period [— ie increasing from 4.7% to 9.2%. …]

Although the epidemic of pain, suicide, and drug overdoses preceded the financial crisis, ties to economic insecurity are possible.

After the productivity slowdown in the early 1970s, and with widening income inequality, many of the baby-boom generation are the first to find, in midlife, that they will not be better off than were their parents.
Growth in real median earnings has been slow for this group, especially those with only a high school education.
However, the productivity slowdown is common to many rich countries, some of which have seen even slower growth in median earnings than the United States, yet none have had the same mortality experience.

(Rising morbidity and mortality in midlife among white non-Hispanic Americans in the 21st century, PNAS, 112: 49, 8 December, 2015, p 15081)


Our Kids

July 23, 2016

Ministry of Plenty

Live Long and Prosper

George Gilder:
In order to succeed … the poor need most of all the spur of their poverty. …
(Wealth and Poverty, 1981)

Gary Becker:
All human behavior can be viewed as involving participants who:

  1. maximize their utility,
  2. form a stable set of preferences, and
  3. accumulate an optimal amount of information and other inputs in a variety of markets.

(Economic Approaches to Human Behavior, UCP, 1976, p 14)

George Orwell (1903–1950):
[Some] animals are more equal than others.
(Animal Farm, 1949)

Heinrich Heine (1797–1856):
Money is the God of our time, and Rothschild is his prophet.
(March, 1841)

Alexander Hamilton (1756–1804):
Why has government been instituted at all?
Because the passions of men will not conform to the dictates of reason and justice without constraint.
(Federalist No 15 Papers, 17 September, 1787)

John Kennedy (1917–1963):
And so, my fellow Americans:
  • ask not what your country can do for you;
  • ask what you can do for your country.
(Inaugural Address, 20 January, 1961)

Milton Friedman:
The free man will ask neither:
  • what his country can do for him; nor,
  • what he can do for his country.
(Capitalism and Freedom, 1962, emphasis added)

Isaiah Berlin (1909–1997):
[Total] liberty for wolves is death to [lambs.]
[Total] liberty of the powerful [and] the gifted, is not compatible with the rights to a decent existence of the weak and less gifted. …
Equality may demand the restraint of the liberty of those who wish to dominate … in order
  • to make room for social welfare,
  • to feed the hungry,
  • to clothe the naked,
  • to shelter the homeless,
  • to leave room for the liberty of others, [and]
  • to allow justice or fairness to exercised.
(The Pursuit of the Ideal, The Crooked Timber of Humanity: Chapters in the History of Ideas, 1990)

Thomas Jefferson (1743-1826):
Under pretence of governing, they have divided their nations into two classes:
  • wolves and
  • sheep.
Experience declares that Man is the only animal that devours its own kind.
For I can apply no milder term to the governments of Europe.
And to the general prey of the rich on the poor.
(Letter to Colonel Edward Carrington, 16 January, 1787)

Karl Popper (1902–1994):
[The] paradox of freedom, first discovered by Plato, … can be expressed by saying that unlimited freedom leads to its opposite, since without its protection and restriction by law, freedom must lead to a tyranny of the strong over the weak.
This paradox … was solved by Kant, who demanded that the freedom of each man should be restricted, but not beyond what is necessary to safeguard an equal degree of freedom for all.
(The Open Society and Its Enemies, 5th Ed, 1966, Routledge, pp 257-8)

PBS Frontline:
There was a phrase — "ripping someone's face off" — that was used on the trading floor to describe when you sold something to a client who didn't understand it and you were able to extract a massive fee because they didn't understand it.
[This was seen as] a good thing because [you were] making more money for the bank.
[That] sort of spirit, of [acting against the best interests of] your client … took on significant life on Wall Street.
(Money, Power and Wall Street, 2012)

Chuang Tzu:
What would become of business without a market of fools?

Karl Marx (1818–1883):
William Wood, 9 years old, was 7 years and 10 months when he began to work …
He came to work every day in the week at 6 am, and left off about 9 pm …
Mary Anne Walkley had worked without pause 26½ hours, together with sixty other girls, thirty of them in one room …
[She] died of apoplexy, but there is reason to fear that her death had been accelerated by overwork in an overcrowded workroom.
(Capital, 1867, Vol 1 Ch 8)

Terry Hillman:
In the eighteenth century, factory owners chained children to the machines.
They fought the government's attempt to [make the] shackling children illegal.
The Mills and Factory Act (1833)
  • No child workers under nine years of age.
  • Children of 9 to 13 years to work no more than 9 hours a day.
  • Children of 13 to 18 years to work no more than 12 hours a day.
  • Children are not to work at night.
  • Two hours of schooling each day for children.
(The Complete Idiot's Guide to Economics, 2014, pp 20, 23)

Kid Power Conference, Disney World:
Kids love advertising: it's a gift — it's something they want.
There's something to said … about getting there first, and about branding children and owning them in that way. …
In boy's advertising, it is an aggressive pattern [—] antisocial behavior in pursuit of a product is a good thing.

P W Singer:
For all the claims that “big government” can never match the private sector, [the Defence Advanced Research Projects Agency] is the ultimate rebuttal.
The Internet … e-mail, cell phones, computer graphics, weather satellites, fuel cells, lasers, night vision, and the Saturn V rockets [that first took man to the moon] all originated at DARPA. …
DARPA works by investing money in research ideas years before any other agency, university, or venture capitalists on Wall Street think they are fruitful enough to fund.
DARPA doesn’t focus on running its own secret labs, but instead spends 90% of its (official) budget of $3.1 billion on university and industry researchers …
(Wired for War, Penguin, 2009, p 140)

Niall Ferguson:
The first era of financial globalization took at least a generation to achieve.
But it was blown apart in a matter of days.
And it would take more than two generations to repair the damage done by the guns of August 1914.
(The Ascent of Money, Penguin, 2008, p 304)

Andrew Carnegie (1835–1919):
  • Individualism,
  • Private Property,
  • the Law of Accumulation of Wealth, and
  • the Law of Competition
[are] the highest results of human experience [—] the best and most valuable of all that humanity has yet accomplished.

Peter Singer:
L Ron Hubbard [(1911– 1986),] the founder of the Church of Scientology, once wrote that the quickest way to make a million in America is to start a new religion.
(How Are We to Live?, 1993, p 94)

Simone Campbell [Catholic Nun]:
[We were] doing business roundtables [with] some entrepreneur, CEO types. …
A report had just come out that that the average CEO … got $10 million in salary a year, and [that] they were going for $11 million.
I got to ask them:
Is it that you're not getting by on $10 million that you need $11 million?
I don't get it.
And this one guy said: …
Oh, no Sister Simone. …
It's not about the money. …
It's that we want to win.
And money just happens to be the current measure of winning.
(Quoted by Krista Tippett, Becoming Wise, Corsair, 2016, p 129)

Alexis de Tocqueville (1805–1859):
The people may always be mentally divided into three distinct classes.
  • The first of these classes consists of the wealthy;
  • the second, of those who are in easy circumstances; and
  • the third is composed of those who have little or no property, and who subsist more especially by the work which they perform for the two superior orders.
(Democracy in America, 1835, Bantam, 2011, p 246)

The Anatomy of the One Percent

Adrian Dungan

For 2012, the [US Adjusted Gross Income (AGI)] threshold for:
  • [The] top 0.001% of tax returns [was] $62,068,187 or more [≈ $170,000 per day or 1700 times median income.]
    These taxpayers accounted for 2.4% of total AGI, and paid 3.3% of total income tax.
  • The top 0.01% of tax returns [was] $12,104,014 or more [≈ $33,000 per day or 330 times the median income.]
    These taxpayers accounted for 5.5% of total AGI, and paid 8.3% of total income tax.
  • [The top 0.1% of tax returns [was] $2,161,175 or more [≈ $6,000 per day or 60 times the median income.]
    These taxpayers accounted for 11% of total AGI, and paid 18.6% of total income tax.]
  • The top 1% of tax returns [was] $434,682 or more [≈ $1200 per day or 12 times median the income.]
    These taxpayers accounted for 21.9% of total AGI and paid 38.1% of total income tax.
  • [The] top 50% of all tax returns was $36,055 for the year [≈ $100 per day = median income.]
    These taxpayers accounted for 88.9% of total AGI and paid 97.2% of total income tax.

(Individual Income Tax Shares, 2012, IRS Statistics of Income Bulletin, Spring, 2015)


  • This is equivalent to the wealthiest individual in a group of 100 being paid twice as much as the poorest 50 combined.
  • The richest 1/100,000 part of the population captures a 1/40 share of aggregate income.
  • The richest 1 in 100,000 receives the lifetime earnings of someone on the median income every 11 days.
  • Conversely, a person (and their descendents) on the median income would need to work for 17 centuries (or 34 working lifetimes) to earn as much as the richest 1 in 100,000 get in a single year.
  • By definition, half the population earn less than the median income.
  • In 2005, 40% the global population (2.6 billion people) were living on less than $2 per day.

Breakdown of the Top 1% by Income (2012)
Percentile% of Total Income% of Total Income Tax

Adam Smith (1723–1790)

For every rich man, you must have 500 poor.
And that rich man must live every time in fear because of the jealousy of others.
And if it is not for the firm hand of the magistrate … he would not be able to keep his capital safe. …

[Civil government,] in so far as it is instituted for the security of property, is in reality instituted for the defense
  • of the rich against the poor, or
  • of those who have some property against those who have none at all. …

(The Wealth of Nations, 1779)

Thomas Piketty

Adapted from Tables 7.2 and 7.3
Total Income
(income from labor + income from capital)
(capital ownership)

Top 10%P90-10050%35%50%90%60%70%
  Dominant 1%P99-100
  Well-to-do 9%P90-98.930%25%30%40%35%35%

Middle 40%P50-8930%40%30%5%35%25%

Bottom 50%P0-4920%25%20%5%5%5%

Ratio between a member of the Dominant 1% and a member of the Bottom 50%

Ratio between a member of the Top 10% and a member of the Bottom 50%

[Figures are approximate and deliberately rounded off.
The distribution of total income in the US in 2010 is comparable to that in Europe in 1910.
Between 1910 and 1970 the top 1% lost half of its share of national wealth (25%) to the middle 40% as a result of:
  • wartime destruction,
  • progressive tax policies and
  • exceptional post-war growth.
(p 356)

However, in the US since 1970, the 1% succeeded in recouping 2/5 of what it had lost (10%).
In the meantime, the relative shares of income (20%) and wealth (5%) of the bottom 50% have remained static for over a century.]

(Capital in the Twenty First Century, pp 248-9)

Bertrand Russell (1872-1970)

[Private economic] power within a State … can influence
  • [the] law by corruption and
  • public opinion by propaganda.
It can put politicians under obligations which interfere with their freedom.
It can threaten to cause a financial crisis.
But there are very definite limits to what it can achieve. …

[Where] the issue is simple and public opinion is definite, the plutocracy is powerless …
[Where] public opinion is undecided, or baffled by the complexity of the issue, the plutocracy can secure a desired political result. …

[The plutocracy has hitherto] been unable to
  • introduce Asiatic labour in California or Australia, except in [the] early days in small numbers. …
  • destroy trade unionism …
  • avoid heavy taxation of the rich [or]
  • prevent socialist propaganda. …

[The trade unions, for their part,] have failed … to keep in power governments which they liked but which a majority of the nation distrusted.

[The] power of economic organisations to influence political decisions in a democracy is limited by public opinion, which, on many important issues, refuses to be swayed even by very intensive propaganda.
Democracy, where it exists, has more reality than many opponents of capitalism are willing to admit.

(Power: A New Social Analysis, 1938, pp 85-6, emphasis added)

Ha Joon Chang

Reader in Political Economy and Development, Cambridge University

[Nineteenth century 'classical' liberals rejected] the conservative view that tradition and social hierarchy should have priority over individual rights.
[On the other hand, they] believed that not everyone was worthy of such rights.
They thought women lacked full mental faculties and thus did not deserve the right to vote.
They also insisted that poor people should not be given the right to vote, since they [feared that] the poor would vote in politicians who would [redistribute wealth. …]

[Twentieth century neo-liberals, by contrast,] do not oppose democracy [in principle.]
[In practice, however, many would be prepared, where necessary, to] sacrifice democracy [to defend] private property and the free market.

(Economics: The User's Guide: A Pelican Introduction, 2014, emphasis added)


Robert Putnam: Freedom And Justice For All

William Goetzmann: Debt and Deficit in the 18th Century

George Megalogenis: Tax Cuts of the Rich, Spending Cuts for the Poor

Adrian Dugan: The Anatomy of the Top 1%

Paul Krugman: The Great Divergence

David Stuckler: Life, Death and Austerity

Mark Blyth: No Bailouts

Simon Marginson: The New Gilded Age

Michael Lewis: High Frequency Theft

Koctopus: One Dollar, One Vote

Al Gore: The Robber Barons Ride Again

Robert Manne: After The (Neoliberal) Revolution

Paul Piff: Noblesse Oblige

Anne Manne: Producers vs Parasites

John Hewson: Budget of the Century

Alex Gibney: All I ask for is an unfair advantage

Choosing Inequality

Richard Wilkinson: Inequality and Progress

Robert Johnson: Heads I win — Tails you lose.

Satyajit Das: (LIBOR^2 x 1/LIBOR) – (LIBOR^4 x LIBOR^-3) = ?

A Culture of Greed

Paul Krugman: Gambling with Civilization

Mike Pottenger: Rich Man, Poor Man

The Economist: A True Progressivism

Michael Robinson: The Restoration of the Plutocracy

Charles Ferguson: Inside Job

Joseph Stiglitz: Financial Alchemy

July 13, 2016

Tom Switzer

Blue Army: Persons of Interest

Peter Van Onselen [Associate Professor in Politics and Government, Edith Cowan University; Contributing Editor, The Australian]:
[According to Miranda Devine, the Delcons (Delusional Conservatives) believe] the Liberals should lose the election.
[That] it's better for the Liberals to lose to Labor.
And there is a candle being held to the possibility of a Tony Abbott comeback. …
Andrew Bolt decided he was one …
Nick Cater from the Menzies Research Centre …
[Tom Switzer's] definitely a Decon.
(Gambling on Turnbull, Late Night Live, ABC Radio National, 7 September, 2016)

Miranda Devine:
Environmentalism is the powerful new secular religion and politically correct scientists are its high priests …
It used to be men in purple robes who controlled us; soon it will be men in white lab coats.
The geeks shall inherit the earth.
(Quoted by John Quiggan, Innovation: the test is yet to come, Inside Story, 10 December, 2015)

Bring On The Culture Wars

[Malcolm Turnbull] needs a new model of governance that sidesteps an obstructionist and riff-raff Senate.
The side that picks the issues dominates the political debate, and the advantage lies with the Bully Pulpit if the Prime Minister will use it.
Why not call on the states to ditch the politically correct Safe Schools [anti-bullying] program?
Or encourage Muslim leaders to assimilate to Western cultural norms?
The culture-war list is endless, and it would resonate with what [John Howard] once called:
The decent conservative mainstream of Australia.
(PM must play the right card, The Age, 11 July, 2016, p 16)


Climate Hysteria

Privatising Democracy

July 4, 2016

Mark Blyth

Green Army: Persons of Interest

(Terry Hillman, The Complete Idiot's Guide to Economics, Penguin, 2014, p 254)

George Megalogenis:
[During the 1980's blue] collar workers had delivered their end of the bargain under the wages accord.
Yet their restraint in the boom, could not protect their jobs in the bust.
Ken Henry [Australian Treasury Secretary, 2001-2011]:
[More than half of the] people aged over 45 who lost their jobs in the early 1990's recession, [when unemployment peaked at 11.1%,] never worked a day again in their lives …
(Making Australia Great — Inside Our Longest Boom, Episode 2: Growing Pains, ABC Television, March, 2015)

Frederic Mishkin [Former Federal Reserve Governor]:
[The] financial system [is] the brain of the economy …
It acts as a coordinating mechanism that allocates capital, the lifeblood of economic activity, to its most productive uses by businesses and households.
If capital goes to the wrong uses or does not flow at all, the economy will operate inefficiently, and ultimately economic growth will be low. …
(Weissman Center Distinguished Lecture, Baruch College, New York, 12 October, 2006)

Philip Pettit [Philosopher]:
[When] you look at the different socioeconomic classes; and you look at stable policy preferences associated specifically with those classes; and then you see how far public policy has been responsive to those preferences over the last 30 or 40 years: what you find is that the bottom 20–25% [has had] zero influence of their policy preferences on government — that's a shocking condemnation of a democracy …
(A Brief History of Liberty, Alan Saunders Memorial Lecture, 8 August, 2014)

Joseph Stiglitz:
In order to bail out the German banks [the Greeks have] had to accept [economic depression:
  • 25% unemployment (including 50% youth unemployment) and
  • a 25% decline in GDP. …]
[Historically,] Germany has been among the biggest defaulters and one of the biggest recipients of debt write downs after WWII and in other instances …
(Stiglitz on Greece and climate change, RN Drive, 10 July, 2015)

Mark Blyth:
72% of the working population [in the US live from] paycheck to paycheck, have few if any savings, and would have trouble raising $2000 on short notice.
(Austerity, 2013, p 48)

Nial Ferguson:
[Subprime mortgage refinancing deals] allowed borrowers to treat their [over-priced] homes as cash machines, converting their existing equity into cash. …
Between 1997 and 2006, US consumers withdrew an estimated $9 trillion in cash from the equity in their homes.
(The Ascent of Money, 2008, Penguin, p 265)

William Crawford [Commissioner, California Department of Savings and Loans]:
The best way to rob a bank is to own one.
(Quoted by Henry Pontell and Kitty Calavita, 'White-Collar Crime in the Savings and Loan Scandal', Annals of the American Academy of Political and Social Science, 525, January, 1993, p 37)

Nial Ferguson:
The final cost of the Savings and Loans crisis between 1986 and 1995 was $153 billion (around 3% of GDP), of which taxpayers had to pay $124 billion, making it the most expensive financial crisis since the Depression.
(The Ascent of Money, 2008, Penguin, p 259)

Mark Blyth:
[The 2007 global financial crisis has cost,] once lost output is included, as much as $13 trillion and, on average, a 40-50% increase in the debt of states hit by the crisis. …
(p 45)

Lost output from 2008 through 2011 alone [averaged] nearly 8% of GDP across the major economies.
(p 46)

Since the 2008 crisis, [US banks] have awarded themselves $2.2 trillion in compensation.
(p 50, emphasis added)

[When] those at the bottom are expected to pay disproportionately for a problem created by those at the top, and when those at the top actively eschew any responsibility or that problem by blaming the state for their mistakes, not only will squeezing the bottom not produce enough revenue to fix things, it will produce an even more polarized … society in which the conditions for sustainable politics of dealing with more debt and less growth are undermined. …
In such an unequal and austere world, those who start at the bottom of the income distribution will stay at the bottom, and without [hope of advancement,] the only possible movement is a violent one.
(p 15)

[The] true price of saving the banks [may not] just the end of the euro, but the end of the European political project itself, which would be perhaps the ultimate tragedy for Europe.
(Austerity, p 92)

Alexis de Tocqueville (1805–1859):
Almost all the revolutions which have changed the aspect of nations have been made to consolidate, or to destroy, social inequality. …
Either the poor have attempted to plunder the rich, or the rich to enslave the poor.
(Democracy in America, 1835, Bantam, 2011, p 789)

Frederick Douglass (1818–1895):
  • Where justice is denied,
  • where poverty is enforced,
  • where ignorance prevails and
  • where any one class is made to feel that society is in an organized conspiracy to oppress, rob and degrade them:
neither persons nor property will be safe.

John Locke (1632–1704):
The great and chief end of men uniting into commonwealths, and putting themselves under government, is the preservation of their property …
[Men] have agreed to a disproportionate and unequal possession of the earth …
[By] voluntary consent [they have] found out a way how a man may fairly possess more land than he can fairly use the product of, by receiving … the overplus of gold and silver, which may be hoarded up without injury to anyone.
(Second Treatise on Civil Government, 1689)

Adam Smith (1723–1790)

The Wealth of Nations (1779)

[Wherever] there is property there is great inequality [consequently,] the acquisition of valuable and extensive property … necessarily requires the establishment of civil government. …

In spite of their natural selfishness and rapacity, though they mean only their own convenience, though the sole end which they propose from the labours of all the thousands whom they employ be the gratification of their own vain and insatiable desires, the rich divide with the poor the produce of all their improvements.
They are led by an invisible hand to make nearly the same distribution of the necessities of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus, without intending it, without knowing it, advance the interest of society, and afford means to the multiplication of the species. …

The man whose whole life is spent in performing a few simple operations … generally becomes as stupid and ignorant as it it is possible for a human creature to become.
The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment …
Of the great and extensive interests of his own country he is altogether incapable of judging …

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in conspiracy against the public, or in some contrivance to raise prices. …

The proposal of any new law or regulation of commerce which comes from [the business elite] ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
[For it] comes from an order of men,
  • whose interest is never exactly the same with that of the public,
  • who have generally an interest to deceive and even to oppress the public, and
  • who accordingly have, upon many occasions, both deceived and oppressed it.

The Theory of Moral Sentiments (1759)

[The illusion that the accumulation of possessions brings real satisfaction is the] deception which rouses and keeps in continual motion the industry of mankind. …

The great source of both the misery and disorders and disorders of human life, seems to arise from over-rating the difference between one permanent situation and another …
Some of those situations may, no doubt, deserve to be preferred to others …
[But] none of them can deserve to be pursued with that passionate ardour which drives us
  • to violate the rules either
    • of prudence or
    • of justice; or
  • to corrupt the future tranquility of our minds, either
    • by shame from the remembrance of our own folly, or
    • by remorse from the horror of our own injustice.

Mark Blyth

  • Democracy is Asset Insurance for the Rich
  • Redistribution and Debt is Reinsurance for Democracy
  • Austerity is Anorexia for the Economy

The Liberal Antistatist Neuralgia

Can't live without the state

The problem is, when you allow markets do what markets do, they create incredible inequality. …
[So] you have to have a state that can police [those inequalities;] otherwise, the people who are on the bad end [of the income distribution are going to come] and burn your house down.

Can't live with it

So you have a problem right away, which is: the liberal distrust of the state.
[Since] any state powerful enough to defend your property rights might [itself] come after you — hence the second amendment

Don't want to pay for it

[Finally, any state strong enough to] defend your property rights, is going to be expensive …
Adam Smith [initially] comes out in [favor] of proportional taxation [but then] backs away from it because, of course, rich people would [end up paying] most of the taxes, and he's one of the rich people …
[So he] goes for a very modern solution, [one] which modern day Republicans are fond of: a consumption tax …

(Austerity: The history of a dangerous idea, Big Ideas, ABC Radio National, 14 May, 2013)

[Democracy,] and the redistributions it makes possible, is a form of asset insurance for the rich, and yet, through austerity, we find that those with the most assets are skipping on the insurance payments.
(p 14)

[In Europe and in the United States} top marginal incomes are estimated to be no less than 20%age points below those that would maximize tax revenue to the government.

Peter Diamond of the Massachusetts Institute of Technology and Emanuel Saez of the University of California, Berkeley, [argue] that taxing the top 1% at [a marginal rate of] over 80% would raise, not lower, revenue. …
According to their calculations, raising the average income tax for the top income%ile to 43.5% from 22.4%, the level of 2007, would raise revenue by 3% of GDP. which is enough to close the US structural deficit while still leaving very high earners with more after-tax income than they would have had under Nixon.
(p 243)

[The] Tax Justice Network estimates that there is as much as 32 trillion dollars, which is over twice the entire US national debt, hidden away offshore not paying taxes …
(p 244)

A Fallacy of Composition

[What] is true of the parts … is not true of the [whole:] we cannot all be austere at once.
All that does is shrink the economy for everyone. …
[If everyone is saving (ie paying back debt) at the same time, then no one is spending; hence, no consumption to stimulate investment.
Likewise, every country cannot pursue export-led growth at the same time because there is no import demand to drive it.]
We cannot all cut our way to growth, just as we cannot all export without any concern for who is importing.
This fallacy of composition problem rather completely undermines the idea of austerity as growth enhancing. …

Austerity is a zombie economic idea because it has been disproven time and again, but it just keeps coming. …
[It] a dangerous idea for three reasons:
  • it doesn't work in practice,
  • it relies on the poor paying for the mistakes of the rich, and
  • it rests upon the absence of a rather large fallacy of composition that is all too present in the modern world.
(p 10)

No Bailouts

[We] may have impoverished a few million people to save an industry of dubious social utility that is now on its last legs. …

[Between] 1994 and 2007 Irish GDP grew much more rapidly than in the 1980s and 1990s.
During this boom period, when cheap money was abundant in global markets, Ireland's banking sector also grew rapidly, and on the back of the credit bubble grew a housing bubble.
When the bubble popped in 2008, the Irish government issued a blanket guarantee to its banks and soon after gave five and a half billion euros to three banks:
  • Anglo Irish bank,
  • Allied Irish Bank, and
  • Bank of Ireland.
Unfortunately, since the assets of these banks were little more than dead real-estate loans, this was just throwing good money after bad.
It kept the banks going [until January 2009] when Anglo-Irish was nationalized — at the same time that 2 billion euros in savings were chopped off the public budget.
[Eventually,] to stop the complete collapse of the economy, the government set up a bad bank, the National Asset Management Agency (NAMA), to take the toxic assets off the banks' books. …

Since then, over 70 billion euros have been injected into [the Irish] banking system [or almost €1,500 for every man, woman and child.]
Some 47 billion euros disappeared into Anglo-Irish alone, never to be seen again.
The cost of bailing out the banks amounts to 45% of GDP, and that figure does not include the cost of the NAMA program, which is over 70 billion euros.
(pp 234-5)

Irish debt to GDP was 32% in 2007.
Today it stands at 108.2% after three years of austerity. …
The Irish government, which has implemented 24 billion euros in cuts since 2008, plans another 8.3 billion in taxes and another 3.5 billion in cuts for 2013. …

[By contast,] Iceland
  • let its banks go bankrupt,
  • devalued its currency,
  • put up capital controls, and
  • bolstered welfare measures. …
(p 237)

The [Icelandic] banks were to be allowed to go bankrupt and be taken into receivership.
Their debts were not socialized; instead bondholders and foreign creditors bore the brunt of adjustment.
(p 238)

Everyone tightened their belts as the cuts were accompanied by a shift to a more progressive tax code that included
  • substantial tax hikes for top earners and
  • measures to help low- and middle-income families. …

[In] 2011 growth returned at 3% [— compared to 0.71% in Ireland; and, by 2012 Iceland was] near the top of OECD growth performance.
With higher marginal rates of taxation, returning growth, capital control, and equal fiscal tightening, Iceland is on target to eliminate its budget deficit in 2014 and have a budget surplus of 5% in 2016.
[And, unlike in Ireland,] employment growth in Iceland has been strong.
Even at its height [9% in 2009,] unemployment in Iceland was lower than the European average …
Unemployment stands at just under 6% in October 2012 [— compared to 14.8% in Ireland.]
(p 239)

[Real] wages have been rising at a brisk pace.
This has helped reverse the trend of growing inequality witnessed between 1995 and 2007 … mostly because of the high incomes of top earners — a phenomenon seen in all highly financialized societies. …
Iceland not only survived letting its banks go bust, it became a healthier and more equal society in doing so.
(p 240)

(Charles Ferguson, Inside Job, 2010)

Thank You For Your Sacrifice

To: The [Citizens of Portugal, Italy, Ireland, Greece and Spain]

From: [The Political Classes of Europe]

We have been telling you for the past four years that the reason you are out of work and that the next decade will be miserable is that states have spent too much.
So now we all need to be austere and return to something called "sustainable public finances."
It is, however, time to tell the truth.
The explosion of sovereign debt is a symptom, not a cause, of the crisis we find ourselves in today.

What actually happened was that the biggest banks in the core countries of Europe bought lots of sovereign debt from their periphery neighbors, the PIIGS.
This flooded the PIIGS with cheap money to buy core country products, hence the current account imbalances in the Eurozone that we hear so much about and the consequent loss of competitiveness in these periphery economies.
After all, why make a car to compete with BMW if the French will lend yon the money to buy one?
This was all going well until the markets panicked over Greece and figured out via our "kick the can down the road" responses that the institutions we designed to run the EU couldn't deal with any of this.
The money greasing the wheels suddenly stopped, and our bond payments went through the roof.

The problem was that we had given up our money presses and independent exchange rates—our economic shock absorbers—to adopt the euro.
Meanwhile, the European Central Bank, the institution that was supposed to stabilize the system, turned out to be a bit of fake central bank.
It exercises no real lender-of-last-resort function.
It exists to fight an inflation that died in 1923, regardless of actual economic conditions.
Whereas the Fed and the Bank of England can accept whatever assets they want in exchange for however much cash they want to give out, the ECB is both constitutionally and intellectually limited in what it can accept.
  • It cannot monetize or mutualize debt,
  • it cannot bail out countries,
  • it cannot lend directly to banks in sufficient quantity.
It's really good at fighting inflation, but when there is a banking crisis, it's kind of useless.
It's been developing new powers bit-by-bit throughout the crisis to help us survive, but its capacities are still quite limited.
(p 88)

Now, add to this the fact that the European banking system as a whole is three times the size and nearly twice as levered up as the US banking system; accept that it is filled with crappy assets the ECB can't take off its books, and you can see we have a problem.
We have had over twenty summits and countless more meetings, promised each other fiscal treaties and bailout mechanisms, and even replaced a democratically elected government or two to solve this crisis, and yet have not managed to do so.
It's time to come clean about why we have not succeeded.
The short answer is, we can't fix it.
All we can do is kick the can down the road, which takes the form of you suffering a lost decade of growth and employment.

You see, the banks we bailed in 2008 caused us to take on a whole load of new sovereign debt to pay for their losses and ensure their solvency.
But the banks never really recovered, and in 2010 and 2011 they began to run out of money.
So the ECB had to act against its instincts and flood the banks with a billion euros of very cheap money, the [Long Term Refinancing Operations,] when European banks were no longer able to borrow money in the United States.
The money that the ECB gave the banks was used to buy some short-term government debt (to get our bond yields down a little), but most of it stayed at the ECB as catastrophe insurance rather than circulate into the real economy and help you get back to work.
After all, we are in the middle of a recession that is being turbocharged by austerity policies.
Who would borrow and invest in the midst of that mess?
The entire economy is in recession, people are paying back debts, and no one is borrowing.
This causes prices to fall, thus making the banks ever more impaired and the economy ever more sclerotic.
There is literally nothing we can do about this.
We need to keep the banks solvent or they collapse, and they are so big and interconnected that even one of them going down could blow up the whole system.
As awful as austerity is, it's nothing compared to a general collapse of the financial system, really.

  • we can't inflate and pass the cost on to savers,
  • we can't devalue and pass the cost on to foreigners, and
  • we can't default without killing ourselves …
[All we can do is] deflate, for as long as it takes to get the balance sheets of these banks into some kind of sustainable shape.
(p 89, emphasis added)

This is why we can't let anyone out of the euro.
If the Greeks, for example, left the euro we might be able to weather it, since most banks have managed to sell on their Greek assets.
But you can't sell on Italy.
There's too much of it.
The contagion risk would destroy everyones banks.
So the only policy tool we have to stabilize the system is for everyone to deflate against Germany, which is a really hard thing to do even in the best of times.
It's horrible, but there it is.
Your unemployment will save the banks, and in the process save the sovereigns who cannot save the banks themselves, and thus save the euro.
We, the political classes of Europe, would like to thank you for your sacrifice.
(p 89)

Milton Friedman's Great Vacation

[Milton Friedman] assumed that unemployment was voluntary and was not due to a deficiency [in] demand.
People [voluntarily trade off leisure against labor depending on] the prevailing wage.
There is no [such thing as Keynesian] demand-deficient unemployment in Milton's world.
In other words, the 25% of Spaniards who are presently without work [have simply elected not to] work at the prevailing wage and [have, instead, chosen to go] on vacation.
(p 153)

[By this logic, the Great Depression was] a giant, unexpected, and astonishingly long unpaid vacation for millions of people …
(p 159)

[Joseph Schumpeter (1883–1950), also] argued that the Great Depression was neither great nor depressing.
Rather, it was just a particularly marked transitional period of technological and organizational change …
Joseph Schumpeter:
[Recurrent] 'recessions' that are due to the disequilibrating impact of new products or methods. …
Economic progress, in capitalist society, means turmoil. …
[Capitalism's performance can, therefore, only be judged] over time, as it unfolds through decades and even centuries.
(Capitalism, Socialism and Democracy, 2nd Ed, 1942)
(p 129)

(Austerity, 2013)

Milton Friedman (1912–2006)

Nobel Prize in Economic Sciences (1976)

Consider a group of individuals who initially have equal endowments and who all agree voluntarily to enter a lottery with very unequal prizes.
The resultant inequality of income is surely required to permit the individuals in question to make the most of their initial equality.
Redistribution of the income after the event is equivalent to denying them the opportunity to enter the lottery. …
[By analogy, individuals] choose occupations, investments, and the like partly in accordance with their taste for uncertainty. …

[The] economic progress achieved in the capitalist societies has been accompanied by a drastic diminution in inequality. …

The methods that governments have used most widely to alter the distribution of income have been graduated income and inheritance taxation. …
My impression is that [the current high and highly graduated nominal tax rates (20-91%)] have had a relatively minor, though not negligible, effect in the direction of narrowing the [income] differences between the average position of groups of families …
[Though, if] present tax rates were made fully effective, the effect on incentives and the like might well be so serious as to cause a radical loss in the productivity of the society.
Tax avoidance may therefore have been essential for economic well-being. …

I find it hard, as a liberal, to see any justification for graduated taxation solely to redistribute income.
This seems a clear case of using coercion to take from some in order to give to others and thus to conflict head-on with individual freedom.

All things considered, the … tax structure that seems to me best is a flat-rate tax [eg 23.5% on total personal income (labor and capital); combined] with the abolition of the corporate income tax [coupled with a] requirement that corporations … attribute their income to stockholders …

[Such a flat rate] would yield a higher revenue because a larger amount of taxable income would be reported for three reasons:
  • there would be less incentive than now to adopt legal but costly schemes that reduce the amount of taxable income reported (so-called tax avoidance);
  • there would be less incentive to fail to report income that legally should be reported (tax evasion);
  • the removal of the disincentive effects of the present structure of rates would produce a more efficient use of present resources and a higher income. …

Much of the actual inequality derives from imperfections of the market.
Many of these have themselves been
  • created by government action or
  • could be removed by government action.
There is every reason to adjust the rules of the game so as to eliminate these sources of inequality.
For example, special monopoly privileges granted by government, tariffs, and other legal enactments benefiting particular groups, are a source of inequality.

(Capitalism and Freedom, 1962)

Crisis? What Crisis?

John Quiggin: Professor of Economics, Queensland University

The Efficient Markets Hypothesis implies that there can be no such thing as a bubble in the prices of assets such as stocks or houses.
(p 45)

The Efficient Markets Hypothesis, which enshrines the market price of assets as the summary of all relevant information, is inconsistent with any idea that managers should pursue the long-term interests of corporations, disregarding short-term fluctuations in share prices.
According to the Efficient Markets Hypothesis, the current share price is the best possible estimate of the long-term share price and therefore of the long-term value of the corporation to shareholders.

If the Efficient Markets Hypothesis is accepted, public investment decisions may be improved through the use of formal evaluation procedures like benefit-cost analysis, but the only really satisfactory solution is to turn [delivery of public services] over to the private sector. …
The Efficient Markets Hypothesis implies that governments can never outperform well-informed financial markets.
(p 49)

Privatization is bad for unions, which tend to be stronger and more effective in the public sector.
It is usually good for the incumbent senior managers of privatized firms, who move from being rather modestly paid public sector employees, constrained by bureaucratic rules and accountability, to doing much the same job but with greatly increased pay and privileges, and far fewer constraints.
(pp 185-6)

[In 2007 all] of the checks and balances in the system failed comprehensively.
The ratings agencies offered AAA ratings to assets that turned out to be worthless, on the basis of models that assumed that house prices could never fall. …
The entire ratings agency model, in which issuers pay for ratings, proved to be fundamentally unsound.
But, these very ratings were embedded in official systems of regulation.
Thanks to the Efficient Markets Hypothesis, crucial public policy decisions were, in effect, outsourced to for-profit firms that had a strong incentive to get the answers wrong.
(p 64)

The financial markets that were supposed to replace governments showed themselves incapable of managing their own businesses, let alone the world economy. …
[During the crisis everyone] in the financial sector was happy to be bailed out.
But of course, as soon as the crisis was over, they insisted that everything had been under control and that no rescue was necessary.
(p 225)

Throughout the [global financial] crisis, the economics profession carried on, for the most part, as if nothing had changed.
And now that the immediate crisis has passed, market liberals are trying to pretend … it never happened.
(p 231)

(Zombie Economics, PUP, 2012)


The Mother Of All Moral Hazard Trades

Would you like to know more?

June 17, 2016

Francis Fukuyama

Blue Army: Persons of Interest

Francis Fukuyama:
From the days of Aristotle … thinkers have believed that stable democracy rests on a broad middle class and that societies with extremes of wealth and poverty are susceptible either to
  • oligarchic domination or
  • populist revolution.
(Foreign Affairs)

Alexis de Tocqueville (1805–1859):
Democracy, carried to its furthest limits, is … prejudicial to the art of government; and for this reason it is better adapted to a people already versed in the conduct of administration than to a nation which is uninitiated in public affairs.
(Democracy in America, 1835, Bantam, 2011, p 256)

Francis Fukuyama

Those countries in which democracy preceded modern state building have had much greater problems achieving high-quality governance than those that inherited modern states from absolutist times.
(p 30)

The United States is trapped in a bad equilibrium.
Because Americans historically distrust government, they typically aren't willing to delegate to the government authority to make decisions in the manner of other democratic societies.
Instead, Congress mandates complex rules that reduce the government's autonomy and make decisions slow and expensive.
The government then doesn't perform well, which confirms people's original distrust.
Under these circumstances, they are reluctant to pay higher taxes, which they feel the government will waste.
But while resources are not the only, or even the main, source of government inefficiency, without them the government won't function properly.
Hence distrust of government becomes a self-fulfilling prophecy.
(pp 503-4)

[W]hile democracy does provide an important check on elite power, it frequently fails to perform as advertised.
Elite insiders typically have superior access to resources and information, which they use to protect themselves.
Ordinary voters will not get angry at them for stealing their money if they don't know that this is happening in the first place.
Cognitive rigidities may also prevent social groups from mobilizing in their own self-interest.
In the United States, many working-class voters support candidates promising to lower taxes on the wealth, despite the fact that this hurts their own economic situations.
They do so in the belief that such policies will spur economic growth that will eventually trickle down to them, or else make government deficits self-financing.
The theory has proved remarkably tenacious in the face of considerable evidence that it is not true.
(p 465)

There is … a long-standing tension between rule of law and democratic accountability.
For rule of law to exist, it must be binding on all citizens, including democratic majorities.
In many democracies, major parties are content to violate the rights of individuals and minorities, and find legal rules to be inconvenient obstacles to their goals. …
Moreover, laws are administered by the human beings who operate the judicial branches of government.
These individuals have their own beliefs and opinions that may not correspond to the desires of the broader public.
Judicial activism can be as much of a danger as weak or politically compliant judiciaries. …

Finally … efforts to increase levels of democratic participation and transparency can actually decrease the democratic representativeness of the system as a whole.
The great mass of individuals living in democracy are not able by background or temperament to make complex public policy decisions, and when they are asked to do so repeatedly the process is often taken over by well organized interest groups that can manipulate the process to serve their narrow purposes.
Excessive transparency can undermine deliberation.
(p 534)

If there has been a single problem facing contemporary democracies [it is] their failure to provide … what people want from government:
  • personal security
  • shared economic growth, and
  • [the] quality basic public services like education, health, and infrastructure that are needed to achieve individual opportunity.
(p 546)

(Political Order and Political Decay, 2014)

It is hard to imagine a more disastrous presidency than that of George W Bush.
It was bad enough that he launched an unnecessary war and undermined the standing of the United States throughout the world in his first term.
But in the waning days of his administration, he is presiding over a collapse of the American financial system and broader economy that will have consequences for years to come.

(The Right Choice?, The American Conservative, 3 November, 2008)

Today leaders of democracies do not lead their countries to war for other than serious national causes, and must hesitate before taking such grave decisions for they know their polities will not permit them to behave recklessly.
When they do … they are severely punished.
(p 261)

(The End of History, 2006)


Political Order and Decay

Project for a New American Century

The End of History

June 1, 2016

Alexis de Tocqueville

Blue Army: Persons of Interest

Margaret Thatcher (1925–2013):
There is no such thing as society.
There are individual men and women, and there are families. …
It's our duty to look after ourselves and then, also to look after our neighbour.
[There] is no such thing as an entitlement unless someone has first met an obligation.

Alexis de Tocqueville (1805–1859)

When all the members of a community are independent of, or indifferent to, each other, the cooperation of each of them can only be obtained by paying for it; this infinitely multiplies the purposes to which wealth may be applied, and increases its value.
(p 461)

Men are no longer bound together by ideas, but by interests; and it would seem as if human opinions were reduced to a sort of intellectual dust, scattered on every side, unable to collect, unable to cohere.
(p 516)

[All] the particular circumstances which tend to make the state of a democratic community agitated and precarious … lead private persons more and more to sacrifice their rights to their tranquillity.
(p 842)

The nations of our day cannot prevent conditions of equality from spreading in their midst.
But it depends on themselves whether equality is to lead to
  • servitude or freedom,
  • knowledge or barbarism,
  • prosperity or wretchedness. …

In the United States the majority undertakes to supply a multitude of ready-made opinions for the use of individuals who are thus relieved from the necessity of forming opinions of their own. …
The fact that the political laws of Americans are such that the majority rules the community with sovereign sway, materially increases the power which the majority naturally exercises over the mind [of the individual.]
For nothing is more customary in man than to recognize superior wisdom in the person of his oppressor.
(p 520

In the United States, where the poor rule, the rich have always some reason to dread the abuses of their power.
(p 288, emphasis added)

[It] is easy to perceive that the wealthy members of the community entertain a hearty distaste to the democratic institutions of their country.
The populace is at once the object
  • of their scorn and
  • of their fears.
(p 207)

I know of no country … where the love of money has taken a stronger hold on the affections of men, and where the profounder contempt is expressed for the theory of the permanent equality of property.
(p 57)

In no country in the world do the citizens make such exertions for the common weal; and I am acquainted with no people which has established
  • schools as numerous and as efficacious,
  • places of public worship better suited to the wants of the inhabitants, or
  • roads kept in better repair.
(p 102)

In no country is criminal justice administered with more mildness than in the United States.
Whilst the English seem disposed carefully to retain the bloody traces of the dark ages in the penal legislation, the Americans have almost expunged capital punishment from their codes.
(p 694)

The safeguard of morality is religion, and morality is the best security of law and the surest pledge of freedom.
(p 48)

[However, religions] ought to confine themselves within their own precincts; for in seeking to extend their power beyond religious matters, they incur a risk of not being believed at all.
The circle within which they seek to bound the human intellect ought therefore to be carefully traced, and beyond its verge the mind should be left in entire freedom to its own guidance.
(p 532)

[Patriotism] and religion are the only two motives in the world which can permanently direct the whole of a body politic to one end.
(p 104)

The English … rarely abuse the right of association [through resort to violence,] because they have long been accustomed to exercise it.
In France the passion for war is so intense that there is no undertaking so mad, or so injurious to the welfare of the State, that a man does not consider himself honored in defending it, at the risk of his life.
(p 226)

It is in the general and permanent interest of mankind that men should not kill each other: but it may happen to be the peculiar and temporary interest of a people or a class to justify, or even to honor, homicide.
(p 765)

A Thousand Years of Freedom

[The Anglo-Americans] conceive an overweening opinion of their superiority, and they not very remote from believing themselves to belong to a distinct race of mankind.
(p 457)

[Of the] widely differing families of men [to be found in the American Union,] the first which attracts attention, the superior in intelligence, in power and in enjoyment, is the white or European, the man preeminent; and in subordinate grades, the Negro and the Indian. …
[We] should almost say that the European is to the other races of mankind what man is to the lower animals;— he makes them subservient to his use; and when he cannot subdue, he destroys them.
(p 385)

… I reserve my execration for those who, after a thousand years of freedom, brought back slavery into the world once more.
(p 441)

In 1830 there were in the United state 2,010,327 slaves and 319,439 free blacks, in all 2,329,755 negroes: which formed about one-fifth of the total population of the United states at that time.
(p 438)

[The situation of the emancipated negroes] with regard to the Europeans is not unlike that of the aborigines of America …
[They] remain half civilized and deprived of their rights in the midst of a population which is far superior to them in wealth and in knowledge, where they are exposed to the tyranny of the laws and the intolerance of the people. …
There is a very great difference between the mortality of blacks and of the whites in the States in which slavery is abolished …
[From] 1829 to 1831 only one out of forty-two individuals of the white population died in Philadelphia: but one negro out of twenty-one of the black population died in the same space of time.
The mortality is by no means so great amongst the negroes who are still slaves.
(p 426)

The negro makes a thousand fruitless efforts to insinuate himself amongst men who repulse him; he conforms to the tastes of his oppressors, adopts their opinions, and hopes by imitating them to form a part of their community.
Having been told from infancy that his race is naturally inferior to that of the whites, he assents to the proposition and is ashamed of his own nature.
(p 387)

I do not imagine that the white and black races will ever live in any country upon an equal footing.
(p 432)

Slavery … introduces idleness into society, and with idleness, ignorance and pride, luxury and distress.
It enervates the powers of the mind, and benumbs the activity of man.
The influence of slavery … explains the manners and social condition of the Southern States [of the Union.]
(p 33)

The inhabitants of the South … are induced to support the Union in order to avail themselves of its protection against the blacks …
(p 455)


It should … be the unceasing object of the legislators of democracies, and of all the virtuous and enlightened men who live there, to raise the souls of their fellow-citizens, and keep them lifted up towards heaven. …
If amongst the opinions of a democratic people any of those pernicious theories exist which tend to inculcate that all perishes with the body, let men by whom such theories are professed be marked as the natural foes of such a people. …

The materialists are offensive to me in many respects; their doctrines I hold to be pernicious, and I am disgusted at their arrogance. …
Materialism is, amongst all nations, a dangerous disease of the human mind; ; but it is more especially to be dreaded amongst a democratic people, because it readily amalgamates with that vice which is most familiar to the heart under such circumstances.
Democracy encourages a taste for physical gratification: this taste, if it become excessive, soon disposes men to believe that all is matter only …
(p 668)

Most religions are only general, simple, and practical means of teaching men the doctrine of the immortality of the soul.
That is the greatest benefit which a democratic people derives from its belief, and hence belief is more necessary to such a people than to all others.
[Therefore, seek] not to supersede the old religious opinions of men by new ones; lest in the passage from one faith to another, the soul being left for a while stripped of all belief, the love of physical gratifications should grow upon it and fill it wholly.
(p 669)

(Democracy in America, 1835)