Another section of my book-in-progress, this time on the implications of trickle-down. I’m getting lots out of the comments, even if I don’t respond to everything, so please keep them coming.
One thing that would be really useful to me is references to publications (probably popular, rather than journal articles) by prominent academic economists that clearly espouse some of the implications of trickle-down discussed here. More than most of the ideas I’m criticising, trickle-down economics tends to be a background assumption rather than something which comes out into the open, and I want to avoid the suggestion that I’m attacking a straw zombie here.
Refuted doctrines
p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; text-align: center; font: 12.0px ‘Century Schoolbook SWA’}
p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; text-indent: 28.0px; font: 12.0px ‘Century Schoolbook’}
p.p3 {margin: 0.0px 0.0px 0.0px 0.0px; text-align: center; font: 12.0px ‘Century Schoolbook’}
p.p4 {margin: 0.0px 0.0px 0.0px 0.0px; text-indent: 28.0px; font: 12.0px ‘Century Schoolbook’; min-height: 15.0px}
p.p5 {margin: 0.0px 0.0px 0.0px 0.0px; min-height: 14.0px}
p.p6 {margin: 0.0px 0.0px 0.0px 0.0px; font: 12.0px ‘Century Schoolbook’}
span.s1 {text-decoration: underline}
span.s2 {font: 12.0px Helvetica}
Implications
…
Defenders of the trickle-down hypothesis frequently employ what my Crooked Tmber co-blogger John Holbo calls the
‘the two-step of terrific triviality’. Say something that is ambiguous between something so strong it is absurd and so weak that it would be absurd even to mention it. When attacked, hop from foot to foot as necessary, keeping a serious expression on your face.
The self-evidently weak version of the trickle-down theory starts with the observation that we all benefit, in all kinds of ways, from living in an advanced industrial society, with access to modern medical care, consumer goods, the Internet and so on. Stretched widely enough, the term ‘capitalism’ includes all advanced industrial societies, from Scandinavian social democracies to the Hong Kong version of laissez-faire. So, in this sense, the benefits of capitalism have trickled down to everyone.
The strong version of the claim is obtained by shifting the meaning of ‘capitalism’ to mean ‘the free-market version of capitalism favored by market liberals’. Relatively few of the benefits mentioned above can be traced directly to this form of capitalism. Advances in medical care have come mostly from publicly-funded research, and from innovations developed in the public health sector. The contributions of for-profit pharmaceutical companies have been modest by comparison. SImilarly, the Internet was developed by the publicly-funded university sector, and even now the most exciting developments are non-profit innovations like Wikipedia.
The crucial question is not whether technological progress and economic development yields benefits to everyone (clearly it does, at least in material terms), but whether market liberal policies generate more such progress than more egalitarian alternatives, so much more that everyone is better off in the end. It is this strong claim that was made repeatedly during the era of market triumphalism in the 1990s, and repeated, though with somewhat less conviction, through the 2000s.
The growth in US inequality during the Great Moderation was undeniable (though that didn’t stop some commentators and thinktanks trying to deny it). So, optimistic assessments of economic performance during the Great Moderation appeared to support the claim that rising inequality must be good for, or at least consistent with, economic growth that would ultimately benefit everybody.
Now, in the wake of the global financial crisis, this claim can be seen to be unambiguously false.
#
Income, inequality and taxation
The most obvious implication of the trickle-down hypothesis is that inequality in market incomes is not only harmless, but positively desirable, producing benefits for everyone in the long run. The general idea is that, the more highly owners of capital and highly-skilled managers are rewarded, the more productive they will be. This will lead both to the provision of goods and services at lower cost and to higher demand for the services of less-skilled workers who will therefore earn higher wages.
In the abstract language of welfare economics, the central implication of the trickle down hypothesis is that policy should be aimed at promoting efficiency, rather than equity since, in the long run, equity will take care of itself. Put in terms of a more homely metaphor, we should focus on making the pie bigger, rather than sharing it out more equally.
In reality, things are not that simple. It is easy to suggest that tax and other policies should apply neutrally to all sectors of the economy, but harder to define how this should actually work. It might seem that a ‘flat’ tax system in which all forms of income are taxed at a low, uniform rate would satisfy the efficiency criterion. But advocates of ‘trickle down’ have arguments to suggest that income from capital should not be taxed at all.
Going further, market liberals have claimed that, since everyone benefits from many of the services provided by government, the most efficient and equitable form of taxation is a poll tax [1]. Such a policy was in fact introduced by the Thatcher government in the UK to finance local government services, but was abandoned in the face of massive protests and widespread rioting.
Once we turn from theoretical policy debate o the details of design, implementation and enforcement, the well-off invariably do better than the poor, while the rich do best of all. This was true during the postwar Great Compression – although the system appeared steeply progressive, the use of deductions, loopholes and tax minimisation schemes mean that it was, at best, only moderately progressive. Under the systems in force since the 1980s, which are only marginally progressive in their design, the actual outcome has been that upper income earners probably pay a smaller proportion of their income in tax than the population as a whole.
The absence of substantial progressivity in the tax system is obscured by the focus, in the US and elsewhere on the fact that high income earners (almost by definition) pay the bulk of income tax. A good deal of the material appearing on this topic in the Wall Street Journal and elsewhere gives the impression that income tax is the only tax in the system. In reality, income tax is not even the sole tax imposed on income – most countries, including the US, levy payroll taxes which fall on labour income. Unlike the progressive income tax, which does indeed fall most heavily on high income earners, payroll taxes are regressive, falling primarily on wage employees.
In most taxation systems, capital gains are accorded concessional treatment or not taxed at all. Unsurprisingly, a large share of capital income is taken in the form of capital gains, moving the tax system closer to the ‘trickle-down’ ideal where all taxes fall directly, or indirectly, on wage-earners.
Moreover, taxes on income and wealth only account for about half of government revenue in most tax systems. Consumption taxes typically make up about half of all government revenue, and these taxes are regressive. That is, those on low incomes typically pay a higher proportion of those incomes in consumption taxes than do those on high incomes. There are a number of reasons for this. Low income earners don’t generally save very much, so the ratio of consumption to income is higher for these groups. Taxes on items such as tobacco, alcohol, and gambling are levied at very high rates, and these items tend to make up a larger share of the expenditure of the poor (though absolute expenditure is higher only for tobacco).
Finally, there is tax avoidance and minimisation. A vast industry of lawyers, accountants, money-launderers and other agents exists solely to ensure that no one with sufficient means should pay any more tax than the minimum they are obliged to pay under the most creative possible interpretation of the law, and that those who don’t wish to pay even this much should be free to make this choice without any adverse consequences.
In summary, no matter how favorably the well-off are treated, there will always be arguments to suggest that they should receive even better treatment. Trickle-down theory offers no limit to the extent to which the burdens of taxation and economic risk can or should be shifted from the rich to the poor. In the end, according to the trickle-down story, that which is given to the rich will always come back to the rest of us, while that which is given to the poor is gone forever.
#
The role of the financial sector
The financial sector is the crucial test case for trickle-down theory. During the era of market liberalism, incomes in the financial sector rose more rapidly than in any other part of the economy, and played a major role in bidding up the incomes of senior managers as well as those of professionals in related fields such as law and accounting. According to the trickle-down theory, the growth in income accruing to the financial sector benefitted the US population as a whole in three main ways.
First, the facilitation of takeovers, mergers and private buyouts offered the opportunity to increase the efficiency with which capital was used, and the productivity of the economy as a whole.
Second, expanded provision of credit to households allowed higher standards of living to be enjoyed, as households could ride out <a href=”https://johnquiggin.com/index.php/archives/2005/03/24/bankruptcy-again/”>fluctuations in income</a>, bring forward the benefits of future income growth, and draw on the capital gains associated with rising prices for stocks, real estate and other assets.
Finally, there is the classic ‘trickle-down’ effect in which the wealth of the financial sector generates demands for luxury goods and services of all kinds, thereby benefitting workers in general, or at least those in cities with <a href=”http://americancity.org/magazine/article/cities-and-cronyism-quiggin/”>high concentrations of financial centre activity such as London and New York</a>.
The bubble years from the early 1990s to 2007 gave some support to all of these claims. Measured US productivity grew strongly in the 1990s, and moderately in the years after 2000. Household consumption also grew strongly, and inequality in consumption was much less than inequality in income or wealth. And, although income growth was weak for most households, rates of unemployment were low, at least by post-1970 standards for most of this period.
Very little of this is likely to survive the financial crisis. At its peak, the financial sector (finance, insurance and real estate) accounted for around 18 per cent of GDP and a much larger share of GDP growth. With professional and business services included, the total share was over 30 per cent.[1] The finance and business services sector is now contracting, and it is clear that a significant part of the output measured in the bubble years was illusory. Many investments and financial transactions made during this period have already proved disastrous, and many more seem likely to do so in coming years.In the process, the apparent productivity gains generated through the expansion of the financial sector will be lost.
fn1. Here I’m measuring the <a href=”http://www.bea.gov/industry/gpotables/gpo_action.cfm?anon=87680&table_id=23981&format_type=0″>ratio of gross FBS output to gross domestic product</a>, which is the figure most relevant to the argument. The value-added in FRB (which nets out inputs purchased by the FRB sector) is smaller, around 20 per cent, but still indicates a highly financialised economy.
#
Equality of outcome and equality of opportunity
The trickle down hypothesis is closely related to the distinction between equality of outcomes (like life expectancy) and equality of opportunity. This distinction has long been a staple of debates between market liberals and social democrats. Many market liberals argue that, as long as society equalises opportunity, for example by providing good-quality schools for all, it’s not a problem if outcomes are highly unequal. Even though some people may do badly, their children will, it’s claimed, benefit from growing up in a dynamic society where everyone has a chance at the glittering prizes.
Writing in the Wall Street Journal, Wisconsin Republican Paul Ryan attacked President Obama’s first budget saying
In a nutshell, the president’s budget seemingly seeks to replace the American political idea of equalizing opportunity with the European notion of equalizing results.
A year earlier, following his victory in the Republican primary in South Carolina, John McCain said
We can overcome any challenge as long as we keep our courage, and stand by our defense of free markets, low taxes, and small government that have made America the greatest land of opportunity in the world.
As these quotations suggest, the trickle-down hypothesis relies on the claim that equality of opportunity and equality of outcome are not only distinct concepts, but stand in active opposition to each other. By removing disincentives to work such as high tax rates and elaborate social welfare systems, it is claimed, an economic system that tolerates highly unequal outcomes will also provide those at the bottom of the income distribution with the incentives and opportunities to haul themselves up into the middle class and beyond.
The idea that the United States is a ‘land of opportunity’ and ‘the most socially mobile society the world has ever known’ (Scott Norvell, in a piece calling for patriotic consumer spending in the wake of 9/11 http://www.foxnews.com/story/0,2933,34378,00.html) is central to the American national self-image, and the belief that this high social mobility derives from free markets is widely shared.
As we will see, empirical studies of social mobility do not support such beliefs. But most economists are not engaged in studies of social mobility and many of them share these popular assumptions. This is true not only of self-satisfied American economists, promoting the merits of the status quo and calling for more of the same, but also of European critics of the welfare state, who accept the characterization of their own societies as rigid and sclerotic by comparison with the dynamic and flexible United States.
[1] The word ‘poll’ means ‘head’, but is closely associated with voting. Poll taxes are typically levied using electoral registers to define the tax base and can therefore be used to disenfranchise the poor or, as in the US South in the Jim Crow era, blacks
John Quiggin 
“…to the Hong Kong version of laissez-faire”
whew! hold it right there!
The Hong Kong version of laissez-faire involves extremely tight regulation of:
LAND (all land in Hong Kong is owned by the government and leased to private owners at rates that differ greatly depending on whether or not you are a ‘citizen’ – half of the people in HK live in public housing!)
LABOUR (it is extremely difficult for Chinese mainlanders to even visit the place, let alone try and work there – what other city in the world has a labour market so tightly protected from the rest of the country that it is in?).
CURRENCY (tied to the American dollar, not freely floating)
INSTITUTIONS (extensive – and excellent – public works, public health system, transportation, welfare, education, and of course the Port of Hong Kong and Hong Kong Stock Exchange, without which HK would be nothing)
the idea that it represents the minimum of state intervention is a Friedmanite myth designed to counter the FACT that all of the East Asian “tigers” developed thanks to even stronger government intervention!
Click to access cheung_interventionism.pdf
And of course, where did HK get its prosperity in the first place? Because of British policy which gave it in effect a monopoly on imperial trade with China – and let’s never forget that it started as the principal base for the largest State-operated international drug-trafficking operation that the world has ever seen – they didn’t call it the Opium Wars for nothing.
Don’t regurgitate the myth, even in passing.
this point is so important, and so often overlooked, it probably deserves more than a single paragraph. to use the most obvious example… try and imagine a world economy without aircraft!
the only reason why “inequality in consumption was much less than inequality in income or wealth” during this period was the explosion in private debt – debt for consumption, and debt for housing… and this fed back into housing prices, making them shoot (in Australia) from around 3 times annual income in the 50s to the 80s to around 8 times annual income by the end of Howard’s tenure. this is the real “road to serfdom” – Housing-Debt serfdom.
@gerard
Couldnt agree more Gerard – particularly in our major cities “this is the real “road to serfdom” – Housing-Debt serfdom.” backed up by a huge mortgage. Im inclined to agree with Keen. We have not seen the correction yet and its not too difficult to see where the private sector debt is: in the home mortgage.
And then the unofficial death duties kick in. A family relative on the NSW Central Coast had to mortgage her parents’ home to cough up $500,000 for her pensioner seriously ill aged parents to be accepted in two separate nursing homes, approximately 200 kms away from each other and younger family members.
“inequality in market incomes is not only harmless, but positively desirable, producing benefits for everyone in the long run”
Some obvious rebuttals of this ideology are:
Boyce, J. 1994, Inequality as a cause of environmental degradation, Ecological Economics vol. 11 pp. 169-178.
Pickett, K., Wlkinson, R. 2009, The Spirit Level: why more equal societies almost always do better, Allen Lane, London, U.K.
Wilkinson, R. 2005, The Impact of Inequality: how to make sick societies healthier, New Press, New York, U.S.A.
re: housing debt.
but surely this is no surprise?
Someone once commented that the “”sufficient price for the land” is nothing but a euphemistic circumlocution for the ransom which the worker must pay to the capitalist in return for permission to retire from the wage-labour market to the land”.
To have low land prices would defeat the whole purpose.
John have you considered the implications of trickle-down within a finite natural resources context?
“The most obvious implication of the trickle-down hypothesis is that inequality in market incomes is not only harmless, but positively desirable, producing benefits for everyone in the long run. ”
I would characterise it differently – that it’s not inequality itself that produces Good Things, but the absence of certain policies to reduce it allows Good Things to be produced more easily. Advocates of greater equality rarely examine the mechanisms by which this can be done to see if they are effective, viable, or have greater benefits than costs. Pointing to situations of 50 or 70 years ago and saying they should be emulated ignore the vast changes in culture, technology, knowledge, organisation and composition that have ensued, and thus are not convincing.
On inequality (i.) itself, it’s important to talk about what kinds. Income i. and wealth i. are the obvious ones, but access i. and institutional i. are important too. The first two are completely irrelevant if they are contained in those terms, it’s the knock-on effects that are definite problems. These effects can include inequality before the law (because only the rich can afford justice) or inequality of human rights (because only the rich or well-connected can prevent their rights being abused). These are the proper subject of discussions of inequality, not the return to investors or the wages of financial sector senior managers.
“I want to avoid the suggestion that I’m attacking a straw zombie here”
Trickle down as advocacy:
“It’s kind of hard to sell ‘trickle down,’…so the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.”
http://www.theatlantic.com/politics/budget/stockman.htm
Trickle down as a straw man:
http://www.capmag.com/article.asp?ID=1115
@Jarrah
“Advocates of greater equality rarely examine the mechanisms by which this can be done to see if they are effective, viable, or have greater benefits than costs.”
See refs above.
“These are the proper subject of discussions of inequality”
Discussions of inequality include all the above. Surplus profit is a source of injustice and a restriction of rights.
@gerard
Basically right, though Hong Kong has no minimum wage or import duties. It does have much the same set of laws and regulations as anywhere else, though, and social security and health care systems (you need to pay to see a GP, but hospital care is about $10/day). Hong Kong has a lot of small shops so that it is easy to set up as a small business; it is not all Westfieldized. There were major riots in the 1950s-70s, so the British made sure that the people were kept happy and productive, either as small business owners or as employees, while also looking after the Run-Run Shaws and Li Ka-Shings.
Hong Kong has no citizens as such (only China has citizens; Hong Kong has permanent residents), and the opium trade ended when more-efficient Chinese opium farmers undercut the British (who promptly decided opium was evil). Also, what with the economic downturn, mainlanders can now visit Hong Kong, as long as they visit Disneyland and buy lots of souvenirs.
HK government is not interventionist in all respects, just the most important ones. I wish that the Australian government had the same Georgist attitude toward land as the HK government, then I might actually be able to afford a house one day, and not just a lifetime of mortgage serfdom.
some thoughts for a sub-title, JQ.
How about:
Tall Tales Told to Enrich the Already Rich
or
How We Were Conned to Enrich the Rich but NOT the Poor
Prof Q, have you seen the recent paper on trickle-down by Andrew Leigh, Do rising top incomes lift all boats? (short answer: not enough to prevent them from being flooded).
One area in which the benefits of trickle-down are commonly espoused is opposition to Tobin taxes. We are told that a Tobin tax would lead to a reduction in the efficiency of financial markets, the freewheeling operation of which by rentseeking gamblers benefits us all by efficiently allocating investment (nb: for some reason, this argument against transaction taxes does not apply to taxes on food).
Amazingly, some people are still making this argument even after the GFC: for example, last month, Sam Wylie on Core economics claimed that advocating a Tobin Tax reveals you don’t understand risk (given that he teaches what he describes as ‘financial engineering’, this is a pretty clear case of Upton Sinclair’s Law). This case is also made in “Exasperating Calculators“, which is my go-to popular book on what conservative mainstream economists think about things, from the horse’s mouth.
A methodology of currency management much better aligned to the free market than the crawling interest rate peg used in most of the world (including Australia and the USA). The ideal free market situation would be for all currencies in the world to be hard fixed to a common commodity index. The gold standard having being one notable and worthy variation of such a scheme.
The notion that floating currencies are more “free markets” is a fallacy. Zimbabwe has a floating currency but it does not help to ensure a free market.
there may exist a good argument for a gold standard, but since it still involves the government setting the standard by fiat, it’s not much of a “free-market” argument.
The essence of trickle down economics is that financial capital must be put at risk to create a new enterprise and it is only through the creation of new enterprises that wages will rise. This is something of a simplification but it captures the nub of it.
If you tax those that risk their wealth higher than those that don’t, then you will get less investment. If you want to tax the rich then a wealth tax will distort investment decisions far less than an income tax. However a wealth tax will at times cause existing enterprises to be broken up and as such it isn’t always so flash either. And the really rich can shop for favourable regimes so wealth taxes encourage wealth to move off shore.
It isn’t likely that Social Democrats will abandon their fetish for redistributive taxation. However I wish they would be a little bit more clever in plucking the goose. The revenue pie grows each year almost without fail. Why not focus your progressive instincts on tax cuts for the poor. Our tax free threshold should be much higher than $6000pa. Lets try for $30,000pa.
A gold standard could involve a fiat currency fixed to gold but it does not have to. Australia had a gold standard prior to 1910 and most currency in circulation was not government issued. The national unit of account was however largely fixed by the government and I would argue that this is inevitable even in the most laissez-faire of nations. Government essentially dictate the national unit of account the moment they write a tax code.
In general I would agree with your latest assertion that for a fiat currency a fixed exchange rate is no more a free market solution than a floating exchange rate. However it is no less of a free market solution either. As such your earlier assertion in regard to Hong Kong is incorrect.
@TerjeP (say tay-a)
says “Why not focus your progressive instincts on tax cuts for the poor. Our tax free threshold should be much higher than $6000pa. Lets try for $30,000pa”
Terje…. At last a point of agreement.. <3.
But with the rich offloading their redistribution responsibilities over quite some time, as in decades, as they have been doing by pushing the burden for redistribution downwards to 9th and 8th deciles and trickling their rewards from reagonomics sideways clean out of the ATOs jurisdiction, can you really see governments wanting to give up this take from lower income earners?
❤ not working?
@iain
“Surplus profit is a source of injustice and a restriction of rights.”
How so?
@Alice
“their redistribution responsibilities”
This says so much about your worldview, I hardly know where to start. So I won’t bother.
Incorrect? Yeah, well, you know, that’s just, like, your opinion, man. Even if governments are able to influence interest rates by buying and selling bonds, the fact that people are free to buy and sell currencies (and currency derivatives) internationally at rates determined by market demand and supply is obviously more “free market” than having them forbidden from doing so by a government that sets exchange rates by dictat.
@Jarrah
For the problems associated with surplus profit unequally distributed refer:
Boyce, J. 1994, Inequality as a cause of environmental degradation, Ecological Economics vol. 11 pp. 169-178.
Pickett, K., Wlkinson, R. 2009, The Spirit Level: why more equal societies almost always do better, Allen Lane, London, U.K.
Wilkinson, R. 2005, The Impact of Inequality: how to make sick societies healthier, New Press, New York, U.S.A.
For the problem of surplus profit associated with injustice and restriction of freedom refer to Capital.
If you don’t accept this argument (and view surplus profit as having sources outside labour issues) refer to Howard Odum for the underlying implications of surplus profit coming from other inputs to the production processes.
Gerard – Those nations that try and fix their exchange rate by dictate invariable fail and merely create a black market. Hong Kong does not fix it’s exchange rate by dictate.
The Hong Kong government does not forbid anybody from buying or selling the Hong Kong dollar. They fix the market price via adjustment in supply (open market operations). This is no different in essence to what the RBA in Australia does to fix the market price of credit (interest rates). Modifying the supply of a fiat currency to adapt to market demand is not less “free market” than fixing the interest rate or simply fixing the supply. It is merely a different approach.
I readily argue that a fixed exchange rate is often more sympathetic to open markets. However this is not a claim that exchange rate fixing is a free market solution. Exchange rate fixing is just as much a government solution as inflation targeting or any number of other monetary policy approaches. However it isn’t more a government solution. All fiat currencies are fiat currencies irrespective of monetary policy.
Gerard – this isn’t merely my personal opinion. Here is Steve Hanke writing at CATO (a free market institute) on the topic:-
http://www.cato.org/pub_display.php?pub_id=9625
Pr Q said:
No, the development of the internet was sponsored by the US Department of Defence, outsourcing the technics to academic and commercial nerds. Ike was no babe in the woods when it came to the Military Industrial complex. But he recognized it had its uses.
In the late fifties, after Sputnik, Ike wanted the US to be ahead in sci-tech, especially with a military applications. In the early sixties the Air Force commissioned DARPA to reseach into decentralised communication system that would not be vulnerable to a first strike. It was in the late sixties that the Internet was finally hooked up by Stanford.
The academies got on quite a bit later, in the eighties and nineties, though grants from the NSF.
Next time an academic pacifist bitches about the evils of military spending it would do well to remind him of that.
@Jack Strocchi
Not quite sure how you get to “No” when you immediately acknowledge that the internet was developed by the university sector (although initially sponsored by someone else).
I also imagine that the US DoD sponsorship was primarily within their own borders as it was for the purpose of ensuring a dependable backbone for their systems not the rest of the world. Further, as you also acknowledge, most of development activity in the eighties and nineties was in academia (as well as research institutes) and this is what became the internet rather than the rudimentary activities in the years before. One more point, if the DoD had done nothing it is still reasonable to believe universities would have done more or less the same for their own purposes in the eighties and nineties.
And if universities had done nothing it is still reasonable to believe that the private sector would have done more or less the same for their own purposes. Privately run dialin bulletin boards were prevalent even before somebody got clever about linking them all together.
@Jarrah
Yes it does Jarrah – some adequate (note the word “some” Jarrah) redistribution from the rich to the poor is appropriate, not policies that have increasingly rewarded the rich over the past three decades, leaving inadequate redistribution in its wake and rising inequality, and rising burdens on governments and charities.
It does say a lot about my economic policy views. Your snark also says a lot about your views which I find disagreeable. Very.
@TerjeP (say tay-a)
I think I have to agree with you on that. Eventually the private sector certainly would have gotten around to it. The DoD was simply first in sponsorship because they had the money and a need that made it worthwhile back then despite the costs back then being considerably higher than they were later on.
The ‘ideal’ free market solution (favored by Hayek) would be free banking. That way there would be no currencies imposed and supported by naughty governments. Currencies would be supplied by whomever wished to with whatever exchange-ability policies they determined.
Then all would be wonderful and there would be peace on earth and beyond, forever and ever, without end, Amen.
Obviously there are privately run computing networks.
Linking these with open and public access networks just creates a better network.
re: references to wikipedia, I’d be inclined to clarify with the phrase “wiki encyclopedias”, so that it includes things like the EoE, and won’t seem dated if wikipedia stalls.
http://www.eoearth.org/
OK Terje HK fixes its currency to the US dollar with open market operations – I guess that’s the only way of reconciling a peg with open financial markets. China fixes its currency by simply disallowing the free movement of money, South Korea used to do the same. I think rates should be fixed under a Bretton Woods type system, however the resistance to that comes from a financial industry that makes bucketloads of money off unproductive speculation. Considering how resistant they are to a Tobin Tax I very much doubt they’d be very happy with a system of fixed exchange rates. As for Gold, since the rate at which it is set to gold is by fiat anyway, what’s the difference between that and regular old gold-less fiat?
not really, since high-tech research and development is also high-risk – there’s no guarantee you’ll actually end up inventing something useful after all your investment. large corporations are very supportive of government R&D, they don’t want to take on the risk themselves.
I don’t understand your argument here. What did Odum (who I understand is an ecologist interested in ecological economics) write about this issue?
Odum had an alternative surplus value theory to Marx.
The argument I am making is that inequality is associated with (both) environmental and social degradation.
@TerjeP (say tay-a)
The rich are the only ones able to invest as they are the only ones with access to capital. However, the evidence is that if you give the poor capital to invest then they are much better at investing and do a better job than the rich. They do it because they have more to gain from a successful investment. The proof is in the success of the Grameen bank where the repayment rates on loans are 99+% and the income generated from investments is much much greater than the capital invested.
The rich who can afford to make risky investments do a worse job than the poor who need the investments to succeed. This is confirmed by the stories of many rich families. The first generation makes it, the second consolidates and the third spend it.
So the best strategy for society to get wealthier is what we might call trickle up economics. Give capital that must be invested to the less well off and they will get the best value for money.
Giving tax breaks to the rich means they are likely to consume more.
It is even worse than I describe because for the poor to get access to capital they have to pay more for as they have to give equity as loans are not available. Equity finance is at least 3 times as costly as loan finance and so the rich get cheap money while the poor pay more for the same thing. This should not surprise us as the rich pay less for the same goods than the poor. If you do not believe me look at the cost of groceries in different suburbs, the cost per sq meter of housing and land, the cost of the same car. The rich always have ways of getting cheaper money than the poor or of ways to get discounts.
Freelander@#29 December 14th, 2009 at 13:06 said:
I do NOT “immediately acknowledge that the internet was developed by the university sector”. I said that the internet was developed by the military with “outsourcing…technics to academic and commercial nerds”. The idea, initial funding and organization of proto-internet technology was administered by the US Department of Defence agency called DARPA.
So the internet was originally the Defence Department’s baby, in much the same way that the US phone system was the the Bell Corporations baby, even though many academics and technicians were used in its construction and development. But no one says the US phone system was developed by, say, CIT & MIT.
Later on university organizations took up and developed the civil use of the internet to promote the dissemination of knowledge. This was a good couple of decades AFTER the military go the thing started.
The difference is between academics as individual employees of DARPA and academics as institutional employers through the NSF.
Why is this difficult for you to understand.
I agree on both counts.
Which is probably why it is that where clear property rights and good contract laws exist, the wealthy routinely lend their financial capital to the non-wealthy.
@TerjeP (say tay-a)
The wealthy only lend their capital to the non-wealthy as a last resort and then they charge a premium.
Not difficult to understand, just, in essence, wrong and, therefore, difficult to agree with.
As you seem to have forgotten was you said…
@Jack Strocchi
Following your logic, next time when I buy a meal at a restaurant I will tell everyone that I cooked it.
@TerjeP (say tay-a)
“the wealthy routinely lend their financial capital”
The wealthy never lend capital. Sometimes they give some of it away in a fit of commonsense. Mostly they exchange money for more money, and in so doing exploit the environment and anyone who doesn’t correctly assist with their scheme.
Of course, in creating more money for themselves they also impact on their own mental and social health. I’ll get flack for this, but Tiger Woods is possibly the latest example of this.
@iain
Iain – agree
The wealthy lend their financial capital – not enough of it – and the poor and middle class dont have enough savings now – see private sector debt. If the rich had lent or invested enough of their capital why are private sector debt levels through the stratosphere in this country
…..because mortgages are conuming the wherewithall for anyone else but the rich to lend or invest their spare capital meaning no-one else but the rich and pwerful get the high risk returns from that capital and it keeps a nice big store of wage slaves for the rich to use to generate further surpluses.
Terje
You can only keep people down so long until they start to smell a rat in these inane ideas of yours (that the rich are worth feeding more than everyone elsse) – and there is a big dead rat out there called neoliberalism and if I may be so blunt – it is starting to stink.
Not sure what this is saying. How can debt levels be high without high levels of lending?
@TerjeP (say tay-a)
You cannot distingusih between productive surpluses and speculative surpluses Terje. The financial sector sits on the speculative surpluses of the wealthy – surpluses too often turned to real estate speculation. When not gambling on shares – its gambling on real estate. After all – why do they need to produce real stuff here.. when because of slavish adherence to globalisation and dereulgation they can import cheap crap from China instead?