Moon of Alabama Brecht quote
March 04, 2006

Communist Ideas

You really have to wonder when Morgan Stanley will fire its chief economist Stephen Roach for communist subversion. McCarthy would have had a field day with this statement alone:

Billed as the great equalizer between the rich and the poor, globalization has been anything but. An increasingly integrated global economy is facing the strains of widening income disparities -- within countries and across countries. This has given rise to a new and rapidly expanding underclass that is redefining the political landscape.

The piece is actually just a lament about rising protectionism, especially in the U.S. versus China, but also it includes some interesting numbers.

The Gini coefficient is measurement of inequality in income. A Gini value of 100 is the maximum of inequality, 0 describes equal income for all.

Roach gives some values: Japan (25), Europe (32), India (33), U.S. (41) and China (45). In the U.S. the coefficient has risen from 35 in 1970 to today's value. As he recognizes, such a development, and high inequality in general, leads to pressure for political responses.

The political response in the U.S. is protectionism, often disguised as security issues (see the Dubai port deal). The same error was made in 1930 with the Smoot-Hawley Tariff Act which stifled world trade and at least exaggerated the great depression.

But Roach fails to point out any measures that easily could lead to lower inequality, lower the Gini coefficient and take away the political pressure for protectionism.

Steep progressive taxing could do a lot lower high income and take away the incentive for ridicules high CEO compensation. Raising the income and capital gain taxes for any dollar above $1,000,000 per year to some 50% would pay for a lot of decent schools. A small tax on big assets could lessen their progressive growth and finance universal health-care. A Tobin tax would restrict international capital speculation and could pay for global development.

Of course economists like Roach know these tools would be the right recipe.

But then, they are sticking to their jobs too.

Posted by b on March 4, 2006 at 17:22 UTC | Permalink


Income is wasted on the poor, for Chrissakes. They will just blow it on junk foods and WMF tickets. Leave it in the hands of the rich, who will invest it in offshore corporations, ensuring a steady supply of cheap imported goods for US consumers.

Posted by: ralphieboy | Mar 4 2006 18:16 utc | 1

There definitely is a non-racist argument against the UAE ports deal. However, that argument would take us to places that no Democrat or Republican would want to go - questioning the basic premises of the Washington Consensus - neo-liberal globalization of the "flat-earth" variety. It so is much easier for lawmakers, especially Democrats, to make cheap political points with Arab-bashing. The Washington Consensus is now a religion in DC and no Democrat wants any part of questioning its assumptions. They just don't want to go there. After all, it may lead to blocking deals like this:

U.S. panel objects to software handover to Israeli company

William Reinsch, a former senior U.S. official who participated in reviews under former President Bill Clinton, said the Israeli sale involves more dire security issues than the administration's recent approval for a Dubai-owned company to take over significant operations at six major American ports.

Its hard to imagine Hillary Clinton or Chuck Schumer objecting to that one!

And then there's this:

The US's nuclear cave-in.

The basic conflict between neo-liberalism and security will also be on display when congress begins debating signing off on the nuclear deal Bush has made with India. There is a lot of money to be made off that one; not to mention lining up India against both Iran and China.

Posted by: tgs | Mar 4 2006 19:02 utc | 2>Noland has a nice one this week:

with regard to today’s unsound money and Credit, there has been ample failure in both the public (gross mismanagement and deficits) and private sector (reckless speculative excess, gross over-issuance of suspect Credits, and attendant malfeasance) domains. Such an unsound monetary backdrop, as we have witnessed, will foment unwieldy booms with a propensity for increasingly deleterious incentives, asset inflation, financial and real resource misallocation, destabilizing speculation, escalating non-productive debt expansion, unjust wealth redistribution, and progressive structural economic maladjustment.>This is a nice one explaining just who's been mopping up productivity gains.

Posted by: slothrop | Mar 4 2006 19:04 utc | 3

@slothrop - you reading Noland - didn't expect that :-)

Posted by: b | Mar 4 2006 19:24 utc | 4

Michel Chossudovsky, economist: war economics macroeconomics are related....

Michel Chossudovsky's Presentation on The Dangers of a US Sponsored Nuclear War at the Perdana Peace Forum


Nuclear War against Iran

Michel Chossudovsky is the author of the international best seller "The Globalization of Poverty " published in eleven languages. He is Professor of Economics at the University of Ottawa and Director of the Center for Research on Globalization, at . He is also a contributor to the Encyclopaedia Britannica. His most recent book is entitled: America’s "War on Terrorism", Global Research, 2005.

Take a deep breath - feel like you're chokin'?
Everything is broken. - Bob Dylan

Posted by: Uncle $cam | Mar 4 2006 19:38 utc | 5

Raising the income and capital gain taxes for any dollar above $1,000,000 per year to some 50% would pay for a lot of decent schools.

Any return to sanity in regards to progressive taxation would make a lot of sense, at least to me. I don't see, however, how the rich and powerful (you know, the ones making all the decisions on tax rates) are going to vote for things that would eat away at their riches and power.

Is there anyone with real authority in this country who isn' t a millionaire (not speaking in the past, but present)? Isn't the political system sort of designed so that someone would never have a shot at that level of administration unless they were? They're not going to vote against their own personal interests, as I see the only representation they feign is to that of corporations -- their real constituency.

Posted by: Pyrrho | Mar 4 2006 19:49 utc | 6

I just see us bloggers and commentators as no different to the Russians outside the Kremlins (in all Russian cities) freezing our balls off and saying "enough is enough" in 1917.

Posted by: Cloned Poster | Mar 4 2006 21:33 utc | 7

It would be interesting to graph the Ginni coef. against GPD per capita.

Posted by: MarcinGomulka | Mar 4 2006 23:27 utc | 8

i introduced the idea of a 1,000,000 cap on annual income (and then a massive tax, over 50%) in the US about a year ago either here or at whiskey bar. no one commented on it except Pat (who disagreed), but i feel this is a solution anyone should be able to live with. there is a big difference between a millionaire and someone making a million a year. it wouldn't prevent someone in investing in their business and recycling the money into wages or expansion but it would eliminate hording. how much crap does anyone need? how big a home, how many cars, how much land. it's absurd.

as far as elected officials, there would have to be massive reform in the way people campaign, the millions spent on elections is such a waste of resources. the new yorker has an excellent idea i recommend although i don't know how much it would save on cost, just redistribution.

uncle scam, thanks for the Chossudovsky links

Posted by: annie | Mar 5 2006 0:12 utc | 9

Donald Trump said on CNN (in an interview with Richard Quest) that you don't get an improvement in the living standard above $50 million wealth. You can't dine better, drive faster cars, travel more, etc.

Posted by: MarcinGomulka | Mar 5 2006 0:57 utc | 10

The ATM machine has replaced the tax payer and it doesn't pay taxes nor does it's owner.

Posted by: pb | Mar 5 2006 1:19 utc | 11

Really good post B.

Here's the latest that is happening in America

Study esp the median numbers.

Posted by: Groucho | Mar 5 2006 2:00 utc | 12

I think a tax above 50% is not good for democracy-the government doesn't deserve more of your money than you. It may actually encourage greed, you just grab more to compensate..
I was reading somewhere that when you calculate ALL taxes, including sales and VAT, that the poor pay in the high 30 percent range, the rich tend to pay in the low 30 percent range.
A good tax system would even that out.

Posted by: doug r | Mar 5 2006 3:21 utc | 13

I completely agree with the taxation. I do not agree with the economist concensus that Smoot-Hawley wrosened the Great Depression. Smoot-Hawley was a reaction to capital flight fromt the US especially when the US was on the gold standard. Gold was fleeing US shores going to Europe to stabilize the German currency. b you should know this. A little after that the US went off the gold standard for the first time. The Fed didn't know how to manage a floating currency and contracted the money supply severely, especially in 1933 and 1937.

Paul Craig Roberts over at counterpunch noted the Feds mismanagement and the reprocussions during the Great Depression. Anyone that taken economic 101 will know Smoot-Hawley is a red herring used by the neo-liberal economic faithfull to beat back tariffs of any kind.

During the Gilded age and up through the early 1920s tariffs were used to protect industry. Two creations started the tariff is bad mantra. The first league of nations and the birth in the 1920s of the Council on Foreign Relations. Globalist started to exert more control, and the movement of capital worldwide was desired especially in the buildup of war machines and funding wars. War is profitable. WW I showed business war could be a worldwide venture. Before this war was for gaining riches, material and mostly regional in nature. WW I became "World War."

Anyway, yes we need progressive taxation, and current taxation only benefits people sitting on their asses and darwing interest. Look at the US and you'll see no investment in high tech because all money is invested in interest bearing notes and dividend paying stocks because its safe and taxation is only 15%. This makes the tech economy stagnate because no-one needs to take chances to get a return.

Posted by: jdp | Mar 5 2006 5:04 utc | 14

Enron is the Paradigm, not the Pariah!

Posted by: Carrie Underwood | Mar 5 2006 7:51 utc | 15

America has lost track of the social component of labor. Employees are just another expense to me minimized, like staples or copier paper. And the companies do not even have to pay the disposal costs when they are jettisoned.

And by this logic, our top managers are such a hot, in-demand product that they justify astronomical wages and bonus packages.

My family got Enron-ed back in the 1960's, before it was the fashionable thing to do. Despite my fathers' 30 years of service for United States Steel, he had the nerve do up and die without permission from his boss. my mother was informed that she was not available for a widows' pension.

Had it not been for Social Security, we would've lost our house. As it was, she found out about a class action suit against US Steel and received a settlement in the 80's, but it was just a patch on the money we should've received and did not replace the money when we needed it.

That experience caused me to seriously doubt the wisdom and forsesight of Americ's captains of industry. And as CU mentioned, it became the paradigm, not the exception.

Posted by: ralphieboy | Mar 5 2006 7:58 utc | 16

I am in favour of introducing some kind of parity law, along the lines of linking the top CEO's income to the lowest paid f/t employee in the company. Lets say with a factor of 50. Should the cleaner earn $20K pa, then the CEO can get a max of $1'000K. Should he or she want to earn 2 millionen per year, he's got to make sure that the cleaner is on $40K. Capitalism with a shot of Socialism.

And, applied to politicians, a law which states that if you want to stand for elections, your annual income can not exceed 10 times your state's annual median income. Just to make sure they don't forget us down here on the factory floors and cotton fields.

Posted by: Feelgood | Mar 5 2006 19:47 utc | 17

A UN Dept of Economic and Social Analysis paper [PDF] notes the declining bargaining power of workers due to decline of unions in developed countries; it's unions that have historically have advocated for full employment and social welfare. A couple of graphs on pages 12 & 13 examine union density and gini coefficent.

From another perspective, it's unions, the idea of post-war peace between labor and capital, and the relative affluence of developed countries during the cold war that helped keep capitalism viable for the domestic population (at least that’s what I get from my reading of U.S. history).

Posted by: served cold | Mar 7 2006 22:05 utc | 19

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