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Inequality and Instability A Study of the World Economy Just Before the Great Crisis. By James K. Galbraith The University of Texas at Austin For the Institute for New Economic Thinking Berlin April 14, 2012.
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Inequality and InstabilityA Study of the World Economy Just Before the Great Crisis By James K. Galbraith The University of Texas at Austin For the Institute for New Economic Thinking Berlin April 14, 2012
“Kepler undertook to draw a curve through the places of Mars, and his greatest service to science was in impressing on men's minds that this was the thing to be done if they wished to improve astronomy; that they were not to content themselves with inquiring whether one system of epicycles was better than another, but that they were to sit down to the figures and find out what the curve, in truth was.” -- Charles Sanders Peirce (1877)
Inequality as Global Macroeconomics • At the national level, inequality is in part a curvilinear function of income level – a matter of macroeconomics. • The Kuznets Curve remains a good starting point, though with modifications for high-income countries. • Changes in inequality are driven by changing economic structure and economic geography, and changing inter-sectoral terms of trade. • Global factors dominate movements in global pay inequality. • Changing financial regimes dominate this picture.
This broad picture of the world economy from the standpoint of inequality measure suggests that the “super-bubble” was also, for most of the world’s population, a “super-crisis.” The super-bubble came to a peak in 2000-20001. The period since then was marked in the United States by efforts to keep the bubble going, in part through aggressive efforts to relax standards, which may be described as the growth of a “predator state.” This led to the corruption of the financial markets whose collapse produced the great crisis.
“Concept 4” Inequality: The Common Movement of Inequality Measured within Countries, Across Time 9/11 Milanovic Concept 1 The Super Bubble End of Bretton Woods Profit Share in OECD Debt Crisis Note: The vertical axis represents the time element in a two-way fixed effects panel regression, across the panel of country-year observations. Vertical scale is log(T) units. Source: Kum 2008.
The US: Income Inequality and the NASDAQ, 1969-2006 Super Bubble Tax Reform Act Inequality Log of NASDAQ Income inequality measured between counties, from tax data
U.S. Income Inequality Between Counties 1969 – 2005 Plotted Against the NASDAQ Composite, with Three Counterfactual Scenarios of Inequality Growth from 1994 – 2000 Without Manhattan Without Silicon Valley Without Top 15
Income Inequality in the United States, 1969-2009Measured Between Counties Calculation by Amin Shams
Contribution of Each County to Income Inequality, Late 2000s Contribution to inequality is presented as shading and as height above or below the zero plane. Calculation and map by Amin Shams.
For more information: Oxford University Press, 2012