Income Inequality and Economic Mobility

Mark Thoma of Economist’s View writes in the Fiscal Times (excerpt):

Income Inequality Is Hobbling the Middle Class

Income inequality in the U.S. has been rising for the last several decades, and with it concern about the consequences. For example, to what extent does the large flow of income into the hands of financial executives give them the power to influence Congress through campaign donations? How does this have an impact on the willingness of legislators to impose regulations that would stabilize the financial system but inhibit the ability of the financial industry to make the huge profits that fund political campaigns?

If economic mobility increased along with the increase in inequality, then this would at least partially offset the worries associated with the rising concentration of income...

Happy Deepavali

There might not be any posts until next week as I’ll be teaching on Thursday and Friday.

In the meantime, have a Happy Deepavali, and a safe holiday.

Income Inequality Globally

This Bloomberg/Businessweek  article points to a site I’d never come across before – but it’s going to be bookmarked permanently! Malaysia’s not included yet, but the work is in progress.

Click the link to find out what I mean.

Things Are Not As Bad As They Seem

I’m fairly certain that things picked up in Malaysia during the third quarter of this year – we’ll know better in about three weeks time, when the GDP data comes out.

In the meantime, despite Congressional paralysis and the simmering crisis in Europe, it looks like the US won’t be at risk of recession anytime soon (excerpt):

GDP Probably Picked Up in Third Quarter: U.S. Economy Preview

Oct. 23 (Bloomberg) -- The U.S. economy probably grew in the third quarter at the fastest pace this year, easing anxiety that the recovery was on the verge of stalling, economists said before a report this week.

Gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate after advancing 1.3 percent in the previous three months, according to the median forecast of 68 economists surveyed by Bloomberg News before the Commerce Department’s Oct. 27 release. Orders for business equipment rose in September and new-home sales stabilized, other data may show.

Homeownership: Good Or Bad?

Hafiz Noor Shams on the government’s drive for greater homeownership (excerpt):

Homeownership isn’t the only way

OCT 24 — It is not a crime to dream of a place to call one’s own. It is hard to beat having a roof none can take away in the worst of times. If anything happens, at least there is a home to run to. It is a comforting feeling to have a haven. That is the sort of sentiment fuelling the dream of homeownership. So pervasive is the thought that the inability to own one is seen as a problem by many.

…It is no different in Malaysia. Homeownership occupies the collective mind. The high prices of ordinary homes stand as a barrier. That barrier is stirring up discontent among the middle class and down.

The Malaysian government knows this and it has introduced various incentives to make homeownership a cheaper endeavour for Malaysians.

Good Analysis: Lousy Recommendation

Kapil Sethi on Budget 2012 (excerpt):

A fool’s paradise?

OCT 24 — Spot on! Screamed out page after page in The Star the day after the Budget 2012 announcement by the prime minister. Barisan Nasional was at pains to paint it as a caring budget which emphasised its concern for the underprivileged through a number of cash handouts and maintenance of subsidies across the board.

But how quickly times change. Within a week, even The Star was forced to concede that a number of economists thought the growth forecast of 5 per cent to 5.5 per cent for 2012 was somewhat optimistic, without which premise the entire fiscal deficit reduction claim would appear to be a pipe dream…

The Chicken Is Coming Home To Roost: Healthcare Costs

This isn’t going to be part of the social consciousness for a good few years yet, but credit where its due, the government is already thinking about it:

A strain on the pocket

Healthcare cost is expected to escalate in line with the rising cost of living and the Health Ministry is taking steps to raise public awareness on non-communicable diseases.

OF late, the Health Ministry has been raising public awareness on non-communicable diseases (NCD) chronic respiratory diseases, heart diseases, cancer and diabetes…

…Recent statistics already show that 60% of premature deaths (below 60 years) in Malaysia were caused by NCD, he has said.

The focus is warranted not only because of the need to keep the population healthy and productive but also to keep healthcare cost, which is expected to escalate in line with the rising cost of living, manageable…

A Critique Of Modern Central Banking

Manoj Pradhan of Morgan Stanley muses over monetary policy strategy in the developed world (excerpt):

Is Modern Central Banking Ancient History?
By Manoj Pradhan | London

Two of the three principles of modern central banking were designed for a regime that developed economies will not see for the foreseeable future. The principles - (i) inflation targeting improves growth prospects in the medium run; (ii) inflation targeting effectively means inflation forecast targeting; and (iii) a ‘conservative' central banker (i.e., one who dislikes inflation more than the average economic agent) can deliver lower and less volatile inflation - are almost unquestioned among the central banking orthodoxy. However, these principles were espoused in an era of low debt when monetary policy was the dominant force. In the era we now live in, where debt, deficits and deleveraging (a DDD regime) are the dominant drivers of the economy and policy - an era of so-called ‘fiscal dominance' - the first and the last tenets can cause more harm than good. Inflation targeting and an aggressive approach to taming inflation in such times can create more volatile inflation and higher sovereign risks.

August 2011 Employment Report:

The employment report issued yesterday show the economy losing about 87k jobs in August:

That’s ok, because according to the report, 75k people left the labour force at the same time. It should be understood that we’re looking at a pretty strong seasonal effect here, due to Ramadhan – the same pattern consistently repeats over the past 2 years that we have data for.

September 2011 CPI: No Relief

Yesterday’s inflation report from the Department of Statistics shows inflation remaining at an elevated level (log annual and monthly changes; 2000=100):

Explaining Europe

Ryan Avent of The Economist magazine manages to explain the whole Eurozone problem in one paragraph, and the solutions in the next:

Why not blame Germany?

...The crisis in the euro zone is not mysterious. People are proposing lots of different solutions to the problems because they're trying to hit on the magical combination of policies that will win political support from key players—notably the German government. But we know what the matter is. Many members have too much debt. Prior to the crisis, all euro-zone countries were able to borrow on terms which suggested that markets believed the full faith of the euro zone as a whole to be behind individual members, and some governments borrowed too much. After the crisis, markets weren't so sure about what the full faith of the euro zone meant, and spreads between the bonds of different euro-zone governments diverged. For the past year and a half, some euro-zone economies have struggled to make their way out of trouble within the confines of the union: without the ability to depreciate their currencies or set an independent monetary policy. The austerity adopted to try and balance budgets gutted internal demand, leaving those struggling economies dependent on external demand for growth. But where an independent currency would have fallen to help markets clear, euro-zone members were forced to make their adjustment through declines in nominal wages—a difficult and painful process even in countries like Ireland, which have very flexible labour markets. Other euro-zone governments have offered enough help to prevent an implosion of the financial system, but not enough to do much about massive unemployment problems in places like Spain and Greece. Without growth, closing budgets through austerity is like trying to climb a falling ladder...

The Argument For Taxing Energy

N. Gregory Mankiw points us to this article by Yale Professor William Nordhaus:

Energy: Friend or Enemy?
William D. Nordhaus

...The two faces of energy are the primary reason why energy policy is so controversial and tangled. We need national policies that address the enemies of pollution and global warming. But because energy is such a large part of consumer budgets and so central to our advanced economies, people are reluctant to allow energy prices to reflect the true social costs of energy consumption. We see this tradeoff play out in energy and environmental policy year in and year out...

...An externality is an activity that imposes uncompensated costs on other people. Externalities from energy use include the deadly air pollution emitted by cars and power plants, oil spills, radioactive emissions from nuclear power plants, sludge from coal mines, and congestion from overloaded streets and highways. More recently, scientists have focused on greenhouse gas emissions, such as the carbon dioxide that comes from burning fossil fuels, as a particularly dangerous externality...