Inequality and Instability: A Study of the World Economy Just Before the Great Crisis

Inequality and Instability: A Study of the World Economy Just Before the Great Crisis

James K. Galbraith

Language: English

Pages: 336

ISBN: 019985565X

Format: PDF / Kindle (mobi) / ePub


As Wall Street rose to dominate the U.S. economy, income and pay inequalities in America came to dance to the tune of the credit cycle. As the reach of financial markets extended across the globe, interest rates, debt, and debt crises became the dominant forces driving the rise of economic inequality almost everywhere. Thus the "super-bubble" that investor George Soros identified in rich countries for the two decades after 1980 was a super-crisis for the 99 percent-not just in the U.S. but the entire world.

Inequality and Instability demonstrates that finance is the driveshaft that links inequality to economic instability. The book challenges those, mainly on the right, who see mysterious forces of technology behind rising inequality. And it also challenges those, mainly on the left, who have placed the blame narrowly on trade and outsourcing. Inequality and Instability presents straightforward evidence that the rise of inequality mirrors the stock market in the U.S. and the rise of finance and of free-market policies elsewhere. Starting from the premise that fresh argument requires fresh evidence, James K. Galbraith brings new data to bear as never before, presenting information built up over fifteen years in easily understood charts and tables. By measuring inequality at the right geographic scale, Galbraith shows that more equal societies systematically enjoy lower unemployment. He shows how this plays out inside Europe, between Europe and the United States, and in modern China. He explains that the dramatic rise of inequality in the U.S. in the 1990s reflected a finance-driven technology boom that concentrated incomes in just five counties, very remote from the experience of most Americans-which helps explain why the political reaction was so slow to come. That the reaction is occurring now, however, is beyond doubt. In the aftermath of the Great Financial Crisis, inequality has become, in America and the world over, the central issue.

A landmark work of research and original insight, Inequality and Instability will change forever the way we understand this pivotal topic.

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inequality across countries appear largely determined by their place in the hierarchy of incomes, and the movement of inequality over time is still, to a substantial extent, a consequence of the intersectoral transitions that continue to occur, modified by fluctuations in the relative pay between major sectors. And yet, this is not the whole story either. Kuznets largely restricted himself, as development economists are wont to do, to the trajectories of individual countries. It is, however, not

difference. However, these patterns become less clear when other conditioning variables are added; the gross-net variable loses significance while the income-expenditure remains significant only at the 10 percent level in models 3 and 5. On the other hand, the household–per capita difference is significant at the 10 percent level through all the models and at the 5 percent level in two of them. The UTIP-UNIDO pay inequality measure (T) is strongly associated with the DS income inequality measure

preferred way to proceed. 7. The Gini coefficient is often multiplied by a factor of one hundred so as to give units in integers; we will refer to “Gini points” when using that convention. 8. There are also subtle differences in how these two measures capture the inequality of a distribution, with the Theil statistic tending to emphasize the effect of the highest incomes on inequality. But this need not concern us here since it will be fully accounted for in a regression coefficient relating the

makes might be made differently by another. 100 Economic Inequality and Political Regimes 101 Democracy and Inequality in Political Science Work on inequality and democracy began long ago, and the long view has been that democracy must be broadly egalitarian. This intuition is tied to American history (“All men are created equal”), to Benthamite utilitarianism (“the greatest good of the greatest number”), and to the veil of ignorance in the justice theories of John Rawls. As we have seen,

reduces to two core facts: rapidly growing pay in a few small high-paid sectors, and growing employment in a few large but low-paid sectors. However, the small number of sectors examined at this level still obscures some important facts. We do not know, from this information, just how concentrated income gains actually were. When we increase the number of sectors, what do we find? We find that the increases in inequality are due mainly to changes in the relative pay of a very small number of

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