Social Europe Journal http://www.social-europe.eu debating progressive politics in Europe and beyond Tue, 21 Oct 2014 08:15:40 +0000 hourly 1 http://wordpress.org/?v=4.0 "The Politics Of Climate Change 2014" by Anthony Giddens http://www.social-europe.eu/2014/10/politics-climate-change-2014/ http://www.social-europe.eu/2014/10/politics-climate-change-2014/#respond Tue, 21 Oct 2014 08:15:40 +0000 Anthony Giddens http://www.social-europe.eu/?p=35662

Professor Lord Giddens published The Politics of Climate Change in 2007 and is currently preparing a new edition for publication in 2015. In this lecture recorded at the London School of Economics and Political Science in October 2014, he consider how much progress has been made since the work was first published in containing global warming – arguably one of the greatest threats to a stable future for humanity.

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http://www.social-europe.eu/2014/10/politics-climate-change-2014/feed/rss2/ 0 The Politics Of Climate Change 2014 - Social Europe Journal Professor Lord Giddens published The Politics of Climate Change in 2007 and is currently preparing a new edition for publication in 2015. In this lecture he will consider how much progress has been made since the work was first published in containing global warming - arguably one of the greatest th Climate Change,global warming,Politics,Climate Change
"The Spider Of Finance" by Howard Davies http://www.social-europe.eu/2014/10/spider-finance/ http://www.social-europe.eu/2014/10/spider-finance/#respond Tue, 21 Oct 2014 07:30:45 +0000 Howard Davies http://www.social-europe.eu/?p=35656
Howard Davies, Finance

Howard Davies

The global system of financial regulation is extraordinarily complex. Partly for that reason, it is little understood. In order to explain it to my students at Sciences Po in Paris, I have devised a kind of wiring diagram that shows the connections among the different bodies responsible for the various components of oversight. It makes a circuit board look straightforward.

Many people show some spark of recognition at the mention of the Basel Committee on Banking Supervision, which sets capital standards for banks. They may also have heard of the Bank for International Settlements, the central banks’ central bank, in which the Basel Committee sits. And the International Organization of Securities Commissions (IOSCO), which sets standards for exchanges and securities regulators, has name recognition in some quarters. But when you get to the International Association of Insurance Supervisors, brows furrow.

There are many other groupings. The International Accounting Standards Board does roughly what you might expect, though the Americans, while members, do not in fact use its standards – which are now confusingly called International Financial Reporting Standards. But the IASB has spawned other committees to oversee auditing. There is even – reminiscent of Hermann Hesse’s last novel, The Glass Bead Game – an international body that audits the bodies that audit the auditors.

The Financial Action Task Force sounds dynamic, like a rapid-response team one might send to a troubled country. In fact, it is the part of the OECD that monitors the implementation of anti-money-laundering standards. Why it is part of the OECD when its remit is global is a mystery few can explain.

This elaborate architecture (and there is a lot more) was assembled piecemeal in the 1980s and 1990s. Until the Asian financial crisis, it was a web without a spider at its center. When Hans Tietmeyer, a former head of the Bundesbank, was asked by G-7 finance ministers to review its effectiveness, he recommended a new spider, known as the Financial Stability Forum (FSF), which would examine the financial system as a whole and try to identify vulnerabilities that might cause future trouble.

I was a member of the FSF for five years. I confess that I am rather afraid of spiders, but even an arachnophobe like me found little reason to be worried. The FSF was not a scary creature, and the individual regulators, national and international, were largely left to their own devices, with all of the unhappy consequences with which we have become acquainted.

Finance

Regulating financial markets still remains unfinished business as the political will is lacking.

Before 2007, there was little political interest in tougher global standards, and individual countries resisted the idea that an international body might interfere in their sovereign right to oversee an unsound banking system. So when the next crisis hit, the FSF was found wanting, and in 2009 the G-20 governments decided that a tougher model was needed – the Financial Stability Board. The FSB has now been in operation for five years, and is currently working on some new proposals to deal with too-big-to-fail banks, which will be on the menu of the forthcoming G-20 meeting in Brisbane (along with surf and turf, Pavlovas, and other Australian delicacies).

There is not (yet) an international group that audits the FSB’s effectiveness. But if there were, what would it say about the FSB’s performance so far, under the leadership of Mario Draghi and then of Mark Carney, each of whom did the job in his spare time, while running important central banks?

On the asset side of the balance sheet, the auditors would be bound to note that the Board has done much useful work. Its regular reports to the G-20 pull together the diverse strands of regulation in a clear and comprehensible way. There is no better source of information.

They would also record that pressure from the FSB has accelerated the work of sectoral regulators. The second Basel accord took more than a decade to conclude; Basel 3 was drawn up in little more than 24 months (though implementation is taking quite long). The performance of the IOSCO and the IAIS has similarly been sharpened by the need to report progress through the FSB.

The Board has also issued some valuable warnings in its so-called “vulnerabilities” assessments. It has pointed to emerging tensions in the system, without falling into the trap of forecasting ten of the next three crises. And its peer review mechanism is prodding individual countries to strengthen their regulatory institutions.

Nonetheless, a frank assessment would acknowledge that this spider has so far caught few flies. To switch animal metaphors, it is a watchdog without teeth. It can neither instruct the other regulators what to do (or not do) nor force member countries to comply with new regulations.

Indeed, the entire edifice of global financial regulation is built on a “best endeavors” basis. The FSB’s charter, revised in 2012, says that signatories are subject to no legal obligations whatsoever. Unlike the World Trade Organization, for example, no international treaty underpins the FSB, which means that countries cannot be sanctioned for failing to implement the standards to which they are ostensibly committed.

So a fair verdict would be that the FSB has done no more and no less than what its political masters have been prepared to allow it to do. There is no political will to create a body that could genuinely police international standards and prevent countries from engaging in competitive deregulation – and prevent banks from engaging in regulatory arbitrage. It seems that we must await the next crisis for that resolve to emerge. In the meantime, the FSB, with all of its weaknesses, is the best we have.

© Project Syndicate

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"The Inequality Trifecta" by Mohamed A. El-Erian http://www.social-europe.eu/2014/10/inequality-4/ http://www.social-europe.eu/2014/10/inequality-4/#respond Mon, 20 Oct 2014 11:52:46 +0000 Mohamed A. El-Erian http://www.social-europe.eu/?p=35645
Mohamed El-Erian

Mohamed El-Erian

There were quite a few disconnects at the recently concluded Annual Meetings of the International Monetary Fund and World Bank. Among the most striking was the disparity between participants’ interest in discussions of inequality and the ongoing lack of a formal action plan for governments to address it. This represents a profound failure of policy imagination – one that must urgently be addressed.

There is good reason for the spike in interest. While inequality has decreased across countries, it has increased within them, in the advanced and developing worlds alike. The process has been driven by a combination of secular and structural issues – including the changing nature of technological advancement, the rise of “winner-take-all” investment characteristics, and political systems favoring the wealthy – and has been turbocharged by cyclical forces.

In the developed world, the problem is rooted in unprecedented political polarization, which has impeded comprehensive responses and placed an excessive policy burden on central banks. Though monetary authorities enjoy more political autonomy than other policymaking bodies, they lack the needed tools to address effectively the challenges that their countries face.

In normal times, fiscal policy would support monetary policy, including by playing a redistributive role. But these are not normal times. With political gridlock blocking an appropriate fiscal response – after 2008, the United States Congress did not pass an annual budget, a basic component of responsible economic governance, for five years – central banks have been forced to bolster economies artificially. To do so, they have relied on near-zero interest rates and unconventional measures like quantitative easing to stimulate growth and job creation.

While inequality has decreased across countries, it has increased within them, in the advanced and developing worlds alike.

Beyond being incomplete, this approach implicitly favors the wealthy, who hold a disproportionately large share of financial assets. Meanwhile, companies have become increasingly aggressive in their efforts to reduce their tax bills, including through so-called inversions, by which they move their headquarters to lower-tax jurisdictions.

As a result, most countries face a trio of inequalities – of income, wealth, and opportunity – which, left unchecked, reinforce one another, with far-reaching consequences. Indeed, beyond this trio’s moral, social, and political implications lies a serious economic concern: instead of creating incentives for hard work and innovation, inequality begins to undermine economic dynamism, investment, employment, and prosperity.

Inequality remains one of the biggest social problems. (photo: CC BY 2.0  Christopher Allen)

Inequality remains one of the biggest social problems. (photo: CC BY 2.0 Christopher Allen)

Given that affluent households spend a smaller share of their incomes and wealth, greater inequality translates into lower overall consumption, thereby hindering the recovery of economies already burdened by inadequate aggregate demand. Today’s high levels of inequality also impede the structural reforms needed to boost productivity, while undermining efforts to address residual pockets of excessive indebtedness.

This is a dangerous combination that erodes social cohesion, political effectiveness, current GDP growth, and future economic potential. That is why it is so disappointing that, despite heightened awareness of inequality, the IMF/World Bank meetings – a gathering of thousands of policymakers, private-sector participants, and journalists, which included seminars on inequality in advanced countries and developing regions alike – failed to make a consequential impact on the policy agenda. Policymakers seem convinced that the time is not right for a meaningful initiative to address inequality of income, wealth, and opportunity. But waiting will only make the problem more difficult to resolve.

Most countries face a trio of inequalities – of income, wealth, and opportunity – which, left unchecked, reinforce one another, with far-reaching consequences.

In fact, a number of steps can and should be taken to stem the rise in inequality. In the US, for example, sustained political determination would help to close massive loopholes in estate planning and inheritance, as well as in household and corporate taxation, that disproportionately benefit the wealthy.

Likewise, there is scope for removing the antiquated practice of taxing hedge and private-equity funds’ “carried interest” at a preferential rate. The way home ownership is taxed and subsidized could be reformed more significantly, especially at the top price levels. And a strong case has been made for raising the minimum wage.

To be sure, such measures will make only a dent in inequality, albeit an important and visible one. In order to deepen their impact, a more comprehensive macroeconomic policy stance is needed, with the explicit goal of reinvigorating and redesigning structural-reform efforts, boosting aggregate demand, and eliminating debt overhangs. Such an approach would reduce the enormous policy burden currently borne by central banks.

It is time for heightened global attention to inequality to translate into concerted action. Some initiatives would tackle inequality directly; others would defuse some of the forces that drive it. Together, they would go a long way toward mitigating a serious impediment to the economic and social wellbeing of current and future generations.

© Project Syndicate

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"The Return Of Class Politics In The UK" by Mark Blyth http://www.social-europe.eu/2014/10/class-politics/ http://www.social-europe.eu/2014/10/class-politics/#comments Mon, 20 Oct 2014 10:20:13 +0000 Mark Blyth http://www.social-europe.eu/?p=35637
Mark Blyth, Class Politics

Mark Blyth

For David Cameron, cutting spending in a highly unequal society works because it doesn’t affect those who matter to him. This used to be called class politics.

The prime minister’s speech at the lord mayor’s banquet last year was notable in part because its main message, that “we need to do more with less. Not just now, but permanently,” was delivered from a throne bedecked in gold to applause from members of the financial elite. But it’s the other less commented upon aspects of last year’s speech that signal why the government felt confident enough to reveal its true colours. David Cameron’s claims simply don’t add up to a coherent explanation as to why “more with less” – perma-austerity – is a policy worth pursuing.

First of all, he insisted that “the biggest single threat to the cost of living in this country is if our budget deficit and debts get out of control again”. Yet while the deficit rose to 11.2% of GDP in 2010, the markets that fund British debt never once thought the situation “out of control”. Quite the contrary occurred as the interest payments due on UK bonds have gone steadily down since 2006, and have only risen now, when the UK is supposedly in recovery. A much more likely culprit for the drop in living standards is the fall in British real wages of over 5% since 2010 coupled with relatively high price inflation, but that doesn’t fit with the story of “out of control” spending needing to be reined in for the common good.

Because of these efforts British government debt has gone up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013.

Second, when you have a deficit, you can either raise taxes or cut spending to fill the gap, and the coalition have favoured the latter. And because of these efforts British government debt has gone up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. This is hardly a surprise given that exactly this same pattern of cuts leading to more debt as the underlying economy shrinks has been the story throughout the Eurozone too.

Given this, you might think that finding some new tax revenue to balance the books is a good idea. The prime minister seemed to agree when he applauded the G8’s Lough Erne declaration that will “ensure companies pay their taxes”. Then, almost in the same breath, he announced that the UK would cut corporation tax to 20%, “the lowest in the G20″ – thereby copying the growth model of such dynamic economies as Ireland and Latvia.

Third, if what got us all this debt in the first place was a “too big to fail” banking system that was bailed out at taxpayer expense, you would expect the government to make sure that we don’t “simply try and rebuild the same type of economy we had before the crash”, as the prime minister put it in his speech. But of course, quite the opposite has happened. The government has deliberately stoked another London-centred housing bubble just in time for re-election that basically gives anyone that qualifies their own personal Fannie and Freddie mortgage guarantee. Meanwhile, British banks are bigger than ever and are expected to grow bigger still.

Finally, the point of all this effort, according to the prime minister, is to engineer “a fundamental cultural change in our country” that is necessary to foster greater innovation. Yet in the same speech Cameron lauded British universities, British genetics, British material science and British microelectronics as “the envy of the world”. But if the UK has all this, why would you need such a radical cultural change?

Class Politics

UK Prime Minister David Cameron is practising class politics, according to Mark Blyth.

So if the contents of the speech and the arguments for perma-austerity don’t add up, why then double down on the policy? One answer is to follow the money in terms of who benefits and who loses from such a policy.

We need to remember that the crisis that brought us here was a private sector crisis. Their debts landed on the balance sheet of the public sector through bank bailouts, recapitalisations and unlimited quantitative easing. In other words, taxpayers bailed bankers and the price was a ballooning deficit.

That deficit took the form of what finance-types call a “class-specific put option”. A “put” option is a contract where the buyer of the contract has the right, but not the obligation, to re-sell the contract at a future point, while the seller must buy back the contract at a pre-determined price and time. In other words, the seller is selling insurance and the buyer is purchasing the right to cash it in.

Tell tall tales about “out of control” spending habits, despite the evidence, while assiduously avoiding taxing your constituents. This used to be called class politics.

Now why is this a “class specific” put option? Over the past 35 years the UK has become an increasingly unequal country, with those holding appreciating assets (mainly housing in the south) and high incomes (mainly financial salaries and bonuses) reaping most of the gains. These are also the folks that cashed in that insurance policy when the banks failed – they got their assets bailed. The balance due for this cashed-out insurance policy is still either tax increases – which as we saw with the fate of the 50% income tax rate and with regard to corporations, is off the table – or more cuts to government spending. So who pays?

The nice thing about cutting government spending in a highly unequal society, at least for the coalition, is that it doesn’t affect those with most of the assets and income. These folks don’t rely on government services, and their assets and incomes are, thanks to government policy, on the rise once again. They are also the folks that fund elections and show up to vote.

Perhaps the real message of Cameron’s speech was then the following? If austerity doesn’t work, just pump up the assets of those who matter and pass the cost on to those who don’t through spending cuts since they will not vote for you anyway. Then tell tall tales about “out of control” spending habits, despite the evidence, while assiduously avoiding taxing your constituents. This used to be called class politics. Maybe it will once again be recognised for what it really is, even without the gold chains and the throne in the room as a clue for the uninitiated.

This column was originally published by the Guardian in November 2013 and it has not lost any of its value in the last 11 months.

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"Minimum And Living Wages In Times Of Cuts" by Iyanatul Islam http://www.social-europe.eu/2014/10/minimum-living-wages-times-cuts/ http://www.social-europe.eu/2014/10/minimum-living-wages-times-cuts/#respond Fri, 17 Oct 2014 10:18:44 +0000 Iyanatul Islam http://www.social-europe.eu/?p=35608

Iyanatul Islam, Living WagesA few years ago, Richard Anker, a former ILO official, wrote an important paper on the historical evolution of the notion of ‘living wages’ and different ways of measuring them. This paper is one example of a growing realization that mandated minimum wages, however effectively enforced, can diverge significantly from ‘living wages’ that can sustain a worker and his/her family. Not surprisingly, the notion of the ‘living wage’ is embedded in the ILO’s normative framework. The 2008 Declaration refers to a ‘minimum living wage’. The 1970 convention on minimum wages demonstrates flexibility and pragmatism by suggesting that a policy on minimum wages should strike the right balance between the need to meet the living expenses of workers and their families and national goals pertaining to employment and economic development.

The harsh reality is that even in rich countries minimum wages can be well below the living wage. In New York City, USA, for example, the hourly minimum wage is $ 7.25, but the living wage for a single person is $12.75, while for a worker with a family of four, it is $ 26.12. In London, the minimum hourly living wage is £8.80 while the national minimum wage is £6.31 (as of 2013). Furthermore, this gap has increased significantly between 2003 and 2013.

The chasm between the decrees of governments and the needs of workers epitomizes the problem of low pay in wealthy societies that pre-dates the last global recession. Andrew Watt laments the fact that in Germany ‘(t)he 2000s were a lost decade for wage earners…(R)eal wages …declined by 4% during the last ten-year period’. In the post-recession era, workers in the UK are more than £3000 worse-off on an annual basis relative to the pre-recession peak.

Not surprisingly, a ‘living wage movement’ has taken root and gained salience in recent years in the developed world, especially in light of stagnant living standards in the post-crisis era.

Not surprisingly, a ‘living wage movement’ has taken root and gained salience in recent years in the developed world, especially in light of stagnant living standards in the post-crisis era. What is important to emphasize is that the adverse impact of paying living wages on business operations is considered to be relatively modest. One evaluation shows that if Wal-Mart in the USA pays living wages, ‘…the average Wal-Mart shopper would spend an additional $9.70 per year’, while low wage workers will benefit disproportionately.

Paying living wages is also a fiscally smart strategy as it reduces the fiscal support that the state has to provide to its low wage workers to bring them above the poverty line. For example, one estimate by a UK think-tank suggests that, if every low-paid worker in the UK (currently around 5 million) was moved to a living wage, the government would save on average £232 in lower social security expenditure and £445 in higher tax receipts. What is perhaps noteworthy is more than 800 British employers have voluntarily agreed to pay living wages to its low-paid workers in line with the calculations and recommendations of the Living Wage Foundation.

Workers in New York argue for higher wages. (photo: CC BY SA 2.0 All Nite Images)

Workers in New York argue for higher wages. (photo: CC BY SA 2.0 All Nite Images)

Of course, there are influential critics of the living wage movement. A good example is The Economist. Reflecting on contemporary UK experience, The Economist argues that ‘…large cuts in real wages help explain why the jobs market has hummed along in an otherwise sluggish economy… Brits, it seems, much prefer the hardship of low wages to the misery of no wages’. The Economist, it seems, has displayed its predilection: any job, however ill-paid, is better than no job. This is a re-statement of the influential view that there is a wage-employment trade-off.

The state-of-the-art evidence, on the other hand, is much more equivocal suggesting that the impact of paying higher minimum wages on employment is, in statistical terms, rather negligible. This is in line with the finding noted above that a major retailer, such as Wal-Mart, can readily absorb the payment of living wages without hurting customers in any significant way while helping low-paid workers. This result can be explained, at least partially, by the fact that costs of higher wages can be offset by a number of factors. Higher wages reduce turnover costs and thus reduce hiring expenses. Higher wages can boost morale and productivity that are best interpreted as payment of ‘efficiency wages’.

Despite the benign evidence on the wage-employment trade-off and the move by some employers to act as distinguished exemplars, the living wage movement is likely to face onerous obstacles.

Despite the benign evidence on the wage-employment trade-off and the move by some employers to act as distinguished exemplars, the living wage movement is likely to face onerous obstacles, at least in the European Union (EU). There was a time when the ‘…European Parliament repeatedly expressed its concern about low pay and minimum wage levels in Europe’. Such concerns were, in turn, complemented by explicit proposals to link minimum wage levels to certain desirable benchmarks (such as 60 per cent of median wages) that would align them with the poverty and social exclusion dimensions of the Europe 2020 strategy.

Alas, times have changed. The prevailing view is that the current economic crisis in the European Union (EU) can be resolved through wage moderation policies (to induce competitiveness via the vehicle of ‘internal devaluation’), complementary structural reforms and fiscal consolidation. Thus, ironically, while ‘…treaties still exclude wages from EU competencies, the crisis has made wages… one of the central targets of EU policy-making’. How to sustain the living wage movement in light of such developments remains a central challenge.

The author writes in a strictly personal capacity.

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"New Thoughts On Capital In The Twenty-first Century" by Thomas Piketty http://www.social-europe.eu/2014/10/new-thoughts-capital-twenty-first-century/ http://www.social-europe.eu/2014/10/new-thoughts-capital-twenty-first-century/#respond Fri, 17 Oct 2014 09:22:10 +0000 Thomas Piketty http://www.social-europe.eu/?p=35603

French economist Thomas Piketty caused a sensation in early 2014 with his book on a simple, brutal formula explaining economic inequality: r is greater than g (meaning that return on capital is generally higher than economic growth). In this TED presentation, he talks through the massive data set that led him to conclude: Economic inequality is not new, but it is getting worse, with radical possible impacts.

If you want to know the basic argument of Piketty’s groundbreaking research and its implications have a look at the video below.

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http://www.social-europe.eu/2014/10/new-thoughts-capital-twenty-first-century/feed/rss2/ 0 New Thoughts On Capital In The Twenty-first Century - Social Europe Journal French economist Thomas Piketty caused a sensation in early 2014 with his book on a simple, brutal formula explaining economic inequality: r is greater than g (meaning that return on capital is generally higher than economic growth). In this TED presentation, he talks through the massive data set th Capital In The Twenty-First Century,Economic Inequality,Economist,Thomas Piketty,Twenty First Century,Capital In The Twenty-first Century
"The Economic Consequences Of Sex" by Mukesh Eswaran http://www.social-europe.eu/2014/10/economic-consequences-sex/ http://www.social-europe.eu/2014/10/economic-consequences-sex/#comments Thu, 16 Oct 2014 09:16:38 +0000 Mukesh Eswaran http://www.social-europe.eu/?p=35585
Mukesh Eswaran, Economic Consequences Of Sex

Mukesh Eswaran

Until recently, there has been very little analysis of women’s role in the economy. Two centuries ago, Mary Wollstonecraft published her proto-feminist A Vindication of the Rights of Women, and in 1869 John Stuart Mill, inspired by his wife Harriet, wrote The Subjection of Women in support of female suffrage. But new evidence is emerging of the cultural barriers to women’s economic advancement, which must be addressed if the world is ever to attain its goal of gender equality.

Early contributions to the economics of gender focused on the division of labor within households. Ideas drawn from trade theory – such as specialization and comparative advantage – were used to explain why in the developed world men tended to work outside of the home and women within it.

This division of labor had important ramifications for women. As the Nobel laureate economist Gary Becker proposed in A Treatise on the Family, it influenced who would gain an education and develop professional skills. Technological changes that lightened the burden of housework, coupled with changing attitudes toward women in the workplace, now allow many more women to acquire an education and the relevant skills to pursue careers. Indeed, in the United States, there are now more women than men studying at universities.

Why, then, do gender differences in economic outcomes persist? Economists have recently identified a fundamental reason in a phenomenon that remains pervasive: the gap in autonomy (or bargaining power) between women and men. The immediate effects of autonomy (or lack thereof) are felt within the household – for example, in how the family budget is spent – and this is determined largely by how well either partner is likely to fare should the relationship end.

Why, then, do gender differences in economic outcomes persist? Economists have recently identified a fundamental reason in a phenomenon that remains pervasive: the gap in autonomy (or bargaining power) between women and men.

A woman’s bargaining power will therefore be influenced by such factors as the type of job she has, her level of earnings and assets, the strength of her family ties, social attitudes toward divorce, laws governing the ensuing division of property, and the effectiveness of anti-discrimination legislation.

When women’s bargaining power increases, the benefits to them, and to society, can be huge. Apart from being a desirable end in itself, female empowerment leads to lower birth rates and child mortality, better education for children, higher female participation in the labor market and politics (and, with it, better representation of women’s concerns), and the alleviation of poverty, especially in developing countries.

Women are still disadvantaged in the economy (photo: CC BY 2.0 Rafael Matsunaga)

Women are still disadvantaged in the economy (photo: CC BY 2.0 Rafael Matsunaga)

Moreover, raising women’s cultural and economic status can help tackle the problem of what the Nobel laureate economist Amartya Sen once called “missing women.” These are the women who would be alive were it not for sex-selective abortions and gender discrimination in the provision of nutrition and medical attention.

Today, assumptions about gender (such as innate differences in abilities) have become intellectually untenable, while rigorous statistical analysis has identified the prime causes of gender differences in economic outcomes. But an important, and perhaps less explored, factor that determines women’s autonomy and economic wellbeing is non-economic.

For example, in a recent study, Alberto Alesina, Paola Giuliano, and Nathan Nunn examined levels of female participation in the US labor market of first- and second-generation immigrants from regions that historically used the plough in agriculture. The plough is significant, because operating it requires upper-body strength, which limits women’s eligibility for farm work. The authors found that even today, women originating from regions that historically used the plough were less likely to be employed than women whose forebears did not.

Given that most jobs in developed economies require little or no physical strength, cultural values that discourage women from working outside the home are rightly regarded as archaic.

The finding suggests that in plough-using societies, patriarchal values circumscribed female mobility, and allowed men – as a result of their greater economic contribution – to undermine women’s autonomy. Remarkably, these values, shaped many centuries ago, when certain physical attributes might have been important, have survived in modern societies, in which such attributes have become largely irrelevant.

Indeed, given that most jobs in developed economies require little or no physical strength, cultural values that discourage women from working outside the home are rightly regarded as archaic, serving only to undermine women’s economic and political freedoms. The research therefore appears to support the postmodern feminist view that women are constrained by unexamined socially constructed notions.

But, though Simone de Beauvoir’s claim in The Second Sex that “one is not born, but rather becomes, a woman” may be true, biology and evolutionary psychology are still relevant. Myriad human interactions produce institutions, norms, organizations, and practices that perpetuate a sexual hierarchy of wellbeing. Though the study of economics and gender has been transformed in recent years, the profound impact of culture demonstrates that we still have much to learn.

© Project Syndicate

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"Inequality Explained" by Janet Gornick http://www.social-europe.eu/2014/10/inequality-explained/ http://www.social-europe.eu/2014/10/inequality-explained/#respond Thu, 16 Oct 2014 08:53:24 +0000 Janet Gornick http://www.social-europe.eu/?p=35579

Paul Krugman blogged a very interesting video that is worth reposting here. Janet Gornick of City University of New York presented her work on inequality at the United Nations. If you want a quick introduction into global inequality trends and why increasing inequality is such a problem have a look at this video.

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"Fixing The Eurozone Architecture" by Andrea Terzi http://www.social-europe.eu/2014/10/fixing-eurozone-architecture/ http://www.social-europe.eu/2014/10/fixing-eurozone-architecture/#respond Wed, 15 Oct 2014 12:19:46 +0000 Andrea Terzi http://www.social-europe.eu/?p=35567
Andrea Terzi, Eurozone Architecture

Andrea Terzi

INET has recently published a video interview with Professor of Economics and SEJ author Andrea Terzi. In this interesting conversation with Marshall Auerback, Terzi discusses the flaws of the Eurozone’s architecture and what possible solutions could be pursued.

Terzi suggests a proposal whereby Eurozone nations agree on a 50% cut of Value Added Taxes across all 18 (soon 19) members. This creates an additional Eurozone deficit in the magnitude of 3.8% of Eurozone’s GDP. Such cut would be “funded” through issuing Eurobonds, or Union bonds, guaranteed by the ECB. The lost revenue would not be counted at the national level in the national compliance of the fiscal compact. The across-the-board criteria would establish a program that is neither a targeted bailout nor a reward for bad behavior.

This change in the fiscal stance of the entire Eurozone would immediately increase the quantity of euros in circulation, much more effectively than any quantitative easing initiative that the ECB may be undertaking. It would in turn ease credit fears without triggering additional national government spending. The result would be to dramatically ease credit tensions and foster aggregate demand and job creation in the Eurozone.

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"The EU Recovery That Never Was" by John Weeks http://www.social-europe.eu/2014/10/eu-recovery-never/ http://www.social-europe.eu/2014/10/eu-recovery-never/#respond Wed, 15 Oct 2014 09:36:33 +0000 John Weeks http://www.social-europe.eu/?p=35553
John Weeks, EU Recovery

John Weeks

Economic recovery in the Eurozone is not delayed. It is non-existent. The Financial Times for the first day of October carried several articles assessing the European economies, written as if a prize would go to the most pessimistic — stagnation and decline of EU manufacturing, the European Central Bank initiates asset purchases to prevent deflation from sweeping the continent, France and Italy sure to miss their fiscal targets, and the head of the IMF warns of global economic “mediocrity”.   And, as the comics say, that’s the good news.

The reason for this dismal economic performance is an oft-told-tale. The relentless pursuit of fiscal cuts, “austerity”, depressed aggregate demand across the EU, turning a transitory financial collapse into a depression-generating disaster. As four consecutive years of budget cutting madness have created a gathering human disaster, the German government presses for yet more Commission powers to prevent any EU member government from coming to its senses and abandoning these scorched earth macro policies (the TSCG Treaty mandating “balanced” budgets and the monitoring & surveillance SixPack, with more to come).

The instigators of these anti-social and anti-democratic policies, rules and treaties defend them as the mechanisms to bring recovery, end fiscal deficits and reduce public indebtedness. Were they successful, their authoritarian nature should make them unacceptable in any democratic country. They allow unelected EC officials to over-ride decisions of elected national parliaments.

The rules and regulations to enforce austerity have achieved no purpose other than to undermine the democratic process in Europe. Austerity has not brought recovery. It has not brought fiscal balances below the famous Maastricht 3% limit. Nor have public debts come close to achieving that other Maastricht fiscal fantasy, a debt to GDP ratio of 60% or less. There is one exception to this litany of folly — Germany. Its success and the failures of other countries are part of an interrelated package.

The chart below shows the dismal growth performance of the United States and the five largest EU countries. By comparison, the US recovery looks good: 8% above the pre-crisis peak in the first quarter of 2008 (after six years!). The best the EU could produce among the five largest countries is the anemic 3% for Germany in the first quarter of 2014 (and slightly less, 2.8%, in the second quarter). The French economy staggers in at a meager 1% for the second quarter, unchanged from a year before, while the UK barely returned to where it was a full six years before.

Italy and Spain, whose governments embraced the ideology of fiscal “consolidation”, languish far below the pre-crisis peak. Were it not for the catastrophic collapse of the Greek economy under the weight of EC imposed fiscal contraction, Italy and Spain would be recognized as unmitigated disasters. Since the end of World War II no major country has suffered declines as deep and prolonged as have Italy and Spain. A cyclical growth pattern characterizes all market economies. Prolonged stagnation does not. This must be self-imposed through growth-depressing policies — aka, austerity.

USA and the 5 Largest EU countries, percent difference in output compared to first quarter of 2008

1, EU Recovery

Note: Each point on a country’s line shows percentage difference from 2008.1, which is set to zero. The source is www.oecd.org.

Fiscal deficits decline and turn into surpluses as a result of economic growth, not cuts in public expenditure. If anyone requires proof of this assertion, the performance of the US and EU fiscal balances since 2008 provides it. In 2007 the five largest EU countries all had overall fiscal balances at or above the Maastricht minus 3% limit (with the US deficit slightly above 3%). Two years later not one of the EU five could claim the arbitrary Maastricht rule (Germany came closest at 3.1%).

These superficially shocking fiscal deficits had two principle causes, the sharp fall in public revenue due to declines in corporate and household income, and re-financing of commercial banks that teetered on the verge of collapse. The largest reversal was for Spain, from a 2% surplus in 2007, to an 11% deficit in 2009. About half of the reversal of the Spanish balance represented replenishing commercial bank reserves, not expenditure in the usual meaning (i.e., increasing aggregate demand).

Only one of the five EU countries experienced a substantial and sustained reduction of the overall fiscal deficit, Germany. One other country made it under the infamous 3%, Italy. Like Germany, this is an exception that proves the rule that cuts are not an effective policy to reduce deficits. At its most negative the Italian deficit was 5.4%. This declined to marginally below minus 3% before the various Italian governments embarked on “fiscal consolidation”.

USA and the 5 Largest EU countries, overall fiscal deficits as share of GDP, 2007-2014 (dashed line is the Maastricht 3% limit)

EU Recovery

Source: www.oecd.org. The 2014 value is the annual equivalent of the first 2 quarters.

The performance for public debt is even worse than for deficits. The chart below shows the difference between the actual debt to GDP ratio and the Maastricht 60% rule. Most commentators would identify 2010 and the Greek crisis as the beginning of de facto commitment to fiscal contraction. This coincides with the election of the right of center coalition government in Britain and the enthusiastic implementation of its own version of the austerity ideology.

Since 2010 in only one country do we find a decline in the public debt to GDP ratio, again Germany. Even in this case the decline is meager, from 26 percentage points above the Maastricht limit in 2010, to 24 above in 2014. The UK ratio shows a similar story, hardly changing during 2011-2014. For France, Italy and Spain we see a relentless increase in the public debt ratio from 2010 onwards.

The 5 Largest EU countries, public debt to GDP ratio, less the Maastricht 60%, 2007-2014

EU Recovery

Source: www.oecd.org. The 2014 value is the annual equivalent of the first 2 quarters.

Attempting to reduce fiscal deficits through expenditure reduction is an ideologically driven project doomed to failure. By depressing public expenditure when it is most needed to stabilize aggregate demand austerity policies provoke stagnation. The stagnation in output prevents recovery of public revenue. The austerity ideologues seek to obscure the sane economics of public finances by invoking voodoo concepts such as “structural deficits” (see critique in Chapter 7 of my new book) and “expansionary austerity” (the IMF debunked this in a 2011 working paper).

Economic recovery of the European Union as a whole and especially the Eurozone awaits a fundamental change in policy from punitive austerity to growth-stimulating fiscal expansion, a shift endorsed in the October issue of the IMF’s World Economic Outlook. Without a shift, the famous one liner attributed to rural inhabitants of the US state of Maine applies to EU recovery, “you can’t get there from here”.

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