Business Ethics & Political Economy Linkage

Deficit spending is progressive →

We spend a lot of time debating the distributional impact of policies to cut the deficit. Gallons of ink (and millions of pixels) have been spent debating who gets hit most by tax increases, or changes to Medicare, or cuts to Social Security. But what if we don’t cut the deficit? The would presumably hurt some folks more than others. Who gets hit hardest?

American Enterprise Institute’s Aspen Gorry and Matt Jensen have a new paper that tries to answer that question. They note that the federal government has to regularly pay out the principal plus interest on bonds it sells, a process that has to be paid for out of tax revenues. So the cost of the debt burden will be borne primarily by those who pay most federal taxes, to whit the upper-middle and upper classes.

(via The 10-year decline in wages for most college graduates | Economic Policy Institute)

Potential debt problems more common among the educated, study suggests →

The Final Word on Mitt Romney’s Tax Plan →

Josh Barro vitiates Romney’s tax claims.

The marshmallow test, revisited →

What would the wealth distribution look like without redistribution? | vox →

A striking theoretical result:

In new research (Fernholz and Fernholz 2012), we embrace the insights from this empirical literature and analyse an economy in which households that are identical with regard to patience and skill face uninsurable investment risk, and there is neither explicit redistribution in the form of government tax or fiscal policies nor implicit redistribution in the form of limited intergenerational transfers of wealth.

In this setting, we show that in the absence of redistributive mechanisms, the distribution of wealth is unstable and becomes increasingly concentrated over time until virtually all wealth is held by a single household.

It is important to emphasise that the households in our setup are identical in terms of their patience (preference for consumption today versus consumption tomorrow) and their skill (how much they earn from labour income and how well they are able to invest on average), so the playing field is as level as possible, and it is luck alone – in the form of high realised random investment returns – that generates this extreme divergence.

Sorry, U.S. Recoveries Really Aren’t Different - Bloomberg →

The most recent U.S. crisis appears to fit the more general pattern of a recovery from severe financial crisis that is more protracted than with a normal recession or milder forms of financial distress. There is certainly little evidence to suggest that this time was worse. Indeed, if one compares U.S. output per capita and employment performance with those of other countries that suffered systemic financial crises in 2007-08, the U.S. performance is better than average.

This doesn’t mean that policy is irrelevant, of course. On the contrary, at the depth of the recent financial crisis, there was almost certainly a risk of a second Great Depression. However, although it is clear that the challenges in recovering from financial crises are daunting, an early recognition of the likely depth and duration of the problem would certainly have been helpful, particularly in assessing various responses and their attendant risks. Policy choices also matter going forward.

It is not our intention to closely analyze policy responses that may take years of study to sort out. Rather, our aim is to dismiss the misconception that the U.S. is somehow different. The latest financial crisis, yet again, proved it is not.

RELATED: Fact-checking financial recessions

The best places for low- and high-skilled workers used to be the same places: California, Maryland, New York,” said Peter Ganong…. “Now low-skilled workers can no longer afford to move to the high-wage places.

— Housing Prices and Income Inequality - NYTimes.com

Luck, Wealth, and Implications for Policy →

Some interesting thoughts from Richard Posner.

Income Inequality May Take Toll on Growth →

interfluidity » Forcing frequent failures →

Steve Randy Waldman is though provoking, as always.

(via The middle class isn’t losing more jobs than usual. But it is losing more money.)

(via Off the Charts Blog | Center on Budget and Policy Priorities | What’s Driving Projected Deficits?)

The three best charts on how Clinton’s surpluses became Bush and Obama’s deficits →

Labor's Declining Share of Income and Rising Inequality →

See also: Behind the Decline in Labor’s Share of Income

Some of their charts…