"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Sunday, May 6, 2012

The Parveh Economics of Inequality

“Parveh” : Neutral food, not meat and not dairy ( from the Jewish tradition) is a term used to describe a neutral opinion or position . "Sitting on a fence" 

Prof. Krugman (Nobel Prize 2009) published in his column at the NY Times an interesting post http://www.nytimes.com/2012/05/04/opinion/krugman-plutocracy-paralysis-perplexity.html talking about the relation between Inequality and the Crisis. The line of reasoning of the article reveals the growing understanding that inequality is a factor to be taken into account, but its development goes, as usual to the Partisan arena ( i.e. the Republican bad guys) thus missing the main political and economic conclusions. Put it in other words, a step forward, but still a small one.

The article opens with the following statements ( Note : I make use of one article and one author but the issue is not a personal critique).

“Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent. Well, whaddya know?”….

Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we’re now living through? It probably contributed”.

The statement “probably (“Probably = almost certainly; as far as one knows or can tell”, from the Oxford Dictionary) contributed” is rather “Parveh”, even trivial. We should already know that any social phenomenon is a potential “ contributor ” to a major economic crisis .The really deep interesting question is not the contribution per se but the relative importance of the phenomenon . Was it determinant ? What are the other components that contribute to the recession? And so on ….

Prof. Krugman continues

“But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high”.

The reasoning here is a bit confusing: When the question was from the “contribution” ( i.e. cause) side, inequality was a just mere probable contributor. Now when we deal with the solution side, inequality becomes a ” major reason” that impedes to return to normal growth. What a change! Common sense indicates that “cause” and “solution” in any question are correlated, in our case if inequality is now a major depressor, shouldn´t we to expect that it may be also a major detonator for the crisis? The answer to the apparent inconsistency appears now, in the text.

From now on , and for the rest of the article the focus of the debate turns from Economics to the partisan arena. Since the political color of the writer is well known, the main attack is against the Republican Party (as if the Democrats were some sort of Social Democrat part y or it members were not also part of the American oligarchy) . So if the writer is not able to throw even a small stone on his own political house, there is nothing really surprising in his words. Now we understand that inequality is a problem because the Republican Party is owned by a small mega rich group that impedes a normal political debate with the good souls, the Democrats.

Finally, when it comes to the solutions, the writer returns to the old Keynesian creeds leaving.

“Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.

No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence”.

So for the Economy , Keynesianism and for politics to get rid of the malign influence. Once again, the logic is confusing: If the problem is an excessive political concentration of power due to an excessive concentration of wealth, shouldn´t we deal with the cause? Why there is not an explicit call to deal with the root of the problem by reducing inequalities? Why to stick only to the traditional instruments of Keynesianism and not to mention that equality was a major component in the New Deal?

Summarizing, there is a renewed interest in distribution aspects, but mainstream economists are still unable to propose a political economic agenda in that direction in economic terms. Maybe because the Parveh mainstream economists are unable to deal directly with the Taboo? Who knows... the  fence is already too (intellectually) fragile, and Economists should understand that the days that distribution was a taboo are over.