Thursday, October 13, 2011

More sense from Nouriel Roubini

The Instability of Inequality

How the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher and growing inequality is leading to social and political unrest. Contrasts this with three decades of relative social and economic stability, from the late 1940s until the mid-1970s, a period when inequality fell sharply and median incomes grew rapidly. (An era, of course, when housing was affordable and plentiful - unlike now.) He warns: 'Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.'

Posted by stuartking @ 10:02 PM (1640 views)
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8 thoughts on “More sense from Nouriel Roubini

  • So much in that article to like. It turns out pure ideologically driven economics tends toward imbalance and failure. Whether the ideology is communism socialism or free market-ism. A mixed economy with strong checks and balances and room for innovation is the ideal. Its all quite obvious stuff but is such a breath of fresh air. Sadly though, it seems the road to our pragmatic future looks like it’s going to be a bitch.

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  • I think in the post-Second World War era we did in some ways build a ‘land fit for heroes’. Sadly, as Roubini highlights, Thatcher and Reagan came along and built a land only fit for spivs. It all goes back to Thatcher’s ‘Big Bang’ in October 1986. As the Guardian’s economic editor, Larry Elliot, wrote in May this year: “There is a simple reason why output is still four per cent below its peak and growing only slowly: the debt-driven model of economic growth deployed in the 25 years from the financial deregulation of the 1980s to the bank run at Northern Rock no longer delivers.”

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  • Let’s see what the Fema Camps were really built for.

    All in good time.

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  • Yep, couldn’t agree more. Roubini nails it. An excellent summary of where we are today. Sadly he doesn’t provide any solutions, but it’s a good start.

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  • Hi Drewster, that’s a little bit unfair to suggest he doesn’t provide any solutions. Although he doesn’t number them 1, 2, 3… he mentions protection of workers’ rights; improved wage and labour conditions; redistribution of wealth; progressive taxation of incomes and wealth; welfare state; social safety net etc… all things that our “we’re all in it together” government is dismantling or reducing as fast as it can, as inequality, poverty, homeless and unemployment continue to rise.

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  • Roubini’s writes “any economic model that does not properly address inequality will eventually face a crisis of legitimacy.”

    Agreed. But if you’re looking for answers Henry George is a good place to start: “…whatever else we do, so long as we fail to recognize the equal right to the elements of nature, nothing will avail to remedy that unnatural inequality in the distribution of wealth which is fraught with so much evil and danger. Reform as we may, until we make this fundamental reform our material progress can but tend to differentiate our people into the monstrously rich and the frightfully poor.” (Chapter 18 of Social Problems).

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  • Hi Stuart,
    Those were the solutions to the problems of the 1900s, not his prescription for today. A more progressive tax system, with LVT as a key component, must be the way forward.

    The top rate of income tax used to be a lot higher. This little cartoon neatly captures the political problem in the USA; the situation is basically the same in the UK.

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  • One more time…

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