Where there is an imbalance between economic growth and social progress, political instability and unrest often arise, as in Russia and Egypt. Lagging social progress also holds back economic growth in these and other countries that fail to address human needs, build social capital, and create opportunity for their citizens. Countries must invest in social progress, not just economic institutions, to create the proper foundation for economic growth.
In order to measure social progress he introduces the Social Progress Index (SPI), created in collaboration with Scott Stern of MIT and the nonprofit Social Progress Imperative, which measures 133 different countries in up to 52 indicators from child mortality, to affordable housing, tolerance for homosexuals, freedom of speech, greenhouse gas emissions… see them below:
Social Progress Index indicators.
I invite you to play with the tool available at Social Progress Imperative website. You can see what place your country of origin or residence ranks in each of the indicators, the consolidated indicators or the more global SPI (DEN #8, NL #9, GER #14, ESP #20, FRA #21).
Coming back to Porter’s article, it is important to note:
Focusing on social progress in this way leads to better development strategies, and builds political support for the controversial steps sometimes needed to increase prosperity. Rigorous measurement of social performance, alongside traditional economic indicators, is crucial to starting the virtuous circle by which GDP growth improves social and environmental performance in ways that drive even greater economic success. […]
[…] Paraguay, for example, has adopted the SPI to guide an inclusive national development plan for 2030. And the SPI is being used not just at the national level, but by regional and municipal authorities as well. States such as Para in Brazil, along with cities like Bogota and Rio de Janeiro in Latin America and Somerville in the US state of Massachusetts, are starting to use the SPI as a measure of development success.
This year, the European Commission will roll out regional SPIs across Europe. […]
[…] Measuring social progress offers citizens and leaders a more complete picture of how their country is developing. And that will help societies make better choices, create stronger communities, and enable people to lead more fulfilling lives.
I see that the debate on inequality is picking up, the concern for climate change is widespread, interest in sustainable development goals is rising… hopefully all these converge into increasing social progress and the dividends of the technological advances can be enjoyed by more. I see this SPI can indeed be an interesting and useful tool.
92nd Street Y (92Y) is a multifaceted cultural institution and community center located on the Upper East Side of Manhattan in New York.
A few days ago I stumbled upon a video related to an event they organized about a month ago: “7 days of genius“. The video in particular had economists Thomas Piketty, Joseph Stiglitz and Paul Krugman debate mainly about inequality, with Alex Wagner from MSNBC as moderator. The video lasts 1h15′. If you happen to follow any of these economists (1) you will more than enjoy the time, as it is not only very informative but at points quite humorous too.
Apart from sharing the video, in this post I just wanted to highlight some passages of which I include excerpts transcribed by myself and some mental notes I made from the debate:
Krugman: “What’s not much known is that since those crisis days a lot of basic economics has worked remarkably well […] ” I’ve spent my life not entirely sure o whether I was a fraud or not […] it’s only been on the past 6 or so years that I’ve said “ok, you know, the staff works”, the sad thing is that half of the economics profession has thrown away things that we know work […] the real sin is not failing to predict the crisis it is clinging to doctrines that are obviously clear are not working”
Stiglitz: “all those fears that printing money would be inflationary was absurd” […] “economist who thought that putting the banks in the hospital for a year and a half, giving them not a blood transfusion, but a couple of trillion dollars of money would make them feel happier and that would get the economy working again. It’s clear that was wrong. That you need a clear fiscal policy, you need a real stimulus, and in a fundamental sense the economy was broken before the crisis and was using a bubble to keep that going, and that’s what we should have recognized.”
Krugman: “it’s been a race between us (USA) and Europe to see who can screw up worse, at the moment Europe is winning..”.
The three of them coincided in criticizing the (Euro zone) single currency with several fiscal policies, different interest rates on public debt, several governments… and even with that structural problem: “the situation is exacerbated by bad economic doctrines […] fiscal hypochondria” (Krugman)
Stiglitz: “we are focusing on too much debt… the real problem is that the fruits of our growth have not been widely shared”.
Stiglitz: “one of the things that Walmart raising their wages illustrates the fact that it’s not just market forces that are determining wages, that they had the power, the choice to raise their wages. […] take CEO pay, which has gone from 30x to over 300x the pay of the average worker without any justification, their productivity haven’t growth 10 times that of society”
Stiglitz: “when you have high level of youth unemployment, particularly men, when they can’t use their energy productively they tend to use them unproductively.”
Piketty: “I’m not particularly pessimistic, I see lots of good new, if you take a long perspective […] Europe is a much more prosperous and equal place today than what it was a century ago, when it was extremely unequal and more unequal than the US and today the US is more unequal than Europe, things change and different choices of policies and institutions can make things change. And also in the emerging world, there are lots of positive evolutions going on. I believe that globalization can help to reduce poverty in the world, assuming that we don’t expect that everything from the markets and we adopt the policies that can make globalization benefit broader groups of population, and sometimes governments do it. Take the example of Brazil”
I also enjoyed the criticism from Piketty to Jean Claude Juncker (current president of the European Union Commission and former Luxembourg prime minister) and its weak defense of his responsibilities in the making of Luxemburg a tax haven.
Finally, from the perspective of being Spanish, I found it interesting the following comment from Stiglitz:
“Let me call back to the question of the role of society. I was very pessimistic about Europe, but one hopeful sign of Europe is the growth of new groups like Podemos in Spain which are saying the old parties are note addressing the problems of raising unemployment and inequality. And now it’s a leading party with 27%. In the end is going to have to be political action that is going to address these issues. Civil society can bring the issue to the floor, but the real challenge is going to be to try to get those ideas into the political process […] in Europe it’s partly because it really collapsed, the real failure of old parties”
—
(1) I happen to like the three economists, both because of what I have read from them and the policies they advocate. As Luca warned me: the watching of the video made me fall in confirmation bias.
Today, March 8th it’s International Women’s Day. In the last few days I have seen a significant buzz in social media about the day. In particular I read a couple of pieces that made contribute to the buzz with this post.
World Economic Forum:
Equal pay benefits men, too. Here are four reasons why, backed up by our Global Gender Gap Report. [PDF, 6.1MB]
I liked the approach: “What’s in it for me?” (from the perspective of men, of course) (1).
Take a look at the report (395 pages). I skimmed through it and picked some essentials, especially from a couple of graphics. The Global Gender Gap Index measures gaps in 4 sub-indices: Economic Participation and Opportunity, Educational Attainment, Health and Survival and Political Empowerment. The sources for the data are the International Labour Organisation, World Economic Forum, UNESCO Institute for Statistics, Central Intelligence Agency, World Health Organisation and the Inter-Parliamentary Union. The authors (Ricardo Hausmann (Harvard University), Laura Tyson (Berkeley), Yasmina Bekhouche (World Economic Forum) and Saadia Zahidi (World Economic Forum)) explain their methodology as follows:
There are three basic concepts underlying the Global Gender Gap Index, forming the basis of the choice of indicators, how the data is treated and the scale used. First, it focuses on measuring gaps rather than levels. Second, it captures gaps in outcome variables rather than gaps in input variables. Third, it ranks countries according to gender equality rather than women’s empowerment.
I attach below a screenshot showing the top 30 countries in the list.
Global Gender Gap Index, 2014 ranking, top 30 countries.
Some comments to it:
Scandinavian countries are in the top of the list (no surprise here).
Some readers will wonder about the top places occupied by Nicaragua, Rwanda… read again the methodology above: “it focuses on measuring gaps rather than levels”.
When I see this kind of indices, for personal reasons I focus on the positions occupied by: Denmark #5, Germany #12, Netherlands #14, France #16, Spain #29, Lithuania #44.
A curiosity: Spain #29 vs. Cuba #30.
No surprises either at the bottom of the list: Bahrain, Turkey, Algeria, Ethiopia, Oman, Egypt, Saudi Arabia, Mauritania, Guinea, Morocco, Jordan, Lebanon, Ivory Coast, Iran, Mali, Syria, Chad, Pakistan, Yemen… which they all have in common that are located in arid subtropical zone and that most of them have at least one letter a in the name.
Coming back to the question: “What’s in it for me?” The report shows how countries in which the gender gap is lower also have good scores in several other metrics which improve the conditions of life for men as well. There is the catch. See below the comparison for the Human Development Index and the Global Competitiveness Index:
Human Development Index vs. Global Gender Gap Index.
Global Competitiveness Index vs. Global Gender Gap Index.
We need you to listen. When we tell you about a problem, we don’t want you to jump to a solution for us. We just want to say it out loud to solve it ourselves knowing that you will support us.
We need you to talk. To raise the issue of gender. Don’t worry about saying the wrong thing. Saying the wrong thing is better than saying nothing at all. It’s the only way to start the conversation.
We need you to value our differences. Realise that we bring a different perspective and encourage us to bring our personalities to work, to not feel like we have to put on a ‘male suit.’
…
One step further: what can you do to help to close the gender gap in the countries at the bottom of the list? (those with the letter a in the names)
A few days ago I received an email from Jason Riggs of Kiva, the world’s first and largest crowdfunding platform dedicated to alleviating poverty and expanding financial inclusion (about which I have written before in this blog (2)). Kiva has launched Kiva.org/Dreams to empower even more women to reach for their dreams and they asked me to help them in making this campaign more widespread. Thus, here is my contribution:
By visiting Kiva.org/Dreams, you can back a dream by choosing a woman whom Kiva should lend $25 to. There is no cost to you. By choosing her, you help her to follow her dream of starting or growing her business, sending her children to school, and ultimately, gaining financial independence.
When women have the resources to make their dreams a reality, the world changes. More children go to school, more food is grown, and nations are more peaceful and prosperous. A case in point: if women farmers had equal access to farming assets and finance, they could increase their crop yields up to 30% and 150 million people who go hungry every day would be able to eat.
By contributing to the success of an entrepreneurial woman who has overcome obstacles, we discover so much more about our own resiliency, possibility, and potential. Each of us has a part to play.
Together we can make dreams a reality for thousands of women around the world. So in honor of International Women’s Day and the power of women, back a dream at Kiva.org/Dreams.
My suggestion: visit the site of Kiva, filter by Yemen, the country at the very bottom of the list and help dreams come true, gender gaps close and turning around the situation.
Happy International Women’s Day!
—
(1) I like the approach for its different persuasion approach, not like the closing the gap out of equal treatment, fairness, justice… wasn’t engouh.
This blog post is not about the movie Interstellar, which I haven’t watched yet, but about a rather wonkish paper (as its author would put it) that I stumbled upon very recently.
The American economist and Nobel laureate Paul Krugman wrote in 1978 the paper “The Theory of Interstellar Trade” [PDF, 516KB]. The paper is simply hilarious. One of the best pieces I have ever read. It has just 15 pages and in them the author sets out to search how interest charges should be computed in interstellar trade when goods travel at close to the speed of light. It mixes economy with very light special relativity and great doses of humour. The author himself remarked in the introduction:
It should be noted that, while the subject of this paper is silly, the analysis actually does make sense. This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.
Well, given today’s ventures, it might not be so silly 😉
Let’s review some of the highlights and conclusions derived from the paper:
To start with, he sets some fundamental considerations:
There are two major features distinguishing interstellar trade from the interplanetary trade we are accustomed to. The first is that the time spent in transit will be very great, since travel must occur at less than the light speed; round trips of several hundred years appear likely. The second is that, if interstellar trade is to be at all practical, the spaceships which conduct it must move at speeds which are reasonable fractions of the speed of light.
Because interstellar trade will take so long, any decision to launch a cargo will necessarily be a very long-term investment project […]
The second feature of interstellar transactions cannot be so easily dealt with (physicists are not as tolerant as economists of the practice of assuming difficulties away). If trading space vessels move at high velocities, we can no longer have an unambiguous measure of the time taken in the transit. The time taken by the spacecraft to make a round trip will appear less to an observer on the craft than to one remaining on Earth. […]
To solve the problem he refers to the Minkowski space-time, and includes the following diagram with the note below:
“Readers who find the Figure II puzzling should recall that a diagram of an imaginary axis must, of course, itself be imaginary”.
By comparing the returns from actual trade between planets with the return of bonds he arrives at the First Fundamental Theorem of Interstellar Trade:
When trade takes place between two planets in a common inertial frame, the interest costs on goods in transit should be calculated using time measured by clocks in the common frame, and not by clocks in the frames of trading spacecraft.
After proving the theorem take a look at this other passage:
The author then takes on investigating possible arbitrage in interstellar transactions, and arrives to the Second Fundamental Theorem of Interstellar Trade:
If sentient beings may hold assets on two planets in the same inertial frame, competition will equalize the interest rates on the two planets.
…
It goes without saying that I recommend the reading of this paper.
Capitalism is so ingrained in human nature, that even in the Soviet Union, not having studied or heard about it and its demand and supply laws, soviets knew how much could be charged for goods or services in the black market… (1)
I remembered those words very well when we travelled last year to New York to run its marathon.
On Friday 31st, October, we arrived to New York by car, coming from a tour that had taken us to Dayton. Before going to the hotels and leaving the rental car, we wanted to go by the Marathon Expo to retrieve the running bibs. It was located at the Javits Center, by the 11th Avenue between the 34th and 39th streets, in Manhattan.
In the picture you can see a sign post saying Park (at the 34th). That is where we left the car while we went to the Marathon Expo.
Waiting to be attended at the car park, we were reading a panel with prices: 16$ the 1st hour, the following hours being cheaper. The driver in the car in front of us started a discussion with an employee of the car park which went more or less like this:
(employee) The first hour is 30$, two hours, 50$…
(customer) Excuse me? In the panel it says it’s 16$ the first hour!
Sir, the panel says those are the prices excluding event days, today is an event day.
How do you go from 16 to 30$!
Sir, 16$ plus x dollars for being event day, plus x for taxes… sir, you are driving a Porsche Cayenne, if you think 30$ is too expensive feel free to back up and park somewhere else…
Speechless, I produced 50$ in notes :-). (2)
—
(1) He referred to Capitalism as the economic system in which trade seeks for profit and how demand and supply laws work, don’t look any further in the comment.
(2) The driver of the Porsche Cayenne did so, too.
Thomas Friedman is an American journalist who writes for The New York Times. He is specialized in foreign affairs, especially the Middle East, for which he has received 3 times the Pulitzer Prize on international reporting and commentary. Friedman wrote “Hot, Flat and Crowded” in 2008. In it he tackled the environmental issue.
In 2005 he wrote “The World is Flat”, where he argued that technological revolution had leveled the playing field and made the world more connected, more competitive and collaborative.
In this book, he claims that as we are entering the “Energy-Climate Era” the world is getting hot (global warming), flat and crowded (soaring population growth), and clear action needs to be taken to address these issues. Government need to establish a clear regulatory framework, clear price signals to establish a market in which companies can innovate to solve the problems at hand.
The author included in the book dozens of references, quotes from conversations, excerpts of speeches from leading figures, and several examples. While reading it, I felt as if the author repeated himself often and that those ideas could have been conveyed in a shorter and more direct book (~480 pages in the version I have). Nevertheless, now, a few months later, going back through different marks and notes I made throughout the book I realize the great work and reference book that he put together. I would therefore recommend the reading of the book.
I wanted to share below some of the notes I made along the book, grouped by theme.
On climate change, its science, sceptics, denials…
Harvard’s John Holdren says “A charlatan can tell a lie in one sentence that a scientist needs three paragraphs to rebut”.
A good source: Pew Research Center on Climate Change report “Climate Change 101” series.
Even if forecasts are not 100% sure about future scenarios, as Andrew C. Revkin, the New York Times environment reporter, says:
“Uncertainty is the reason to act”. When you perceive some risky situation in your life or business you try to insure yourself against it, you don’t adopt the position of sitting around and say “Gosh, no one can predict with any certainty when lightning is going to hit that forest…”
On the dependency of oil, what it provokes and why it is needed to reduce it.
The reliance of the West in oil is helping finance a reversal of the democratic trends around the globe. What the author calls “the First Law of Petropolitics: As the price of oil goes up, the pace of freedom goes down and as the price of oil goes down, the pace of freedom goes up”.
[…]
“We are financing the US Army, Navy, Air Force and Marine Corps with our tax dollars, and we are indirectly financing with our energy purchases, al-Qaeda, Hamas, Hezbollah, and Islamic Jihad”.
“Dutch disease” refers to the process of de-industrialization that can come as a result of a natural resource windfall. The term originated in the Netherlands after the discovery of natural gas deposits in the 1960s. The influx of cash from oil make raises the nation’s goods prices making them uncompetitive to export markets and at the same time citizens buy low-cost imported manufactured goods, provoking the wiping out of the manufacturing sector.
A paper studying the same topic: “Does oil hinder democracy?” (PDF, World Politics, April 2001) by political scientist Michael L. Ross from UCLA. Using a statistical analysis of 113 states between 1971 and 1997 he found evidence of what he described as “resource trap”.
An old anecdote:
Saudi Arabian oil minister Yamani said to OPEC members in the 1970 “Remember, the Stone Age didn’t end because we ran out of stones.” It ended because people invented alternative tools made of bronze and then iron.
[I leave to you the making the connection with supply and pricing decisions from OPEC]
A reflection from former Secretary of State Condoleezza Rice stated before the Senate Foreign Relations Committee (April 5, 2006; transcript):
“I can tell you that nothing has really taken me aback more as secretary of state than the way the politics of energy is –I will use the word warping- diplomacy around the world. It has given extraordinary power to some states that are using that power in not very good ways for the international system, states that would otherwise have very little power.”
On the need to take action, to foster energy technology solutions, to create strong regulations, to create a market, etc.
“Mother Nature is just chemistry, biology and physics. Everything she does is just the sum of those three things. She’s completely amoral. She doesn’t care about poetry or art or whether you go to church. You can’t negotiate with her, and you can’t spin her and you can’t evade her rules. All you can do is fit in as a species. And when a species doesn’t learn to fit in with Mother Nature, it gets kicked out […] every day you look in the mirror now, you’re seeing an endangered species.”
Jeffrey Immelt, CEO of General Electric, in a speech entitled “An American Renewal” (June 26, 2009), lamented the direction taken decades ago by businesses and politics:
“[…] Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy – and somehow still expect to prosper”.
A positive note from John Gardner, founder of Common Cause:
“a series of opportunities disguised as insoluble problems”.
Different excerpts from Friedman’s book:
Mother Nature, the global community, your own community, your own customers, your own neighbors, your own kids, and your own employees are going to demand that you, your company, or your country pay “the total cost of ownership” for whatever you produce or consume, including “the costs that are near-term and long-term, direct and indirect, seen and hidden, financial, social, geopolitical, and environmental”.
[…]
“A green revolution? Have you ever seen a revolution where no one got hurt? That’s the revolution we are having. In the green revolution we are having everyone is a winner, nobody has to give up anything, and the adjective that most often modifies “green revolution” is “easy”. That’s not a revolution. That’s a party. We’re actually having a green party. And, I have to say, it’s a lot of fun. […] It’s all about looking green. There are no losers. The American farmers are winners. They’re green. They get to grow ethanol and garner huge government subsidies for doing so, even though it makes no real sense as a CO2-reduction strategy. Exxon Mobile says it’s getting green and General Motors does too. […] I’m sure Dick Cheney is green […].”
[…]
Utilities business involves enormous sunk costs that must be recovered regardless of how much energy they sell. Utilities have vital interest in boosting electricity and gas sales to recover its fixed costs.
[…]
“Price the road and clear the traffic”. If you want fewer CO2 emitters, charge people for emitting.
The International Energy Agency produced in 2000 a report “Experience Curves for Energy Technology Policy” that underscored the need of price signals from the government to quickly move down along the learning curve.
The lingering uncertainty about the long-term price of oil is also why some of the biggest energy companies hesitate to make big bets on green innovation.
[…] A strong regulation eliminates regulatory uncertainty and provides a powerful competitive incentive […] to innovate.
[…]
America needs an energy technology bubble just like the information technology bubble. It then quotes Bill Gates words at Davos in 1999 when asked whether there was an internet bubble: “Of course they’re a bubble. But you’re all missing the point. This bubble is going to attract so much new capital to this Internet industry that it is going to drive innovation faster and faster.”
[…]
We have been fooling ourselves with fraudulent accounting by note pricing those externalities with surcharges that reflect the true risks and costs that they entail.
Introduction of the concept “green hawk”. The author realized that outgreening could be a military strategy after learning of the “green hawks” movement in the US military in 2006. It all started with Major General Zilmer’s complains to the Pentagon that he needed alternatives for the diesel fuel powering electricity generators in Iraq. A study found that 90% of the diesel used at a forward operating base were employed in generation of electricity while only 10% in mobility, and 95% of that electricity was consumed to air-condition tents. A holistic view of the situation was needed. By employing different materials that provided better isolation to the heat, the Army could save fuel and thus costs and lives of soldiers trucking fuel up and down the Iraqi roads. Thus, as the articled I linked states: “oil is a tactical liability”.
Miscellanea.
An interesting note by Andrew Revkin in an article at The New York Times (September 15, 2009) “Contraception is greenest Technology”. This is linked to the “Crowded” in the title which I have barely addressed along the review, but it is worth noting that overpopulation coupled with energy usage and economic growth is a big threat to climate change.
“The country needs to put in place what he calls the winning formula: REEFIGDCPEERPFPCA < TCOBOCG; a renewable energy ecosystem for innovating, generating, and deploying clean power, energy efficiency, resource productivity, family planning, conservation, and adaptation < the true cost of burning coal, oil, and gas.”
And a reference to this classic, the speech by 12-year-old Severn Suzuki at the 1992 Earth Summit in Rio de Janeiro.
“If you don’t know how to fix it, please stop breaking it!”
—
Personal note: Luca and I visited Peru in 2009. In that trip we spent some days in the Amazon. Friedman and his family apparently had been in the same place in June 2006: in Peru’s Rio Tambopata, to visit a research station. I liked the description of one of the things we loved of that experience:
Listen to the rain forest symphony outside. “It sounded like one of those dissonant pieces of modern music: a cacophony of birds, red howler monkeys, wild pigs, frogs, and insects making bizarre clicks, snorts, croaks, chirps, wails, and whistles…”
A few days ago I published a book review of “The Roaring Nineties” by the Nobel prize Joseph E. Stiglitz. I wanted to share here some passages related to how shareholders, investors are mistreated by those who are supposed to work for them and how alignment of incentives play a role in this.
[On boards of directors] “Here again there was another conflict of interest. Boards are supposed to protect the interests of all shareholders. But some boards, whose members often receive large fees for membership and attendance, were frequently more concerned with pleasing the CEO than fulfilling their supposed fiduciary responsibilities.”
[On one-offs] “[executives] found ways to boost their earnings – through sam transactions which allowed them to book revenues even if they didn’t really have them, or by moving expenses off the books, or by using one-time write-offs (time and time again), to try to give the appearance of robust normal profits. Their objective was to create the appearance of alluring success […] and cash out before the world discovered the truth.”
[On incentives] “The bankruptcy report spoke of “numerous failures inadequacies and breakdowns in the multilayered system designed to protect the integrity of financial reporting system at WorldCom, including the board of directors, the audit committee, the company’s system of internal controls and the independent auditors”. The problem, I would argue, was deeper, and touched not only WorldCom: the problem was with incentives – for the management, and for those who were supposedly watching over management.”
[On the subject of fines] “They accepted fines of unprecedented levels […] but, in most cases, only after being assured that their CEOs would not do [jail] time. […] in many cases it was not the CEOs but the companies that paid them; indeed, the fines imposed on corporations for such bad behavior represent a curious case where the victim is punished twice over. For ultimately, the shareholders – who have already been cheated by corporate management- bear the costs of such fines.“
[On executives’ greed and regulation] “The deregulation mentality made the suggestion of increased government regulation […] an anathema. What worried many were shareholder suits, which they viewed as simply reflecting the rapacious greed of lawyers, not part of a system of checks and balances against the rapacious greed of corporate executives.”
Joseph E. Stiglitz (1) served and later chaired the Council of Economic Advisers (CEA) during the Clinton Administration from 1993 to 1997. He was awarded the John Bates Clark Medal (1979) and he Nobel Prize in Economics (2001). After leaving the CEA he moved to the World Bank. He taught in the past at Stanford and now teaches in Columbia University. He also served at the OECD and several other positions to which he has been appointed throughout his career.
Stiglitz wrote “The Roaring Nineties” in 2003 to offer an insider’s view of economic policy making and the economic boom and bust of the nineties. I loved the book. I use to make some annotations and marks in the books I read. I counted the ones I made reading this book: 52.
Stiglitz is frank in admitting that all the focus that the Clinton administration had at the beginning of the term in passing laws to improve the living of the disfavored ones was suddenly put aside due to the mantra of deficit reduction. He openly regrets it several times throughout the book and offers some criticism on the administration he took part in and others before and after. Especially Reagan’s and Bush II’s.
Now, in 2014, there are many who brag about their seeing of the bubble that caused the financial crisis which burst between 2007-2009. It would be rather easy to see what they really said beforehand. See what Stiglitz published in 2003:
“The huge tax cuts of 2001 and 2003 were larger than the country could afford. The surplus of 2% of GDP of 2000 was converted in short order to a deficit of 5% of deficit – a huge turnaround in a short space of time. Americans were not saving enough to finance this deficit, and so the country, in effect, turned to the rest of the world. The country is living well beyond its means, borrowing more than a billion and a half dollars a day. […]
Households took on more debt because interest rates were low and they could afford it. But as interest rates inevitably rise as the economy strengthens, households will find it difficult to service their debt. This will be further aggravated in the years to come as large budget deficit means interest rates will be higher than they otherwise would be, putting an extra burden on the country. Many households will be forced into bankruptcy. Many will be forced to rein in their consumption. There is a strong risk that the real state bubble will break, or at the very least, prices will stagnate […] What is clear, however, is thar the Bush-Greenspan strategy, entailing greater reliance on low-interest rates and mortgage refinancing to maintain the economy through the period 2001-2004, and tax cuts for the rich, providing far less stimulus to the economy than would have been provided by investment tax credits or tax cuts for the poor, was a risky one, and has put the future of the American economy in jeopardy.” (emphasis is mine)
The risk then became an issue, which is still lasting 10 years later. This comes just in the preface of the book. Stiglitz specialization is information asymmetry. He gives some examples of such asymmetry in different passages of the book when analyzing errors, incentives, etc., in accounting, auditing, special interest agendas.
Let me quote some of the gems I had marked in his book:
“[…] one of the reasons that the invisible hand may be invisible is that it is simply not there”
“[…] “Voodoo” economics of Reagan, who somehow believed that by cutting taxes you could raise tax revenues […]”
“Developing countries were told to open their markets to every imaginable form of import […]. Meanwhile, we maintained stiff trade barriers and large subsidies of our own on behalf of U.S. farmers and agribusiness, thereby denying our market to the farmers of the Third World. […]
These were not the only examples of what struck those abroad as blatant hypocrisy.”
“We scolded the developing nations about their disrespect for intellectual property laws that we, too, had scorned in our days as a developing nation. (The United States didn’t get around to protecting the rights of foreign authors until 1891)”
“[…] the folly of the Reagan tax cuts. […] a theory scrawled on the back of a napkin, called the Laffer curve – after Arthur Laffer, who then was at the University of Chicago- which claimed that as taxes got higher and higher, people worked less hard and saved less […]”
“Over the years, I have become convinced that the confidence argument is the last refuge of those who cannot find better arguments; when there is no direct evidence that deficits directly promote recovery or adversely affect growth, then they do so because of confidence.”
“Fiscal responsibility was supposed to be the province of the conservative Republicans, but after twelve years of fiscal profligacy, a tax cut that Reagan said would pay for itself through energizing the economy but did not, it was left to Clinton to do the dirty work, without the help of the Republicans, who voted unanimously against Clinton’s deficit reduction plan. Their opposition confirmed the more diabolic interpretation of the Reagan tax cuts. They didn’t really believe in supply-side economics, the theory that the tax cut would spur the economy so much that tax revenues would actually increase. Instead, they knew that there would be shortfalls, and they hoped that the shortfalls would force a cutback in government spending. The true agenda was thus to force large cutbacks in the size of government […]”
“[…] the IMF was founded, under the intellectual aegis of Keynes: to provide with the money necessary for expansionary fiscal policy in an economic downturn. But the IMF has forgotten its original mission […]”
“The New Economy-the innovations which continue to fuel the productivity growth and form the basis of this country’s long-run strength depend on the advances of science, on researches at universities and research labs, who work sixteen-hour days and more in the tireless search to try to understand the world in which we live. These are the people we should have been rewarding, and encouraging.”
I think that with these excerpts you get a glimpse of the directness of the book. It touches economic policies, creative accounting and accounting standards, conflicts of interests, incentives, the case study of Enron, employment, the role of central banks, the danger of quick adoptions of deregulation, corporate hypocrisy, globalization…
I strongly recommend the reading of this book (about 380 pages).
There is something puzzling that we constantly found in the different restaurants we dined at in Greece: the inconsistent pricing of beer. Or rather, the consistent pricing of it in a different fashion as it is done in other places in the West.
Take a look at the menu below.
You may see that Alpha draft beer is sold in two quantities:
300mL for 2€ and,
400mL, for 3€ euros.
That yields a price of 6.7€/L for the 300mL and a price of 7.5€/L for the 400mL.
Read the previous line again.
Then, who would buy the larger quantity if it is sold at a higher price per litre (12.5% higher)? Normally, one would expect some discount linked to volume. Well, not in Greece with beer :-).
Pricing beer in Greece.
We found restaurants in which the differences in pricing were more striking but only took this picture.
Another puzzling fact which we didn’t record was that for a same beer (say Alpha) in most places they sold the bottled beer cheaper than the drafted one (for a same volume). Again this was surprising, as we normally see draft beer sold cheaper, and there are certainly cost advantages to selling draft beer. But then the difference in pricing strategy versus how it is done in the West could have been explained from the demand side (not the supply) if the Greeks value much more draft beer.
Taxes are often the subject of heated discussions. Nobody enjoys paying taxes, even if we understand that they’re needed to pay for some state services that otherwise we would not have.
People especially hate when taxes are raised. In Spain income taxes, VAT taxes and some other minor taxes or the cost of public services have been raised recently. In France there is a heated debate on whether the maximum personal income tax rate could be raised up to 75%. A similar heated discussion takes place in the USA about the effective taxes rate paid by the superrich, the top 1%, the top 0.01%… you name it.
You will hear people either claiming that taxing more the rich is what is to be done or that increasing taxes will not forever increase tax revenue collection (the famousLaffer curve); that investors, job creators, etc., will be deterred by the high taxes and take their wealth elsewhere.
Firstly, I am no expert on taxes.
However, seeing today’s tax rates levels (be it Spain, France or the USA), the heated discussions we witness and having had some conversations either with friends or colleagues on taxes, I thought it could be interesting to post in the blog some historical evolution of the different tax rates, just to put in perspective what is high taxes.
I have taken all the graphics from the Wikipedia and all refer to the case of the USA (the one for which there is always more data available). You can see below the evolution of personal income tax rate for the highest and lowest earners, of taxes on capital gains and corporate taxes.
Personal Income Taxes (what in Spain would be IRPF).
You can see in the picture below how the maximum tax rate was for some time above 90% (now is 35%). You can check yearly data on the different tax brackets in the Tax Foundation. In those years with brackets above 90%, maximum effective tax rates were around 70-88%.
“Historical Marginal Tax Rate for Highest and Lowest Income Earners” in USA, from 1912 to 2008 (by Guest2625)
Capital Gains Taxes.
You can see in the picture below how the maximum tax rate was for some time 35% (now is 15%). This is the tax that applies to most of the income of those superrich as they earn it via their investments.
Maximum Federal Tax Rate on Long Term Capital Gains (1972 – 2012) (by Guest2625)
Corporate Taxes.
These are the taxes on corporate profits. You can see in the picture below how the effective tax rate has been continuously decreasing from above 40% in the ’50s (now is under 20%).
US Effective Corporate Tax Rate 1947-2011 (by Guest2625)
Those were the rates.
Then there is a whole lot of studies proving either point or the other. That higher taxes provoke lower investment or the contrary. That higher taxes reduce tax collection or the contrary. That higher taxes reduce growth or the contrary. Pick your study and support your argument. You may have to look for one variable and hide another, pick a country and forget another, pick a decade and not the one before or after. It doesn’t matter, I guess any point can be proven.
Let me finish by sharing two more graphics, obviously handpicked, and a quote:
Top Capital Gains Tax Rates and Economic Growth 1950-2011 (by Leonard Burman).
Capital Gains Taxes and Real Investment (by Jared Bernstein).
“I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.“
