But are agricultural ministers, who usually see their job as helping their own farmers, up to the task?

TO BE NOTED: From the FT:

"The world must feed its hungry

Published: April 16 2009 19:48 | Last updated: April 16 2009 19:48

As we agonise about the recession, we should remember that humanity’s greatest economic problem is more basic: how to get enough food, a challenge still faced by millions.

This weekend the Group of Eight leading countries gathers in Italy for its first ever meeting of agriculture ministers. Their goal must be to move food policy up the global political agenda to a position where it is treated as the vital international security matter it is.

EDITOR’S CHOICE

In depth: Global food crisis - Mar-31

Saudis set aside $800m for foreign food - Apr-14

Hyundai to lease Russian farmland - Apr-14

G8 warns of hunger threat to stability - Apr-06

Tea prices to soar after droughts - Mar-30

Record numbers of Americans apply for government food aid - Mar-26

Last year’s record-high food commodity prices sparked riots as 100m people needed help from the World Food Programme. Thousands of desperate people in dozens of countries took to the streets in upheavals potentially far more destabilising than any reactions the financial meltdown has yet provoked. This danger will not go away.

Prices have come down, but remain higher than in decades. Even short disruptions cast long shadows: malnutrition in infancy can permanently impair children’s physical and cognitive development. Climate change, decades of declining investment in agriculture, and current policy mistakes conspire to make the crisis structural.

All countries share an interest in food security – their own, and for the sake of stability, that of others. But they must not confuse security with self-sufficiency. The world can produce enough food for all: as the economist Amartya Sen points out, famines are caused not by lack of food but by income inequality. The poor must get help – in ways that do not undermine food production.

Food exporters and importers alike need well-functioning international markets in food, which encourage efficient global production patterns. The responses to the crisis, sadly, have been in the opposite direction: export bans, land grabs of arable territory and secretive bilateral barter deals. These policies must stop. They are self-destructive and costly, and for poor countries ruinous. They do harm to others, as they undermine trading systems that benefit all.

Governments must provide global public goods. Research is needed to boost productivity, especially for African crops, and must not be hampered by opposition to genetically modified food. Mechanisms must be found to hedge against price volatility that discourages production even when prices are high.

The G8 has rightly invited important emerging countries to the table. But are agricultural ministers, who usually see their job as helping their own farmers, up to the task? Food security is the greatest threat to human well-being today. It should not be lost in quibbles about the branding of Parma ham.

Copyright The Financial Times Limited 2009"

Suddenly we want an equalising wind to blow them down – for they seem like men from another, callous, planet.

TO BE NOTED: From the FT:

"Now we get what we deserve – inequality rage

By John Lloyd

Published: March 27 2009 19:16 | Last updated: March 27 2009 19:16

“On the one side, inequality harms by pampering; on the other, by vulgarising and depressing. A system founded on it is against nature and, in the long run, breaks down.”

Matthew Arnold, lecture on “Equality”, 1903.

Inequality rage stalks the world, from Vladivostok to Helsinki, from Vilnius to Washington. The trashing of Sir Fred Goodwin’s windows and Mercedes in Edinburgh points to the dangers of unrepentant insistence on continuing privilege displayed by the former Royal Bank of Scotland chief: this was, warned the trashers, “just the beginning”. A Put People First demonstration will parade in London on Saturday – and will be, say the organisers, “noisy but peaceful”. But what of demonstrations planned by the G20 Meltdown group and others for the meeting of the Group of 20 developed and emerging countries in London on Wednesday and Thursday? One website advocates the burning, another the hanging, of bankers. Sounding like a Jeeves gone demented, the London Chamber of Commerce advised that “businesses might want to consider asking their staff not to dress in a suit and tie”.

Suddenly we’re mad as hell and we’re not going to take it from these bloated creeps any more. Suddenly we want an equalising wind to blow them down – for they seem like men from another, callous, planet.

In their book, Unjust Rewards (2008), Polly Toynbee and David Walker – writers on the left-of-centre Guardian newspaper – describe speaking to a group of City of London bankers and lawyers, among whom the lowest-paid had a salary of £150,000. These bankers did not think of themselves as rich – they assumed they were just middling. “They wanted,” wrote Toynbee and Walker, “to compare themselves to richer people.” That sentence reveals a mindset where what matters are those above – in the same company; in the same job – who have another hundred thousand; another million. It is the “because you deserve it” society.

It explains Sir Fred’s stone-deaf incomprehension: did he not work for his millions? Wouldn’t everyone take them if they could? The savvier know they cannot much longer: Michel Platini, president of the Union of European Football Associations, called for higher taxes on the wages of star players, saying everybody knew that “the market is incapable of correcting its own excesses”. In fact, everybody does not know it: both the European and the British associations of top clubs told him to get lost.

And thus, through anger, the old socialist cry for equality swims up on a populist tide. The case has been made on moral grounds. In Equality (1931), an inspirational text for generations of social democrats, the British ethical socialist, R.H. Tawney, concluded that “a society is free insofar as . . . its institutions and policies are such as to enable all its members to grow to their full stature”. A more recent text, The Spirit Level, by the medical researchers Richard Wilkinson and Kate Pickett, attempts a more gritty argument: that inequalities are bad for health, life expectancy and the incidence of crime. It has its critics – John Kay, in this newspaper, found its policy recommendations flimsy – but he allowed that “the argument is a powerful counter to any simple equation of social progress and the advance of GDP”, especially now.

Populist tides go this way and that. Radicals of the left blame bankers; those of the right blame immigrants: protests have flared in Spain and France, Italy and Britain, diverse in their targets but all mobilising a resentment that living standards, outraged by those above, should be also threatened from below.

The large question is how far the rage will have lasting consequences, and how far old and new arguments for equality can be translated into a fixed, general and electorally sustaining opinion, driving out the view of the past few decades that the prosperity of the few is to the ultimate benefit of all. Socialism of any strong kind seems as far away as at any time since the 1970s: if the far-left groups are gaining militants, the leftwing parties of Europe are generally in opposition or, if in power, battered and unpopular. Neither of the great growth economies, China and India, has any stated intention of returning to socialist economics.

Equality thus becomes a cross-party matter. It is already hydra-headed. Where for Tawney it was largely confined to what the state could do about incomes and education and health provision, it now resides in issues of race, sex, esteem. In every aspect, it is a popular as well as a populist cause: almost no one speaks against sexual or racial equality, and polls reveal a strong preference for less inequity of income and privilege.

The past few decades have licensed the Promethean, even Nietzschean, super-business-being who – as did Sir Fred in his prime, remoulding the prim provincial RBS into a global force – tears up rules, pushes finance into areas too complex for common understanding and ramps up profits, yields and incomes to unprecedented levels. Everyone could be a winner: the first-time low-income homebuyer in unity with the masters of the financial universe – financial legerdemain allowing the first to buy and the second to get rich at the same time. Now all of us are or will be losers, in one way or other: and the sour weight of our losses and rage will, if stopping short of burning bankers, underpin the rhetoric and perhaps the reality of more equable societies, at least for a time. It may, indeed, be good for us."

a sort of golden era for economic policy, because it involved high economic growth with relatively little inequality

From Arnold Kling:

"Brink Lindsey has written a paper criticizing Paul Krugman's view that the period from 1950-1970 was a sort of golden era for economic policy, because it involved high economic growth with relatively little inequality. Lindsey instead sees the immediate postwar era as one of lazy cartels, in which firms faced too little in the way of competition or creative destruction to warrant bidding up the price of executive talent.

I'm tempted to joke that we will know that Lindsey has succeeded if Krugman issues a bitter, personal attack on Lindsey. My own thoughts are as follows.

In my view, Lindsey only focuses on two of the four causes of inequality that Nick Schulz and I presented. We talk about technology, immigration, winners-take-most markets, and family structure. Lindsey puts a lot of weight on the first two. He alludes to winners-take-most markets in entertainment, but my view is that such markets have emerged in other areas as well--look at Microsoft or Google. Finally, I think that the family structure issue is more than just smaller household sizes. I think that Betsey Stevenson/Justin Wolfers marriages are another big factor. That is, when highly-educated men start looking for wives who are stimulating companions as opposed to kitchen floor-moppers, this reduces cross-class marriages and thereby raises inequality.

The big puzzle here is that of executive pay. Krugman has a simple story--executives will take as much pay as social norms will allow, and until the Reagan era social norms would not allow them to take very much. Lindsey's story is that a more competitive, dynamic business environment caused executive pay to rise.

Both of these sound to me like just-so stories. Either one may be right (or both--they are not mutually exclusive), but I don't think we have anything like smoking-gun evidence. My gut instinct actually leans more in the direction of Krugman. I look at the salaries of college presidents, for example, and I see them affected more by norms than by a tough competitive environment.

I think that there are plenty of people, mostly men, who have extreme cravings for status. In academics, this shows up as professional jealousy of all sorts. In politics, it shows up in the insatiable desire to expand authority. And in business, it shows up as a desire for ridiculously high pay. Maybe in a perfect world, these status cravings would be better reined in.

I would side with Krugman in the sense that I think that if norms were changed to reduce the size of executive pay, there would be little or no loss of economic efficiency. But I would not side with Krugman in jumping to the conclusion that we really ought to put a lot of effort into changing norms. Even assuming that executives are paid way above their marginal products, the fact that executives get a large share of the pie does not reduce my share of the pie by enough for me to care."

Me:

Don the libertarian Democrat writes:

"view that the period from 1950-1970 was a sort of golden era for economic policy, because it involved high economic growth with relatively little inequality. Lindsey instead sees the immediate postwar era as one of lazy cartels, in which firms faced too little in the way of competition or creative destruction to warrant bidding up the price of executive talent."

1) If high economic growth and relatively little inequality aren't good, what are they?
2) It sounds like we should be in favor of lazy cartels.

At best, Lindsey says that the times weren't as great as Krugman believes. But, given the last thirty years, many people might conclude that these have been even worse economically, although not socially. My own belief is that small government advocates need to focus on income inequality and income growth for the entire population. I think that this is an essential problem to work on if we want less government.

Only under conditions where the middle class believes that it is a middle class, and not one tiny step over serious problems, and the lower class believes that it is not being ignored, will less government ever be truly possible. Without addressing those concerns, I believe that Krugman's arguments will prove very popular.

Whatever you call it, trickle down economics is one of the casualties of the financial crisis.

John Quiggan:

"Refuted economic doctrines #5: Trickle down

By jquiggin | February 1, 2009

The idea that policies favorable to the wealthy, such as financial deregulation and favorable tax treatment of capital income, will ultimately benefit everybody has been described, pejoratively, as ‘trickle down’ economics.

The same idea been summed up, more positively, in the aphorism ‘a rising tide lifts all boats’ attributed to John F Kennedy, and a favorite of Clinton advisers such as Gene Sperling and Robert Rubin. (It should be noted that this phrase is also used in the context of debates over free trade and over the effects of macroeconomic expansion. While it generally implies that we should focus on expanding aggregate income without too much concern over distribution, it is less sharply focused than the ‘trickle down’ pejorative.

Whatever you call it, trickle down economics is one of the casualties of the financial crisis. I’m not the first to point this out, and I’m sure I won’t be the last, but here’s a piece summing up my thoughts.

US experience during the decades of neoliberalism gives little support for this view. In the period since the economic crisis of the early 1970s, US GDP has grown strongly, and the incomes and wealth of the richest Americans has grown spectacularly.

By contrast, the gains to households in the middle of the income distribution have been much more modest. Between 1973 (the last year of the long postwar expansion) and 2007, median household income rose from $44 000 to just over $50 000, an annual rate of increase of 0.4 per cent. (More on this here and here)

Household size has decreased, mainly due to declining birth rates. The most appropriate measure of household size for the purpose of assessing living standards is the number of “equivalent adults” derived from a formula that takes account of the fact that children cost less to feed and clothe than adults and that two or more adults living together can do so more cheaply than adults in separate households. The average household contained 1.86 equivalent adults in 1974 and 1.68 equivalent adults in 2007 (my calculations on US census data). Income per equivalent adult rose at an annual rate of 0.7 per cent over this period.

For those at the bottom of the income distribution, there have been no gains at all. Unlike the situation in Australia and other countries where a poverty line is defined in relative terms, as a proportion of average income, the US has a poverty line fixed in real terms, and based on an assessment of a poverty-line standard of living undertaken in 1963.

The proportion of Americans below this fixed poverty line fell from 25 per cent in the late 1950s to 11 per cent in 1974. Since then it has fluctuated, reaching 12.5 per cent in 2007, a level that is certain to rise as a result of the financial crisis and recession now taking place. Since the poverty line has remained unchanged, this means that the incomes accruing to the poorest 10 per cent of Americans have actually fallen over the last 30 years.

Other measures yield similar conclusions. Median earnings for full-time year-round male workers have not grown since 1974. Women have done a little better, with median earnings for full-time year-round workers rising by about 0.9 per year over this period.

Overall, the main factors sustaining growth in living standards for American households outside the top 20 per cent have been an increase in the labour force participation of women and a decline in household savings. Over the period since 1999, consumption financed by borrowing against home equity has been the main factor offsetting stagnant or declining median household incomes.

Thus, in statistical terms the US offers little support to the trickle down theory. It is equally important, however, to look at how the theory is supposed to work. The general idea is that, the more highly owners of capital and highly-skilled managers are rewarded, the more productive they will be. This will lead both to the provision of goods and services at lower cost and to higher demand for the services of less-skilled workers who will therefore earn higher wages.

The financial sector is the obvious test case for this theory. Incomes in the financial sector have risen more rapidly than in any other part of the economy, and have played a major role in bidding up the incomes of senior managers and professionals in related fields such as law and accounting. According to the trickle-down theory, the growth in income accruing to the financial sector benefitted the US population as a whole in three main ways.

First, the facilitation of takeovers, mergers and buyouts by private equity firms offered the opportunity to increase the efficiency with which capital was used, and the productivity of the economy as a whole.

Second, expanded provision of credit to households allowed higher standards of living to be enjoyed, as households could ride out fluctuations in income, bring forward the benefits of future income growth, and draw on the capital gains associated with rising prices for stocks, real estate and other assets.

Finally, there is the classic ‘trickle-down’ effect in which the wealth of the financial sector generates demands for luxury goods and services of all kinds, thereby benefitting workers in general, or at least those in cities with high concentrations of financial centre activity such as London and New York.

The bubble years from the early 1990s to 2007 gave some support to all of these claims. Measured US productivity grew strongly in the 1990s, and moderately in the years after 2000. Household consumption also grew strongly, and inequality in consumption was much less than inequality in income or wealth. And, although income growth was weak for most households, rates of unemployment were low, at least by post-1970 standards for most of this period.

Very little of this is likely to survive the financial crisis. At its peak, the financial sector (finance, insurance and real estate) accounted for around 18 per cent of GDP and a much larger share of GDP growth. With professional and business services included, the total share was over 30 per cent.[1] The finance and business services sector is now contracting, and it is clear that a significant part of the output measured in the bubble years was illusory. Many investments and financial transactions made during this period have already proved disastrous, and many more seem likely to do so in coming years. In the process, the apparent productivity gains generated through the expansion of the financial sector will be lost.

The failure of the trickle-down approach has been even more severe in relation to consumer finance. The idea that increasing income inequality was unimportant when households could borrow to finance growing consumption was never defensible. The gap between income and consumption had to be filled by a massive increase in debt. With sufficiently optimistic assumptions about social mobility (that low-income households were in that state only temporarily) and asset appreciation (that the stagnation of median incomes would be offset by capital gains on houses and other investments) these increases in debt could be made to appear manageable, but once asset prices stopped rising they were shown to be unsustainable.

In the US context, these contradictions have been resolved for individual households by a massive increase in financial breakdowns. Until 2005, this mainly took the form of a steady increase in bankruptcy, to the point where Americans were more likely to go bankrupt than to get divorced. Restrictive reforms introduced at the behest of the credit card industry produced a dramatic drop in bankruptcy (in part, the lagged counterpart a massive upsurge in 2003 and 2004 as people rushed to get in under the old rules). From 2006, onwards, bankruptcy rates resumed their upward trend, reaching 1.1 million per year in 2008

This trend attracted little attention as bankruptcies were rapidly overshadowed by foreclosures on home mortgages. During the boom, when overstretched householders could normally sell at a profit and repay their debts, foreclosures were rare. From 2007 onwards, however, they increased dramatically, initially among low-income ‘subprime’ borrowers but spreading ever more broadly. 2.3 million houses were affected by foreclosure action in 2008. In hard-hit areas of California, more than 5 per cent of houses went into foreclosure in a single year

As in other respects, the longer-run implications of the crisis have yet to be fully comprehended. Even when economic activity recovers, consumer credit will be far more restricted than in past decades. As a result, there will be no escape from the implications of decades of stagnant wages for workers at the median and below.

Politically, the failure of the trickle-down theory seems likely to produce a resurgence of the class-based politics pronounced dead in the era of economic liberalism. The contrast between the enforced austerity of any recovery period, and the massive, and massively unjustified, excesses of the financial elite during the boom period, will produce a political environment where phrases like “malefactors of great wealth” no longer seem quaint and old fashioned. (Just after writing this, I Googled it, and found it as the title of a piece in Time Magazine’s Swampland by Joe Klein, among the most reliable indicators of the political zeitgeist_

fn1. Here I’m measuring the ratio of gross FBS output to gross domestic product, which is the figure most relevant to the argument. The value-added in FRB (which nets out inputs purchased by the FRB sector) is smaller, around 20 per cent, but still indicates a highly financialised economy."

And me:

1. Don the libertarian Democrat Says:
   February 2nd, 2009 at 7:19 am

   “The general idea is that, the more highly owners of capital and highly-skilled managers are rewarded, the more productive they will be. This will lead both to the provision of goods and services at lower cost and to higher demand for the services of less-skilled workers who will therefore earn higher wages.”

   Like a lot of theories, this one has taken on a much wider meaning. In some sense, it is true that more investment leads to more jobs. Hence, if you encourage investment with tax breaks, that should lead to more jobs. It seems to me that the real question you’re asking, which is a very good one, is why the middle and lower income earners seem stagnant? Shouldn’t the standard of living be going up? As I understand most free market theories, it should.

   Of course, unlike you, I believe that we have a welfare state. Here’s a paper similar to my view:

   http://www.petersoninstitute.org/publications/interstitial.cfm?ResearchID=1096

   Most likely, lobbying accounts for much of the problem. In other words, contrary to what people believe in theory, the Investor Class, say, is simply far more effective at getting policies in their favor adopted. They are not all free market, as tariffs and professional standards will often attest.

   My solution is simple: we need to focus on the problem and try whatever we can to alleviate this problem. Sometimes, lowering government requirements, based on large industries, for example, will encourage competition from smaller businesses. Michael Pollan and Barbara Kingsolver’s recent books both mention this problem, for example.

   In other words, I see the problem as political. You can call my approach class based if you’d like. I prefer to call it an approach that leads to a wealthier and more stable society. When people are wealthy enough, including the middle class and lower class, government will have far less to do. For me, there is no diminution of government power and interference that doesn’t involve the rising economic tide of the middle and lower classes. At some point along this path, we will, as Thoreau said, have the kind of government we deserve. Namely, confined to helping the truly needy, which will hopefully keep getting smaller and smaller.

"The financial crisis is draining the rich of some of their riches."

Robert Frank on income inequality in the WSJ:

"Some economists say it would be wrong to abandon efforts to restrain inequality based on a momentary fall.

"Inequality cannot be totally undone by the financial bust," Mr. Saez says. "Policy makers now have a golden opportunity, like Roosevelt, to do something more permanent."

Mr. Saez says the next president should follow the example of President Franklin D. Roosevelt and impose crisis measures -- tax increases for the wealthy, massive public-works and jobs programs -- that helped usher in more than 40 years of more even wealth distribution."

I don't find this view convincing. There are too many difference between the present and the mid-twentieth century for such nostrums to be useful. I'm not saying that it isn't an important issue, only that:

1) Higher taxes on the wealthy ( Might work a little )

2) Massive public-works ( On what? Do we want to encourage sprawl, for example. The restrictions on building are different. Check out the difference between building the Bay Bridge and the recent retrofit. It's just not the same as earlier years )

3) Jobs programs ( That was when unemployment was huge. What's being proposed now? )

My main problem with this approach is lack of specificity. In all fairness, Mr. Saez and Mr. Frank might have such specific plans, but, until we see them, these are just nostrums.

Why Concentration Of Wealth Is Important

I don't agree with all of his solutions, but I agree with Robert Creamer on Huffington that this is a huge problem. Without a wealthy middle class that feels middle class, there's no hope of smaller government:

"Commentators are prone to blame the sub-prime lending crisis for the current meltdown in the American financial system. No doubt it is the proximate cause. But there is a much deeper cancer that underlies the current crisis and the eight year long stagnation of American incomes: a massive increase in the concentration of wealth.

In the short term it is critical to staunch the bleeding and protect the pension funds, home values, and jobs of everyday Americans. But to cure the disease we need to return to a bottom up economic policy and encourages higher wages for average Americans and broadly shared economic growth. That will mean enacting tax policies that put money into the hands of the middle class and requires that the wealthy pay their fair share. It will require that we pass the Employee Free Choice Act that will make it easier to workers to organize and bargain with employers. It will require that we relearn the lesson that the "invisible hand" is not infallible -- that markets need rules, regulation and transparency or they inevitably veer into speculative excess. And most of all it will require that we make a national priority of reducing the inequality of wealth and power and recommit our country to fulfilling America's promise of becoming a truly democratic society."

Income Inequality In The U.S.: Some Bad News

Via David Friedman, an article on income inequality in the U.S. by Arnold Kling and Nick Schulz. Here's the conclusion:

"Given the other forces driving inequality, there may be less that government can do than one might hope. Research from Heckman suggests that education is a relatively feeble remedy for the effects of family background (although Heckman believes that early intervention, in preschool or even before, shows promise).

In order to make a dramatic impact on inequality, government would have to do something about the fundamental causes: technology and marriage patterns. However, putting a brake on technological progress seems hardly feasible or desirable. And forcing people to select mates at random rather than on the basis of similar backgrounds and tastes seems similarly unlikely. As much as inequality may be a problem, no real solution is in sight."

This is terrible news for my vision of how we can have government take a much smaller role in our lives. My plan envisages our confining our social net to the truly needy, and then decreasing the number of truly needy through a growing economy. However, my plan necessitates that we have fewer poor people and that the middle class comes to be and feel truly middle class. My fear is that income inequality such as that described in the article will make it much harder to develop a middle class that truly feels middle class, as opposed to feeling just above being truly needy.