David Ruccio hypothesizes that the current worldwide macroeconomic difficulties are related to increased inequality in the distribution of income in, say, the United States over the last few decades. I have been considering hypothetical mechanisms that expand on this idea. Previously I have put forth the Harrod-Domar growth model as a framework in which increased inequality leads to a tendency towards recessions. In this post, I focus on causation in the other direction. (A full analysis of the issues will likely describe a process of cumulative causation.)
Active macroeconomic fiscal policy is assisted if government spending is already a somewhat large component of a nation's economy. It is easier to raise government spending by some given fraction of national income if that change is a smaller percentage of current government spending. We have seen this issue in connection with the Obama administrations talk of "shovel-ready" projects and the stimulus policy. Perhaps this consideration even applies to automatic stabilizers.
So governments that are smaller with respect to their national economies might be expected to exhibit worse macroeconomic performance. And James Galbraith has shown quite some time ago that poor macroeconomic performance leads to increased greater inequality in wages.
Perhaps the above is part of the explanation for the empirical cross-section correlation between decreased government size and increased inequality. I think Hacker and Pierson give some explanation why increased inequality engenders political forces tending towards smaller government size.
- Stiglitz the Keynesian... Web review of economics: Stigliz has an article, "Capitalist Fools", in the January issue of Vanity Fair. He argues that the new depression is the result of:Firing...
- It's Never Enough Until Your He... Web review of economics: Aaron Swartz quotes a paper by Louis Pascal posing a thought experiment. I wonder if many find this argument emotionally unsatisfying. It...
- Michele Boldrin Confused About Marx... Web review of economics: Michele Boldrin has written a paper in which supposedly Marxian themes are treated in a Dynamic Stochastic Equilibrium Model (DSGE). He...
- Negative Price Wicksell Effect, Pos... Web review of economics: 1.0 IntroductionI have previously suggested a taxonomy of Wicksell effects. This post presents an example with:The cost-minimizing...
- Designing A Keynesian Stimulus Plan... Web review of economics: Some version of this New York Times article contains the following passage:"A blueprint for such spending can be found in a study financed...
- Robert Paul Wolff Blogging On Books... Web review of economics: Here Wolff provides an overview of Marx, agrees with Morishima that Marx was a great economist, and mentions books by the analytical...
- Simple and Expanded Reproduction... Web review of economics: 1.0 IntroductionThis post presents a model in which a capitalist economy smoothly reproduces itself. The purpose of such a model is not to...
- How Individuals Can Choose, Even Th... Web review of economics: 1.0 IntroductionI think of this post as posing a research question. S. Abu Turab Rizvi re-interprets the primitives of social choice theory...
0 comments:
Post a Comment