STAFF NEWS & ANALYSIS
'Nobel' Prize Winners Rail Against Income Inequality
By Staff News & Analysis - August 25, 2014

Nobel gurus fear globalization is going horribly wrong … An interconnected world was meant to reduce inequality – but that doesn't seem to be happening. David Ricardo's Theory of Comparative Advantage has broken down after 200 years, or so I learned at the Lindau forum of Nobel laureates in Bavaria. The theory published in 1817 has been a guiding principle of free trade, taken as a given by every student of economics in the modern era. It has served us well, but just as Newton's theories ran into limits and were overtaken by Einstein's relativity, comparative advantage no longer explains the world. – UK Telegraph

Dominant Social Theme: Capitalism is a failure, and Nobel laureates are sounding the alarm.

Free-Market Analysis: The big brains have figured out that capitalism is a failure. That's the gist of this UK Telegraph article. What's the solution? Enforced income equality, maybe even a universal living wage.

We've written about that here:

Profoundly Immoral, Increasingly Popular, the 'Unconditional Basic Income' Becomes a Meme

This is not just a meme, it's a kind of raging forest fire, a conflagration that is burning up the pages of the mainstream media – digital or not. And now its infection has spread to the pages of the UK Telegraph and more importantly, the issue of "income inequality" has become a sudden "cause célèbre" among "Nobel laureates."

Of course, these laureates didn't win a "real" Nobel prize, only one labeled in a certain manner to allow the faux-glamor of a "Nobel" to rub off on them. No matter, these are important names. And they are all "concerned."

Here's more from the article:

Under Ricardo's model, inequality was supposed to narrow within countries as globalisation accelerated exponentially in the Nineties. Instead it is getting wider. The Gini coefficient measuring the spread between rich and poor is narrowing between countries, but is widening almost everywhere within countries, leading to a corrosive concentration of wealth.

"Globalisation today is very different from the 19th century," said Eric Maskin, winner of the Nobel Prize in 2007. Ricardo described a world where free trade in goods was opening up, but labour markets remained largely closed. This is no longer the case. Globalisation bids up the wages of high-skilled engineers or software analysts towards international levels wherever they live.

Prof Maskin – who happened to live in Einstein's old house in Princeton for 19 years – has developed a new model with Harvard's Michael Kremer that tackles the reality of international production, one where the Apple iPhone is designed in Palo Alto, but where Korea contributes $80.05 in components, Taiwan $20.75, the US $22.88, Germany $16.08, and China just $6.50 in final assembly (OECD study form 2010). (Note that this looks like a multi-billion trade deficit for the US against China. In reality it is trivial, showing how misleading trade data can be.)

"Ricardo's theory of comparative advantage is still valid, but it needs to be supplemented by new theories," he told me. That is a polite way of saying the assumptions no longer hold. Prof Maskin said it would be a counsel of despair to turn away from globalisation. The last quarter-century has led to a surge in living standards for the emerging world as a whole. Yet it must be tamed.

An answer lies in Brazil, one of the few countries to buck the trend and lower its Gini index. One of the tricks was a scheme introduced twelve years ago to make "conditional cash transfers" to poor families provided their children stay in school up to the age of 17, and must be vaccinated.

We mentioned portmanteau memes in a previous article, and the above paragraph is a good example of how elite dominant social themes are being mixed and merged – presumably with the idea that each one can reinforce the other. (Individually they are increasingly weak, but perhaps together they can be made stronger.)

But it is, in fact, the idea that traditional economic "rules" are being overturned by the modern environment that is the most offensive. The journo authoring this article must know full well that the distortive elements of society are generated principally by monopoly central banking. The argument is made, however, that Western societies – tortured into submission by central banking, corporate personhood and graduated income taxes – are somehow not properly conforming to free-market expectations.

Well … how can they when basically every aspect of the modern economy is subject to the powerful price-fixing impacts of regulation and the over-printing of money? Comparative advantage – the theory – hasn't broken down. It's just in abeyance because the forces of price-fixing have overwhelmed it. It's easy enough to overwhelm comparative advantages when one can print all the money that one wants. What "comparative advantage" can stand up to that?

The dishonesty of this kind of reporting is discouraging. How can one claim that this economic rule or that one has "broken down" without providing a larger frame of reference? At least that would be the intellectually honest thing to do.

Instead, the article plunges on as if oblivious to its illogic. Sir James Mirrlees is quoted, for instance. We learn that he won the Prize in 1996 for work on incentives, advocates outright subsidies for poorer workers in the West to stop them "falling out of the bottom." Mirlees's perspective: "Just as you have social security taxes on employment, you could have negative taxes. Housing subsidies already work in this way in the UK."

Prof Mirrlees says capital controls may be needed to right the ship, warning Europe could be trapped in high unemployment for "years to come", unless they keep their capital at home for their own use. "The Europeans don't yet seem to have realised this," he said.

Hey, Prof. Mirrlees, how about arguing against price fixing and corporate personhood? Corporate personhood has granted us monopoly multinationals and central banking has created and enforced monopoly money.

Why not get rid of distortive economic mechanisms instead of creating further command-and-control economic facilities? Western economies are crippled, but instead of alleviating injuries, the economists mentioned in this article merely prescribe more palliatives.

Compare the economy to a wounded lion – one that has a thorn in its paw. Instead of pulling the thorn, these big brains are suggesting that the lion learn to use crutches. Here's the conclusion:

There is an enduring myth – a self-serving one – that inequality is a price we must pay to achieve higher growth. Advocates posit a trade-off effect. They argue that "levelling" pulls down everybody and damages the economy in the end.

Prof Joseph Stiglitz says the data proves otherwise. "We now realise that less inequality leads to greater stability, growth, and economic efficiency. They compliment each other," he told the Lindau forum. "We are seeing an ever-increasing concentration of wealth. It is fundamentally different from what occurred in the 19th century and up to the First World War, when real wages were rising. What we have seen with globalisation since the Eighties is stagnation in real wages," he said.

For Stiglitz, a ferocious supporter of globalization, every problem looks like a nail; every solution is to be the internationalist hammer. Inequality is NOT a price that need be paid for "higher growth." It is only a "price" because monopoly central banking concentrates wealth into fewer and fewer hands. As for "less inequality leading to greater stability" – that's a kind of economic non-sequitur. Who wants the "stability" of an authoritarian society?

This article is pounding the meme once more of "income inequality." We've documented about six articles on the subject in the mainstream media in the past few months. The idea seems to be to build the case against "inequality" by making it into an intellectual proposition. This is why "highbrow" mainstream publications are being employed. And now "Nobel" prize winners.

Occupy Wall Street fizzled. So now another gambit: Once the case is made at the highest levels of academic polity, politicians can begin to act on the arguments. Anti-income inequality legislation can be drafted and implemented. One way or another the power elite seem intent on radically expanding the welfare state.

After Thoughts

Opportunities are increasingly stifled, but everyone will be entitled to a "living wage" – whatever that is.

Posted in STAFF NEWS & ANALYSIS
  • chuck martel

    Good article.

    “Europe could be trapped in high unemployment for “years to come” Isn’t it possible that the current paradigm of an individual having a job, being employed by a corporation to perform a specific task for a certain amount of fiat script could be coming to an end? Is it likely that the peasants of the feudal manor in 13th century Europe were hoping and praying for the opportunity to show up every day at the Renault plant? It’s only natural, apparently, that people should desire a future that’s a continuum of the present, a situation that offers what they imagine as security and predictability. That’s never been the case, however. We have no way of knowing if ANYONE will have a job in a hundred years. Only a totalitarian society can regiment humans in such a way as to make designs a reality and only then for a short period of time. Otherwise the pharoahs would still be building pyramids.

    • Did the “pharaohs” build the pyramids?

      • vapor

        No, the PaleoAncient High Civilization inhabitants did.

    • WinChll

      in less than 100 hundred years they want the worker bess dead by early 20’s. Not to mention the experiments in genetic development of quasi human/animal serfs.

  • lulu

    Is a productive home garden considered part of income? Is what you don’t spend because you dont want to or what you do for yourself considered income? The complete picture here is missing and what is here is distored. Thes laureats need to live in the real world. Their thoughts dont apply to the larger world. ,

  • 2prickit

    Improved Herd Mentality: it is a learned rather than genetic response to external stimuli. The human herd has been modified somewhat and mostly by sentimentality, a hobbling among themselves due to binding oneself to images that mirror a posture of vogue correctness. For little of my money and for much relief, when the carnival is in town, I go where I know I can get a crooked mirror, cheap, I head first to the House of Mirrors. Its dark corridors make it a safe haven for bashful dwarves, and a place where zombies fear to tread.

  • Cronyism, the Tax Code, excessive regulations, the national debt and the Federal Reserve are the major causes of the widening income inequality gap.

    Solutions:

    Abolish Tax Code and IRS.

    Enact Fair Tax (national sales tax).

    Minimize regulations to only what is absolutely necessary.

    Balance the budget.

    Start decreasing the national debt.

    Abolish the Federal Reserve as we know it. Replace with automated system as Milton Friedman suggested until better solution is discovered.

    Treat gold and silver as legal tender (not as an asset) for tax purposes.

    The income inequality problem is counterintuitive. Big government equals more income inequality. Smaller government equals less income inequality.

    The middle class is the byproduct of a free market economy; it is not manufactured by a politician’s tax gimmicks, minimum wage laws, or government redistribution of wealth.

    There is no such thing as a living wage; there is only a wage that someone can afford to pay. You have to tailor your living around your wage, not have government tailor your wage around your living.

    It is about supply and demand. If you have an easy time filling your employee needs, you offer lower wages, if you have a hard time filling your employee needs, you offer higher wages; because if you do not your competition will and you will be out of business.

    It is not about what people deserve or what is fair or what is just; it is about what the market will bear. Blame the consumer for shopping for the lowest price and blame the voter for voting for government to fix their problems.

  • Alice Maxwell

    Occupy Wall Street has not fizzled, it just took a rest. Right now they are being directed to field a “new” concept, one that was stolen from the Old Testament, the Jubilee, a time when all debts are forgiven! That’s right. Even as I write, the brochures are being printed, scholarly papers being sent around to their in house (are there any others?) Nobel laureates to use when the bell is rung! I imagine this new putsch will come just in time for the election, in a few weeks and will wash everything else out of mind as all the debtoirs, from the small to the large, start dancing in the streets so the Media can have a field day just as they had in Ferguson with that “we are all blacks when it comes to our baby sons being shot dead by the police”!

    Face facts. The American public has been mind conditioned to accept sound bites and that is thought today. You cannot beat the carny barkers (The Rockefellers began with that) and they are having a ball and so are their captured public. The madness has been exported with our American Century but it is about to be aborted with a good dose of Islam for the next one. Just watch the christian pastors as they tell their flocks that God is visiting upon them his displeasure with every beheading and so kneel down and accept your fate.

    • Bruce C

      If/when people realize that the “money” that they borrowed (for such and such) is actually NOT from the deposits of people who actually earned it then they will be more willing to DEFAULT.

      Borrowed “money” whether it is a direct bank loan or a credit card, etc. is “counterfeit” money. The “money” is conjured up when the loan is granted, but it does not belong to someone else or even the bank. It is completely fictitious. Only when the money is “paid back” to the bank does the bank profit, because to the bank it is like a windfall. Money that it created by granting a loan is effectively “laundered” and is assumed to be a legitimate reimbursement and profit to the bank that originated it.

      A similar “trick” occurs with central banks. When they buy “assets” (bonds, usually) they pay for them with “printed money”. The seller of the asset receives this money thinking that it represents a real piece of productivity. However, it actually does not.

      In both cases, a default by the borrowers – or a “jubilee” by the lenders – would wipe out only a fictitious debt. However, potential problems would be with those who hold “derivative” contracts based upon those loans.

      Hopefully, borrowers will realize they didn’t borrow anything “real”, and that everyone else who invested in the creative financing schemes of Wall Street will learn a valuable lesson.

      We shall see how it plays out.

  • Centurian

    TDB: “As for
    “less inequality leading to greater stability” – that’s a kind of
    economic non-sequitur. Who wants the “stability” of an authoritarian
    society?”

    In medicine, it is said that the most stable condition is pulseless and aepnic. In other words dead.

    It seems that while dying people are losing their fight against attaining room temperature, economies are losing their fight against “income equality.”

  • MOLON LABE

    The New Misery Index: Summing Up Unemployment And Inflation By Charles Hugh Smith Aug 25, 2014

    The Status Quo is desperate to mask the declining fortunes of those who earn income from work, and the Misery Index 2.0 strips away the phony facade of bogus unemployment and inflation numbers. The classic Misery Index is the sum of unemployment and inflation, though later variations have added interest rates and the relative shortfall or surplus of GDP growth. Since the Status Quo figured out how to game unemployment and inflation to the point that these metrics are meaningless except as a meta-measure of centralized perception management, the Misery Index has lost its meaning as well.

    http://www.investing.com/analysis/the-new-misery-index:-summing-up-unemployment-and-inflation-223641

  • vapor

    End the FED? Yes, but slowly. Do not implement a national sale tax, it will always increase in indirect ways. Follow strict taxation according to the U.S. Constitution– the way it was intended. End the militirization of the police. Bring back the Militia of the several States. Common sense.

  • Henry James

    It is explicitly stated now – economic theory is on a par with General Relativity. Despite the massive complexity involved in global
    economics the destabilizing problems can be solved with a “trick”. This trick is also described as a scam…I mean scheme….where mandatory vaccination was forced onto children. Quite a trick indeed, though still only one that was used as part of Brazil’s
    economic re-working.

    I only wish they had joined the dots further to show how not –vaccinating leads to climate change?

    Thanks DB – I wish this were mainstream!

  • Joelg

    Perhaps the War on Inequality is being groomed as a possible Replacement War waiting in the wings as the War on Drugs is phased out under a more Libertarian regime. Climate Change as a Global War to Save the Planet seems to be going cold. Maybe the “War on Inequality” is being “auditioned” for the next Progressive or Socialist USA regime (which would logically follow a Libertarian regime allowed in to relax the War on Drugs). If there is Directed History, then Advance Planning is necessary.

    As Jim Gray pointed out in his DB interview, Richard Nixon implemented the War on Drugs for Political Gain. If the Official War on Drugs is allowed to wind down or goes into remission, a post-Libertarian USA president of a Progressive or Socialist bent will need something like a War on Inequality. This means Legally Enforced Equality, which will keep Jim Gray’s beloved Criminal Justice System gainfully employed enforcing equality (sameness) and filling prisons with minimal police investigative work needed.

    Of course, the economic inequality may turn out to be a temporary phenomena or a statistical fraud; or even have positive aspects being ignored. But I think the Utopian Vision of a State of Permanent Equality will persist and be promoted because it is an equilibrium point of sorts for the Totalitarian State. Enforced Sameness is what the cry against inequality is all about. It is a Progressive, Socialist Totalitarian agenda totally oblivious to Liberty and Freedom of Thought; just add “promotion of inequality” to “racist” and “sexist on the ever-expanding Hate Crime List, and no need to worry about empty prison cells when the War on Drugs goes into lower gear.

  • Danny B

    You know that I ramble. I’ll try to make this coherent. This is unrehearsed.
    This problem is like a Claymore sword. It cuts both ways. At one time wealth was expressed in land and gold. Sometimes water, slaves, food, buildings,etc. As the industrial revolution spread, it became more and more difficult to express wealth in anything tangible. There was just too much wealth. Slaves and serfs just weren’t very productive. Slaves graduated to wage-slavery. Land was nominally transferred to “owners”. We / they believe that we own the land even though we pay rent. We’re much more productive on our “own” land. We are much more productive as “free” men.
    Stock markets were created and shares were considered wealth. Sovereign bonds were created and backed with gold.
    Land was wealth as long as there were people to toil on it and make it productive. Shares were productive and bonds were backed by precious metals.
    Benjamin Strong, et al broke this linkage back in the 20s. Great problems arose. The bankers brought us wars. We had to return to the stability of gold.
    The Bretton Woods agreement cemented this with gold. Wealth was still backed or represented by land and gold.
    Ron Paul said that he went into politics because Nixon broke the link to gold. Some of the more astute money people were completely aghast at Nixon’s action. He really had no idea of what he was doing. Connaly, et al wanted him to devalue the dollar by repricing gold. Arthur Burns wanted the price of gold to double or triple. “Haldeman
    concluded that the result of these meetings was a “huge economic
    breakthrough,” which on the international side would provide for closing
    the gold window”
    “The President had instructed us to put clearly in our explanatory documents that there would be no change in the price of gold.
    Third,
    the world had been on a course of evolution which had gradually reduced
    the importance of gold in the system over the years and we were not
    going to move in the opposite direction of moving toward rebuilding a
    system based on gold”
    http://2001-2009.state.gov/r/pa/ho/frus/nixon/iii/5348.htm

    This was the start of another slide out of tangibles and into paper. From this moment on, debt paper grew enormously. There are enormous NOMINAL sums of wealth floating around. This nominal wealth can never be transformed into tangibles. The perceived wealth has no future. The money masters hold enormous wealth that can never be cashed in.
    Suppose that you owned all of Canada but, there were no people there. How could you say that you owned it? How could you claim that it was valuable? You can’t live in every part of Canada. If you have $ 100 billion dollars, you can’t spend it.
    Your $ 100 billion can only give you exclusivity. You could buy an enormous tract of land and keep others off. Suppose all the billionaires did that. The rich can’t all spend their money. The great fortunes of the world are locked out of the market for tangibles. Should all the fortunes rush into the market for land or commodities, the majority of people would be locked out, impoverished and starving.
    That is the whole point of the gold standard. It allows the ever-increasing wealth to flow into a tangible that does NOT impoverish the masses.
    The POG has been suppressed to preserve the fiat currencies. The ever-growing wealth has flowed into land and commodities. The working masses create the tangibles that are used to redeem all the debt instruments. The investment deflected from gold has flowed into tangibles where it creates havoc for the poor. The economy is dying and the rich have ever-less confidence in the debt instruments that they hold. How will the masses create the commerce needed to redeem debt notes if all they can afford is food?

    Income inequality is caused by various things. The end result is; the debt notes held by the rich have a much reduced value if they have to be redeemed by a much reduced economy. Everywhere you look, debt is growing enormously. The law of supply-and-demand says that; the greater the supply, the lower the value. The credit structure is held up by printing. The rich are all printing for each other.
    The system must be re-configured so that the masses can, once again, produce and consume.
    A viable economy can return if the rich have a stable tangible to store wealth. Something that isn’t subject to the ravages of currency printing. In the absence of this they must invest to catch up with inflation. Their inevstments cause price inflation. When the default cascade comes, it will be the rich demanding that the FED be abolished. They will return to gold because they value if among themselves.

  • Danny B

    Guess that I should add a link.

    “Dollar exchange rates, interest on dollars,
    stock market values, home values all represent what an American “can
    buy” if they decide to spend their wealth. Not what they presently have
    as owned wealth, paid up 100%. This leveraging of dollar affairs has
    created an “illusion of savings” that in effect allowed a high SOL. In
    other words, we live high on the hog today because our present equity
    values and savings don’t really exist. Time has transformed the entire
    dollar system into a giant “futures contract” that only represents the
    wealth we could obtain in partial “future purchases”. Just like the gold
    market, we mostly trade paper wealth and call it real. Yet, if a large
    percentage demand for delivery ever happened, the contracts would fail.
    Yes, our wealth and economy status is really based on us cashing in and
    buying just a little at a time. If we didn’t, the illusion would be
    exposed.”

    “Only our present dollar economy is “super
    leveraged” not just into the future of US goods production, rather it
    also completely depends on future foreign fulfilment to produce those
    real goods.”
    http://fofoa.blogspot.com/2014/08/six.html
    You can see that Perceived wealth in America can never come to fulfilment. The great income inequality is a temporary state. In the cascade default, the holders of great wealth will find that their debt instruments have no counterparty.

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