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Inequality and Instability: A Study of the World Economy Just Before the Great Crisis 1st Edition
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Inequality and Instability demonstrates that finance is the driveshaft that links inequality to economic instability. The book challenges those, mainly on the right, who see mysterious forces of technology behind rising inequality. And it also challenges those, mainly on the left, who have placed the blame narrowly on trade and outsourcing. Inequality and Instability presents straightforward evidence that the rise of inequality mirrors the stock market in the U.S. and the rise of finance and of free-market policies elsewhere. Starting from the premise that fresh argument requires fresh evidence, James K. Galbraith brings new data to bear as never before, presenting information built up over fifteen years in easily understood charts and tables. By measuring inequality at the right geographic scale, Galbraith shows that more equal societies systematically enjoy lower unemployment. He shows how this plays out inside Europe, between Europe and the United States, and in modern China. He explains that the dramatic rise of inequality in the U.S. in the 1990s reflected a finance-driven technology boom that concentrated incomes in just five counties, very remote from the experience of most Americans-which helps explain why the political reaction was so slow to come. That the reaction is occurring now, however, is beyond doubt. In the aftermath of the Great Financial Crisis, inequality has become, in America and the world over, the central issue.
A landmark work of research and original insight, Inequality and Instability will change forever the way we understand this pivotal topic.
- ISBN-109780199855650
- ISBN-13978-0199855650
- Edition1st
- PublisherOxford University Press
- Publication dateMarch 30, 2012
- LanguageEnglish
- Dimensions0.9 x 6.4 x 9.3 inches
- Print length336 pages
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Editorial Reviews
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"The most comprehensive examination to date of the connection between the financial sector, the Achilles heel of 'free enterprise' economies, and income inequality across countries. Galbraith and his fellow researchers at the University of Texas Inequality Project demonstrate how the seeds of the current economic crisis were sown by the refusal to confront and reverse an unequalizing worldwide spiral of income disparity. This could be the empirical Bible for the Occupy movement."--William Darity, Arts and Sciences Professor of Public Policy, Economics, and African American Studies, Duke University"Galbraith's timely and provocative book adds some economic and statistical ballast to the vague rhetorical slogans of the Occupy protesters. Drawing on meticulous academic research, it argues that the main source of the growing inequality across the world in recent years has been not industrial change, educational reform, or geopolitical shift but the financialization of the modern world." --Foreign Affairs
"Galbraith's book presents an extremely varied and nutritious fare for all of those who want to find out more about the things that they 'were afraid to ask' during the last twenty years: why did inequality increase so much and who benefited from it? But Galbraith did notice the increase, wrote about it, and here in a sort of collected works, are his essays, fully vindicated by time. Not many economists can say so." --Journal of Economic Literature
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- ASIN : 019985565X
- Publisher : Oxford University Press; 1st edition (March 30, 2012)
- Language : English
- Hardcover : 336 pages
- ISBN-10 : 9780199855650
- ISBN-13 : 978-0199855650
- Item Weight : 1.37 pounds
- Dimensions : 0.9 x 6.4 x 9.3 inches
- Best Sellers Rank: #2,829,042 in Books (See Top 100 in Books)
- #376 in Macroeconomics (Books)
- #557 in International Business (Books)
- #646 in Income Inequality
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UTIP uses inequality in manufacturing wages (i.e. pay rates in the manufacturing sector) as a proxy for income inequality. If the proxy is good enough, that vastly improves the quality of the data, and so the range of questions that can be addressed. Galbraith spends Chapters 2 and 3 arguing that the proxy is good enough -- that manufacturing wage disparities do reflect income disparities closely enough for his analyses.
The rest of the book depends on whether the reader accepts these assertions or not. The problem, of course, is that the services sector is changing very rapidly, and any inferences from manufacturing to services may quickly be out of date. In any case, even the numerical analyses that Galbraith presents are not very convincing. For example, he uses the UTIP data to replicate the World Bank data. While the correspondence is good, it is not very good. (He fits a linear regression and gets R-square statistics of about 0.6, i.e. the UTIP data explains about 60% of the World Bank data.) While that is good enough to show that the two measures are related, I don't think that it is good enough for the applications later in the book. But then Galbraith says that the World Bank data are flawed anyway, so the point of the comparison is lost on me.
Anyway, if one accepts use of UTIP data, a few interesting conclusions followe. For example, while individual European countries show less income inequality than the U.S., Europe taken as a single entity shows more income inequality. Given Europe's higher unemployment rates (at least until recently) that suggests that greater income inequality correlates with greater unemployment, not the reverse. (I note that Galbraith isn't always careful to distinguish correlation and causation. His results fall far short of showing that inequality causes unemployment -- the causation could run the other way, or a third factor might be at play).
Another very interesting result is that global factors, including international financial credit, securities markets and so on, account for almost all the changes in inequality. Economic institutions also atre important. But that leaves very little scope for political interventions or indeed for a government role. Or at least that's how I read the last third of the book.
A comment on the book's accessibility: I found the book very readable. Yes, there are a few equations, but the reader can skip over those with no loss. Yes, there are some regression analyses, but their results are described in words in the text, so they can be skipped too. Galbraith is a good writer, and if you skip the tables, what he has to say flows nicely.
It's significant to note tha the average "poor" household in America has 2 cars, air conditionaing, a big screen TV and multiple cell phones. That's an entirely different definition than, say, a poor person in Cambodia or Africa.
It's horribly deceptive of the government and its education friends to ignore $1 trillion of annual income being taken from one group of Americans and given to another group of Americans. The outcome of this deception is that the income of the "poor" is then underrepresented by $1 trillion.
Want more deception? US government does not include either energy or food prices when it computes its official inflationj statistic. No, I'm not making this up - it's true.
Speaking of inequality, isn't it time again now for Mrs. Obama to take herself and 250 of her closest friends back to Marbella, Spain at taxpayer expense so that they can walk on the beach together and drink fine wine?
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The highlights include: a summary and extrapolation of Galbraith's "Created Unequal" (1998); a broad overview of equal societies in recent history (the Scandinavian countries, Islamic republics, the USSR); on the relationship of speculative investment and "supercrisis"; on fallacies of income inequality (SBTC, replacement of good working class jobs with much worse jobs); on income inequality and voting; on the Scandinavian high-productivity model; and a long section on why the prominent labor "flexibility" model is exactly wrong.
The bad stuff: about half of this book belongs in footnotes to footnotes, if there were such a thing. Pages upon pages are spent on explaining the approach/methodology behind a particular study or issue (which are fairly easy to skip over) before the findings are finally presented. An academic footnote of a few sentences, rather than a few pages of text, would be sufficient. The introduction implies that this book is essentially group written, which might account for the many wasted pages.


