Inequality in America (and Britain)

Dr. Alan Krueger, chairman of the President’s Council of Economic Advisers, spoke yesterday at the Center for American Progress about how inequality threatens both the middle class and the economy at large.

The chart below, from his Powerpoint presentation, illustrates how America became the Western World champion of Income Inequality and more surprisingly of lack of intergenerational mobility. The children of the poor stay poor. The American Dream is dead. 

Furthermore, it is not a shock to see that the former colonial power, Britain, now the most American part of Europe, comes a close second to the US.

“The Great Gatsby Curve” - Higher income inequality associated with lower intergenerational mobility

Economist Alan Krueger, Chairman of the Council of Economic Advisers and his boss, a certain Hussein Obama

Note on the graph:

Originally from a paper by Miles Corak,  professor of economics with the Graduate School of Public and International Affairs, University of Ottawa’s, it shows a negative relationship between the Gini coefficient and intergenerational earnings elasticity.

The Gini coefficient is a standard way of measuring inequality. It is an index between 0 and 1, based on the Lorenz curve, which is the proportion of the total income earned by each percent of the population. The larger the number, the less equal the society.

Intergenerational earnings elasticity is the relationship between parents’ earnings and those of their children. In a way, it shows if children can escape their parents’ poverty. According to the 1921 song by Van & Schenck, immortalized in F. Scott Fitzgerald’s "The Great Gatsby", they can’t: “The rich get richer and the poor get children.” 

Therefore the title of the graph!

Cover of  F. Scott Fitzgerald’s "The Great Gatsby"
Inequality in America

Dec 9, 2011: the first day of Europe's new life

Merkel and Sarkozy point the way... or poking fun at Cameron?

Today, 20 years after the Maastricht Treaty, the temptation may be to start a long rant on Britain's often successful attempts to block European integration, in general acting on behalf of its former colonies across the Atlantic. Thirty eight years of British Euro-skepticism and hostility have now been repaid with simple indifference. Britain was always the spanner in the European works, or as Der Spiegel puts it "the fly in the European soup"!

Anyway, let bygones be bygones and let us celebrate the first day of a new era: a two-speed Europe.

We are done with the hypocrisy, no more lowest common denominator agreements. The continent will march on forwards, and the island north of La Manche can continue swimming towards America... except that maybe Scotland may decide to join us later on.

History proved the Charles de Gaulle was right all the time: Britain should never have entered, having instead some kind of association agreement at the same level of Turkey. The unprepared US-led enlargement towards the East was also an error: although these nations are an absolutely essential part of Europe, the calendar was all wrong, i.e. deepening of the Union should have came before a formal enlargement. This has led us to a moment when only creative destruction will solve the problem, and Merkel and Sarkozy have earned their place in history. The debt crisis is Europe's blessing in disguise.

So we have a draft intergovernmental treaty, but that is only a first step. Europe now needs the instruments of representative democracy. Of course integrated economic policies, foriegn policy and defense are essential, but none are totally legitimate without the creation of European-wide political parties. Without truly European parties setting the agenda, we will always face the risk of crippling balkanization.

Having solved the problem of a Union eternaly blocked by the British, of course the intergovernmental agreement (the "compact") itself still has to run the gauntlet of approval in each signatory country. Furthermore, a 'fiscal union' may come in many forms, and the devil is in the detail. 'Fiscal union' at most will be an euphemism for common rules for budgetary discipline across the Eurozone, there will be no merger of tax structures and authorities.

Naturally the less naïve among us are also raising fundamental doubts on the sufficiency of the intergovernmental agreement as a tool to return public debt markets to normality, strong tools such as Eurobonds or the ability of the ECB to make large scale bond purchases or increase money supply remain off the agenda. Even simple budgetary discipline rules imposed from outside will only be effective if non-compliance will lead to powerful sanctions. Writing budget prudence into the constitution of each member country per se is not enough, if politicians have a talent is is fudging the rules. In case it was forgotten: rules for budgetary discipline across the EU are already in place. The Euro convergence criteria (aka Maastricht criteria) require that member states keep deficits below 3 per cent of GDP and ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year.

Charles de Gaulle vindicated at last - Gallic revenge on the Brits

British PM on Muslims in the UK: State multiculturalism has failed!

Echoing the declarations of of German Chancellor Angela Merkel (October 2010), the British PM admits that Muslim integration in Europe has failed:

" Do they believe in universal human rights - including for women and people of other faiths? Do they believe in equality of all before the law? Do they believe in democracy and the right of people to elect their own government? Do they encourage integration or separatism? "

The question is now: will the Brits be coherent and stop pushing for Turkey's integration into the European fatherland?

What are you waiting for Mr Cameron?

PS: Sarkozy on the same note! Sarkozy estime à son tour que le multiculturalisme est un "échec"

Iceland on the Carpet!

It was on the ropes for quite a while, but now it is on the carpet and the countdown is over: after last October ´s Banking system collapse, now the Government resigns amid widespread protests. Prime Minister Geir Haarde announced the resignation of his cabinet, after talks with coalition partners failed. New elections will take place in May.

Local banks, accumulated debt during years of rapid expansion, and now owe about six times the country's annual GDP. Money from all over the world flocked into Icelandic banks chasing interest rates of over 10%.

Iceland enjoyed all the benefits of being of the world´s most prosperous countries until 2007. By 2008 the signs of an impending meltdown were conspicuous. The crisis intensified in the last few days, leading the Government to resign. Iceland’s banks were highly over leveraged and deep in debt, after massive expansion abroad, in particular in the UK.

It is stunning to see a first world country collapse so swiftly!

But this may be just the start of something bigger. Inside the Eurozone, particularly in the peripheral countries, several economies suffer from chronic imbalances, usually blamed on lack of structural reform and debt from excessive state spending.

Detail of 1000 Icelandic Kronur bank note