Daydreaming About Inequality – A New Income Tax System

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This article reflects my personal opinion.

The taxation of income often becomes a controversial issue in election debates (given that those debates actually revolve around factual topics). However, the proposals put forth mostly concern new regulations, new special rules, exceptions and deductions and small rate hikes or cuts and often are nothing more than half-hearted gifts to certain interest groups. In the long run, this leads to a progressively complex tax system that, combined with a similarly proliferating social welfare system, results in a bureaucratic leviathan that can paralyse a society and economy and at the same time fails to mitigate inequality. What if one started from scratch and intended to create an income tax system that is simple while being comprehensive and aims to mitigate growing income inequality and was not afraid of experimenting with somewhat unfamiliar ideas? In this article, I want to briefly explore a little thought experiment and imagine a new income tax system  (I will sometimes use Germany as reference case). Continue reading “Daydreaming About Inequality – A New Income Tax System”

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Inflation, Growth and Monetary Policy – A Case Study of the United States

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Central bank target rates (%); data sources: FRED, ECB, Bank of England

Ever since the Great Recession, central bank rates in all major developed economies have been on historic lows. The European Central Bank (ECB), whose official sole mandate is to maintain price stability, has lowered its rate even further to 0.00 percent in March in response to consistently low inflation rates across the Euro area, and the Bank of England (BoE), whose mandate combines maintaining price stability and supporting economic growth, has lowered its rate down to 0.25 percent in August, in response to the Brexit decision. Meanwhile, the Federal Reserve of the United States (Fed), whose objectives are maximum employment and stable prices, has increased its target rate to 0.375 percent in December for the first time in several years. However, at its most recent meeting in mid-September , the Fed has been reluctant to further increase its target rate due to an ongoing slow economic recovery and inflation rates below its 2-percent target (Inflation measures the yearly increase in consumption good prices). Consistently low inflation rates despite lengthy phases of expansionary monetary policy, even in countries that appear to be back on economic growth paths, are a concern for central bankers around the globe and puzzle many observers. In this article, I take a look at the case of the United States (simply because it provides by far the best data), derive the main two possible causes and argue in favour of a rate hike in combination with additional monetary and fiscal measures. Continue reading “Inflation, Growth and Monetary Policy – A Case Study of the United States”

The 2016 US Presidential Election and the Military Industrial Complex

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This article reflects my personal opinion.

With the first presidential debate on Monday, the 2016 race to the White House has entered its final phase after what has already been an extraordinary shrill and eventful election year. Many observers are puzzled by the fact that a blunt, populist ex-reality star faces a realistic chance to become the most powerful man in the world. They do not understand it for the same reason they have not understood Brexit. And while every US American voter with a shred of rationality left should suck it up and vote for four more years of the same in Hillary Clinton over a narcissistic madman spreading nothing but hate and dangerous half-truths,  there is one issue that most likely will not change and those who have to bear it have no say in the matter anyway, as they do not live in the United States. Regardless of whether the next commander-in-chief will be called Clinton or Trump, the US will continue to forcefully protect their interests by means of the world’s dominant military force and intelligence network and the support of shady allies around the globe. Even if the candidates wanted to, they would not have the power to stop the military industrial complex that has taken on a life of its own. Continue reading “The 2016 US Presidential Election and the Military Industrial Complex”

Economic Growth – Is the Party Over?

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World gdp at market prices in trillion constant 2010 US$; data source: World Bank

Economic growth is the single most important indicator that is used in order to compare the developments of economic prosperity of different economies and in order to measure phases of economic boom or recession. In this context, the figure that one can normally read about in the news and that is most often presented in general, is the growth rate of real gross domestic product (gdp). It tries to measure the growth rate (usually on an annual basis) of the value of all final goods produced within a country, adjusted for price changes. Gdp growth is often praised as a solution to many economic and social issues like poverty, high levels of indebtedness and economic inequality. The fact that a recession is defined as at least two quarters in a row with negative real gdp growth and its definition hence relies solely on economic growth as an indicator underlines the important role that real gdp growth plays in the economic view of the world. In recent years, the slow and still ongoing recovery after the Great Recession in the developed world has spurred new discussions about long-term economic growth developments, the requirements for economic growth and its merits. But before diving into the topic of slowing economic growth rates, consider the possibility that the so-often-utilised real gdp growth is not a very reasonable indicator to measure developments in economic prosperity. Continue reading “Economic Growth – Is the Party Over?”

Football and Money: Income Inequality in the German Bundesliga

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Annual incomes of 454 players that played in the Bundesliga in the 2014/15 season (in thousand Euros); data source: see footnote

“Football is a simple game. Twenty-two men chase a ball for 90 minutes and at the end, the Germans always win.” While being an accurate assessment, this statement by English record world cup scorer and part-time philosopher Gary Lineker hides another truth about football: some Germans win more than others. Thus, the beginning of the new Bundesliga season on Friday will not only spur discussions about tactical details and whether or not the referee has chosen the wrong profession, but also about the justification of skyrocketing footballers’ salaries and whether the earnings are fairly distributed among teams and among players. To shed some light on these issues, I have built a data set that comprises the incomes of all 454 players that stepped on the football field during the 2014/2015 Bundesliga season (the most recent season where good data is available). Most of the income data was obtained from the site fussball-geld.de and some additional estimations and calculations were conducted (See the footnote for a summary of the data collection process). Because players and teams do not disclose their contracts, all data has to be based on expert estimates and market-value approximations and should not be understood as hard facts (In general, think of this as an economist’s version of bar-room philosophy rather than a dead serious academic article) . Nevertheless, they offer a unique way to think about issues of income inequality and its implications. Continue reading “Football and Money: Income Inequality in the German Bundesliga”

You Can’t Always Get What You Want: Some Thoughts on Inequality

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This article reflects my personal opinion.

The economic article published here two weeks ago gave a short introduction to income inequality and showed that it has been on the rise again for the past decades in most developed countries. And while there is less reliable data available, the same is most likely true for wealth inequality. Inequality of opportunity has probably been stable and hence failed to work as a countermeasure. These developments have led to movements around the globe fighting for more equality and demanding a higher contribution to society from the rich and wealthy. Their voices are increasingly being heard and some of them have developed inspired, constructive propositions to reshape societies, with the recently most prominent one being the campaign of Bernie Sanders in the United States. However, at this point in history, one can assess that perfect equality is neither achievable nor desirable. While it might work in small, very homogenous communities, every time it has been tried on a larger scale it led to oppression and persecution of dissidents and the formation of a new, politically legitimised elite. So given that inequality is not inherently bad, the question arises: When does inequality become a problem that should be tackled by society? Continue reading “You Can’t Always Get What You Want: Some Thoughts on Inequality”

The European Refugee Crisis – The Return of the German Angst?

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This article reflects my personal opinion.

Immigration. A word that lately lets emotions run high and has emerged as the key issue in arguably the two most important elections this year, the Brexit referendum and the American presidential election. The topic has found its way into the core of the public discourse in the Western World due to a large number of people who have been looking for refuge from war and dire social and economic crises in their homelands. Also in Germany, the difficult topic has taken control of big parts of the public debate, especially after a series of attacks carried out by men from a muslim migrant background has shocked the German society. The onslaughts have further exacerbated the situation in which the two loudest camps face each other unforgivingly. On one side are the “Alternative for Germany” (AfD) and movements like “Patriotic Europeans Against the Islamisation of the West” (Pegida), who warn of a foreign, violent domination of Western countries by an Islam that cannot be integrated into a free society. On the other side there are the so-called elites, governmental politicians and most parts of the established media, who largely deny a connection between immigration and crime and terrorism and stress the opportunities and advantages of migration for an ageing society. But a discussion just about whether refugees are advantageous for Germany or not is shallow, most of the time mainly characterised by ideology and not rationality and, quite frankly, egoistic. Continue reading “The European Refugee Crisis – The Return of the German Angst?”