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

poor facade

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”

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

Boat-format

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?”

Alive and Well: Income Inequality

International Top 1
Top one percent income shares of total national income for ten countries, before taxes and excluding capital gains (%, interpolated for missing values); data source: Alvaredo et al. (2016)

In recent years, economic inequality has become one of the most dominant topics in the public debate in various countries and is seen by many as one of the driving factors behind increasing political polarisation. It has also spurred academic discussion, at the latest since the publication of Thomas Piketty’s groundbreaking book “Capital in the 21st Century” in 2014. Economic inequality is often intertwined with social, racial or gender inequality and can be further broken down into income and wealth inequality, with both categories again being closely connected. And while there is a lot of work being done on investigating wealth distribution and inequality, e.g. by Saez and Zucman (2014) on the US, currently, our understanding of income distribution is more evolved. A lot of data has been gathered in recent years by Alvaredo et al. (2016) that makes it possible to take a look at the development of income inequality in various countries and helps to understand its possible drivers and consequences. Continue reading “Alive and Well: Income Inequality”

Double Bubble Trouble? A Brief Look at House Price Inflation

US HPI
Real Residential House Price Index (HPI) for the United States, 1Q1991 = 100 (Data sources: US Bureau of Labor Statistics and Federal Housing Finance Agency)

(This week’s post is kept very short as I am busy proofreading some of my friends’ enthralling master theses at the moment.)

The last financial crisis was ignited by the bust of the US housing market bubble. And it is argued by many that this bubble was to a large extent caused by too low Fed rates during the beginning of the last decade (see Financial Crisis Inquiry Commission, 2011). Looking at the Real Residential House Price Index for the United States (which I obtained by correcting the official nominal house price index with the consumer price index), one can observe that during the crisis, US real house prices plunged to the levels of 2000 after they had been rapidly climbing for a decade. However, it is also evident that since 2012, real house prices are on a new rally. This means that nominal house prices are growing faster than still stagnant nominal prices for regularly consumed goods and services (which are used to derive the inflation rate). As the Fed once again hesitates to raise its rate in order to fuel inflation and not to stunt fragile economic growth, there is arguably reason to be concerned about the creation of a new housing bubble in the United States. Continue reading “Double Bubble Trouble? A Brief Look at House Price Inflation”

No Farewell to Arms: The Violence Will Continue

flag-desat

This article reflects my personal opinion.

The recent events in Dallas, Minnesota and Louisiana and all the other places, where gun violence tears the American society apart on a regular basis, were likely caused by three issues. First, by a racial problem that the United States never managed to fully overcome and that once again shifted into the focus of media attention. Second, by growing inequality that increasingly disfigures the American dream. And third, the shootings fundamentally are symptoms of a problem that is rooted in the American identity, namely that the history of the United States has been to a large extent a narrative of violence, both regarding foreign affairs as well as internally. None of these issues and developments have been conclusively come to terms with by the American public and as long as this will not happen, the spiral of violence will keep on spinning. And only a miracle would allow this year’s presidential election to be the trigger for this desperately needed redefining of the American identity. Continue reading “No Farewell to Arms: The Violence Will Continue”

Unemployment in the Eurozone: A Tale of Two Countries

unemployment
unemployment as share of active population (%); data source: Eurostat

On Friday, Eurostat, the statistical office of the European Union, announced that the unemployment rate in the euro area continued to fall in May, from 10.2 to 10.1 percent. While this constitutes a considerable recovery from its high of 12.1 percent in the second quarter of 2013, there is still a long way to go back to the pre-crisis level of 7.3 percent. Moreover, this number shrouds the highly diverse situation within the euro area, with Germany and Greece sitting at the two ends of the spectrum. Both countries entered the crisis with an unemployment rate of 7.5 percent in the second quarter of 2008. After a minor bump in 2009, the German labour market consistently strengthened and now stands at an unemployment rate of 4.3 percent in the first quarter of 2016. This development is mainly attributed to increased wage flexibility due to the so-called Agenda 2010 and the extended use of short-time labour subsidies during the crisis (e.g. Rinne & Zimmermann, 2012 and Krause & Uhlig, 2012). Once been labeled Europe’s “sick man”, Germany now has had the lowest unemployment rate in the euro area for more than two years. Greece, on the other hand, has fallen into a deep depression, intensified by the Greek government-debt crisis and, as argued by many, darkened by austerity policies (just whether budget cuts or tax hikes have been more devastating depends on whom you ask, for example Paul Krugman or John Cochrane). The unemployment rate mirrors this crisis, rising to a shocking peak of 27.9 percent in the third quarter of 2013 and recovering at a slower pace than the Eurozone average, considering pre-crisis levels, decreasing to 24.3 percent in the first quarter of this year. The youth unemployment rates (capturing the unemployment share of the active population younger than 25) present a similar picture. Continue reading “Unemployment in the Eurozone: A Tale of Two Countries”

The Times They Are A-Changin’

London_flat

This article reflects my personal opinion.

On Friday, supporters of the Remain campaign in the United Kingdom European Union membership referendum were faced with the ruins of their beliefs. In contrast with most of the latest polls, a majority of the voters had decided for an exit of the UK out of the EU. Although the demographic analysis of the referendum has not yet been finalised, it is already rather clear where the lines between the two camps ran. Besides the obvious separation between London, Northern Ireland and Scotland as net supporters of the Remain campaign and most of the rest of England and Wales as Leave strongholds, voters divided alongside age-demographic and educational lines. Areas with many young and well-educated residents were more likely to vote “Remain” while areas with a high concentration of low-skilled workers and old residents tended to vote “Leave” (see this guardian article for a colourful demographic breakdown of Thursday’s referendum). A lot of young voters feel that their future has been sabotaged by a generation who will not be around long enough to suffer the consequences of their vote. Congruently, many academics and other high-skilled workers perceive the referendum as a blow to their economic opportunities by ill-informed protest voters. And together, Remain supporters all around the world ask themselves “How did this happen?” Continue reading “The Times They Are A-Changin’”