Saturday, April 30, 2016

The relevance of Okun’s "Equality and Efficiency: The Big Tradeoff"

Extract from his book still relevant today :

American society proclaims the worth of every human being. All citizens are guaranteed equal justice and equal political rights. Everyone has a pledge of speedy response from the fire department and access to national monuments. As American citizens, we are all members of the same club. Yet at the same time, our institutions say “find a job or go hungry,” “succeed or suffer.” They prod us to get ahead of our neighbors economically after telling us to stay in line socially. They award prizes that allow the big winners to feed their pets better than the losers can feed their children. Such is the double standard of a capitalist democracy, professing and pursuing an egalitarian political and social system and simultaneously generating gaping disparities in economic well-being. This mixture of equality and inequality sometimes smacks of inconsistency and even insincerity. Yet I believe that, in many cases, the institutional arrangements represent uneasy compromises rather than fundamental inconsistencies. The contrasts among American families in living standards and in material wealth reflect a system of rewards and penalties that is intended to encourage effort and channel it into socially productive activity. To the extent that the system succeeds, it generates an efficient economy. But that pursuit of efficiency necessarily creates inequalities. And hence society faces a tradeoff between equality and efficiency

Sunday, April 24, 2016

Swiss initiative for a basic income

The idea of giving everyone in society a Universal Basic Income (Ubi) has been getting a lot of attention recently. The Finnish government is planning  a big experiment where up to 100,000 people could get about $1,100 a month. Four Dutch cities will also experiment this idea  this summer. And several other cities and states, from Canada to Spain, are interested.

Next 5th June,  Swiss citizens will vote for an unconditional basic income  equal to  2500 Swiss francs per month (about 2000 euros) that each adult would receive from the State each month as a financial safety net for the population.

This initiative has been launched a year ago by three committees, drawing inspiration from the French socialist Charles Fourier (1772-1837). This is a sign of growing public activism to combat pay inequality. The organizing committee collected more than the necessary 100 thousand signatures for the popular initiative - which under the Swiss law will be turned into political action if the initiative gets a majority of votes. The Committee B.I.E.N, at the origin of this initiative, considers that the basic income should replace the social security safety net  and the bureaucratic controls imposed to beneficiaries   

The initiative  is opposed by the government ( which fears that it would put in peril the national budget) , the  Swiss patronat which believe this would create a situation of rentier , discouraging people to go to work and trade unions which see the risk that workers will be paid less than their actual wages for 40 hours a week. Sergio Rossi, an economist from Freiburg, member of the referendum committee , argues that the basic income could be financed by social insurance system through a different redistribution system or a revenue tax.

As of today, more than 40% of the population is set to vote favourably to the referendum and it is rapidly growing which means that the initiative could go through and force the government to pass a bill on national basic income.

Philippe Van Parijs, of the Basic Income Earth Network  is promoting the idea worldwide based on academic studies and research. This debate shows that the idea of basic income is gaining momentum to tackle the inequality gap which has hit all major economies, with resulting absolute poverty. This mechanism would contribute to bridge the gap between high and low revenues and finance consumption. In current economic conditions, It is as much the general interest of society than the particular interests of the rich and the poor.

Sunday, April 17, 2016

An EU migration compact

Europe is disintegrating rapidly as attempts to seek solutions fail on national egoisms .  Re-nationalization of Europe becomes more evident, with the return to national confines abolished by the Schengen Treaty.

Austria has accomplished the last violation of this pact , which for many is difficult to understand for a country far from the sea and being not a main destination for mass immigration to Europe.  The paradox is that this country is governed by a socialist party which is  adopting the same policy as the far right party. But this happens in other countries such as Hungary, Poland and Slovakia.

Italy has still an European agenda - it supports the creation of an EU Treasury minister and now calls for a  'migration compact' to transfer powers to the European Union to handle the crisis. The proposal foresees a set of actions and  special forces both in origin and transit countries of the migrants with refugee camps  in the southern Mediterranean coasts for migrants .

Such policy deserves wide consensus among EU countries but its effective application would require the creation of  special police forces  to protect the external borders and on the political level a much stronger coordination between the Interior ministries , and eventually the creation of an EU Interior minister. This would mean, in practice coordinating intelligence services and fight against terrorism.

The main issue of contention lies with the necessary funding to support the migration plan. The Italian proposal includes the issuance of eurobonds which is vigorously opposed by Germany which prefers an oil tax paid by citizens to the European coffers.

This plan will not be implemented readily and will require an agreement at the next European Council. But it is a positive step forward toward greater unity to halt the return of nationalism which is currently putting Europe in grave danger.