Some IMF economists finally admit that inequality causes crisis!

[innonimatu]

After prescribing all the wrong "solutions" to every country's economic crisis for decades, it seems that some economists working for the IMF have finally started looking at reality in an attempt to understand the present crisis when constructing economic models. Here's something you would never expect from a paper released by that institution:

IMF Working Paper - Inequality, Leverage and Crises

November 2010
Abstract
The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.

The rich did get richer and the poor did get poorer since the 1980s, in their share of the wealth produced. And that was the root cause of the debt explosion which inevitably led to the present crisis. Any solution to the crisis requires a reversal of this concentration of wealth. Exactly what people who have been looking at the facts, at the recent evolution of society, have always been saying!

Reality can only keep being ignored for so long. The IMF must be getting desperate, to finally start taking these facts as a basis for economic modeling! And to allow these conclusions:

The key mechanism, reflected in a rapid growth in the size of the financial sector, is the recycling of part of the additional income gained by high income households back to the rest of the population by way of loans, thereby allowing the latter to sustain consumption levels, at least for a while. But without the prospect of a recovery in the incomes of poor and middle income households over a reasonable time horizon, the inevitable result is that loans keep growing, and therefore so does leverage and the probability of a major crisis that, in the real world, typically also has severe implications for the real economy. More importantly, unless loan defaults in a crisis are extremely large by historical standards, and unless the accompanying real contraction is very small, the effect on leverage and therefore on the probability of a further crisis is quite limited. By contrast, restoration of poor and middle income households’ bargaining power can be very effective, leading to the prospect of a sustained reduction in leverage that should reduce the probability of a further crisis.

My guess is that financial interests have so thoroughly wrecked their own system that anyone with brains left in that filed is preparing to switch sides. Big political shakeup coming.
So, what do people thing here? Does this small capitulation (still "not representing the views of the IMF") make any of the "conservatives" on these forums reconsider their typical blaming of the poor for any crisis?

 

[antidrocefalo]

How are all humans equal?

We aren't

strong inequalities are signes of freedom

 

[Dumanios]

 

[Cutlass]

In other words, water is wet

 

[useless]

How are all humans equal?

We aren't

strong inequalities are signes of freedom

Look at you attempt to justify:

. Economic inequality
. Social inequality
. Sexual inequality
. Gender inequality
. Racial inequality

Apologists. Mhm...

 

[Mr. Dictator]

signes

ye olde spelling for ye olde mindeset?

freedom

You keep using that word. I do not think it means what you think it means.

 

[RedRalph]

They must be set on a crisis in Ireland in that case, the scumbags

 

[Behind The Mask]

How are all humans equal?

We aren't

strong inequalities are signes of freedom

Hey mate, we miss ya over in the other thread.

Come on back and we'll promise to try and humor you a bit more

 

[Leonel]

Well I figure it'd would have been obvious when we had a similar spike in income inequality before the Great Depression.

 

[Cutlass]

The way I see it, mild income inequality means that there is a lot of room to make money through business investment, because there are a lot of consumers to serve. But with huge income inequality, the opportunities to make money through real business investment dry up. And so more and more money go to speculation. And that makes for a far more unstable economy.

 

[amadeus]

The ghost of Harry Dexter White?

 

[Cutlass]

Better in every respect than anyone who could accept Reaganomics.

 

[Murky]

The amount if disparity between the rich and the poor has grown so much over the past few decades that it can no longer be shrugged off as just a natural occurrence. It is the result of systematic abuse, fraud and predatory behaviors of the worst kind.

The question is not if our system is broken but what can we do to fix it?

 

[Cutlass]

At the moment, many people are still denying that government did it. They like to pretend that redistribution of wealth it about welfare. And in so doing ignore 99% of the wealth government redistributes.

 

[amadeus]

Better in every respect than anyone who could accept Reaganomics.

Do you know who I'm talking about?

 

[Ajidica]

How are all humans equal?

We aren't

strong inequalities are signes of freedom

And queue Ferdinand Lassale:

According to the Bourgeoisie, the moral idea of the state is exclusively this, that the unhindered exercise by himself of his own faculties, should be guarded to each individual. If we were all equally strong, equally clever, equally educated, and equally rich, this might be regarded as a sufficient and moral idea.
But since we neither are nor can be this equal, this idea is not satisfactory, and therefore necessarily leads in its consequences to deep immorality, for it leads to this, that the stronger, the cleverer, and the richer fleece the weaker and pick their pockets.

What leads you to believe that inequality is a sign of freedom? When inequality is present, does that not mean people lack the ability to compete evenly with one another?

 

[Cutlass]

Do you know who I'm talking about?

You are rarely clear when you are trying to be snarky.

 

[amadeus]

You are rarely clear when you are trying to be snarky.

Harry Dexter White was one of the guys at the Bretton Woods conference and instrumental to setting up the IMF. He was named by Whittaker Chambers (himself a former Soviet agent) as a communist and was later found to have actually been spying on behalf of the Soviet Union.

 

[Cutlass]

Harry Dexter White was one of the guys at the Bretton Woods conference and instrumental to setting up the IMF. He was named by Whittaker Chambers (himself a former Soviet agent) as a communist and was later found to have actually been spying on behalf of the Soviet Union.

Which still means he's a better American, and a better capitalist, than anyone who supports Reaganomics.

 

[Mr. Dictator]

Harry Dexter White was one of the guys at the Bretton Woods conference and instrumental to setting up the IMF. He was named by Whittaker Chambers (himself a former Soviet agent) as a communist and was later found to have actually been spying on behalf of the Soviet Union.

Sounds like he just circumvented the government regulation of the marketplace of information. We should salute this Galtian ubermensch.