How Redistribution Makes America Richer

Modeling the numbers on bottom-up and middle-out economics.
By Steve Roth – You hear a lot about bottom-up and middle-out economics these days, as antidotes to a half-century of “trickle-down” theorizing and rhetoric. You’re even hearing it, prominently, from Joe Biden.

They’re compelling ideas: put more wealth and income in the hands of millions, or hundreds of millions, and you’ll see more economic activity, more prosperity, and more widespread prosperity. To its proponents, it seems deeply intuitive or even obvious, a formula for The American Dream.

But curiously, you don’t find much nuts and bolts economic theory supporting that view of how economies work. There’s been lots of research on the sources and causes of wealth and income concentration. There’s been a lot of important work on the social and political effects of inequality — separate (though tightly related) issues. But unlike the steady stream of “incentive” theory from Right economists over decades, Left and heterodox economists have largely failed to ask or answer a rather basic theoretical (and empirical) question: what are the purely economic effects of highly-concentrated wealth, held by fewer people, families, and dynasties, in larger and larger fortunes?

In a new paper and model published in Real-World Economics Review, I try to tackle that question. The model takes advantage of national accountants’ wealth measures that have only been available since 2006 or 2012 (with coverage back to 1960), and measures of wealth distribution that were only published in 2019. Combined with thirty+ years of consistent survey data on consumer spending at different income levels, the paper derives a novel economic measure: velocity of wealth.

The bottom 80% group turns over its wealth in annual spending three or four times as fast as the top 20%. The arithmetic takeaway: at a given level of wealth, more broadly distributed wealth means more spending: the very stuff of economic activity, which is itself the ultimate source of wealth accumulation.

The details of the model are somewhat more complex, but it only employs five easy to understand formulas — all basically just arithmetic, and all expressed without resort to abstruse symbols; they use plain language. more>

Updates from Chicago Booth

Take a family approach to genetic testing
By Brian Wallheimer – Knowing whether you’re a genetic carrier for a disease can be invaluable. A patient who learns she’s at heightened risk for breast cancer, for example, may opt for more frequent mammograms or have a preventative mastectomy, potentially adding many happy and healthy years to her life.

The US Preventive Services Task Force currently advises that individuals who have a family history of a disease should consider genetic testing. But taking a family approach to testing, applying one patient’s results to understand the risks to other family members, could generate comparable health benefits at less cost, suggests research by Chicago Booth’s Dan Adelman and Kanix Wang.

In theory, everyone could be tested for a wide array of potential diseases. But that’s a cost-prohibitive proposition, so what’s the optimal testing system? The researchers studied the issue by simulating the testing of 5 million people for the BRCA1 and BRCA2 genes, which are associated with an increased risk of developing breast cancer. The algorithm Adelman and Wang developed can determine who needs to be tested and can rule out the possibility that some family members are at risk on the basis of others’ results.

At $750 per test, an optimal family-testing policy involving these genes alone would add nearly 300,000 quality-adjusted life years to at-risk people over their lifetimes, 3,000 more QALYs than would be added by testing all people who meet the USPSTF’s guidelines, for $500 million less. A QALY is a measure used by economists to tally the quality and quantity of a life, and one QALY equates to a year of perfect health. more>

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Updates from ITU

Home but never alone: Celebrating World Amateur Radio Day
By Lisa Leenders – Early last year, when the outbreak of coronavirus (COVID-19) first pushed much of the world into lockdown, one traditional – some might even say old-fashioned – hobby experienced a spectacular revival. Amateur radio lets people interact socially, intensively, without ever meeting in person.

In those early days and weeks of the pandemic, radio amateurs reached out to each other spontaneously via the airwaves at the local, national, and global levels.

These days, local clubs in Europe and other regions are meeting on-the-air, more frequently than they have in decades, providing familiar, friendly voices, as well as regular check-ins on those, such as the elderly, who may be confined at home.

Special event stations, mostly transmitting from people’s homes, shared the message “Stay Safe” in dozens of countries and languages, reminding us all to help limit the spread of the virus.

Over the past year, on-air activity has reached unprecedented levels. Amateur radio contests are attracting record-breaking numbers of entries.

Today, the hobby is more popular than ever, with more than 3 million licensed operators worldwide, according to the International Amateur Radio Union (IARU). more>

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Does it make sense to question the morality of capitalism?

Keynes warned that ‘practical men’ were often in thrall to some dead economist. In fact many leading economists have agreed on the idea of guaranteed work.
By Laura Pennacchi – The global pandemic is bringing all the issues that torment the modern world to boiling-point: job scarcity, ecological transformation, mass migration, biotechnologies, artificial intelligence and the uncontrolled development of science, education, public goods and culture. The World Economic Forum, which as early as last year at Davos announced ‘an end to profits without ethics’, now proclaims ‘better economies and societies’. The need to bring the legitimacy of capitalism into discussion, even under a strict moral purview, is being recognised on a variety of fronts.

Some scholars linger in celebration of the essay in which Milton Friedman claimed, 50 years ago, that capitalism had no social responsibility except to increase profits (‘the business of business is business’). But questions are beginning to emerge—ranging from Paul Collier’s concern about the ‘mutilated ethical foundation’ of capitalism to Joseph Stiglitz’s desire to free ‘progressivist capitalism’ from ‘market fundamentalism’. The  philosophers Nancy Fraser and Rahel Jaeggi seek to rebuild the ‘regulatory bases’ of capitalism, holding that no economic practice is neutral and therefore detached from normative evaluation and that capitalism must be seen as not simply an economic system but an ‘institutionalised social order’.

So does it make sense to question the morality of capitalism? Yes—indeed without it, there can no supersession of the paradigm in the direction of a much-needed new model of development. more>

A simultaneously expanding and shrinking world

Branko Milanovic warns that the post-pandemic world could see further polarization in a now global labor market.
By Branko Milanovic – A week ago I received an email inviting me to a meeting of economic historians of the Balkans. The association was created several years ago and while I had been interested in joining I never managed to get to any of its meetings. One had to be physically present in Belgrade on such and such a date.

But now, suddenly, with the lockdown, the meeting was held online—and even I, thousands of miles away in Washington DC, could participate. It was held at a convenient time for me and I quite happily logged in. People from different parts of the globe joined. We would likely never all have met in the pre-coronavirus world.

Before the meeting started, I chatted with other attendees and we traded information about how things were at our physical locations. They asked me about life in Washington. I told them what I could see from my home (not much) and on my short daily walks along Connecticut Avenue.

But, they persisted, are the stores open, are people in the streets, are there still demonstrations? I had to confess I had no idea. I lived through last summer’s disturbances, the election-linked demonstrations, the January 6th riots, the inauguration—all of which happened within two miles of my home—but I saw none of it.

It dawned on me as we spoke that, during the pandemic, my world had weirdly changed. On the one hand, it has expanded enormously. I have given talks, interviews and college (even high-school) lectures and participated in panels—not only in Europe and the United States, where I might have done so anyway, but also in China, South Korea, Japan, Malaysia, Russia, Turkey, Argentina, Colombia and Brazil. more>

Here’s 10,000 Hours. Don’t Spend It All in One Place.

Evidence shows that hyper-specialization is not the best strategy for happiness.
By Arthur C. Brooks – On October 20, 1874, in Danbury, Connecticut, a child was born who would grow up to be one of the greatest American composers of classical music. More than a half-century ahead of his time, he combined late romanticism, American folk, and avant-garde techniques in a way that revolutionized music.

On the very same day, in the same town, a child was born who would grow up to transform the business of financial planning. An actuary, successful insurance entrepreneur, and well-known financial author, he devised ingenious life-insurance products and created the modern practice of estate planning.

It was not a coincidence that the great composer and the celebrated financial innovator shared a birthday and birthplace. They were the same man: Charles Edward Ives.

You might assume that anyone who worked as both a composer and an insurance executive would see the latter as a necessary evil—a prosaic “day job” to endure so he would be able to write music. Ives truly loved music, and he pursued it with intense passion from earliest childhood. But as the music historian J. Peter Burkholder notes, he also loved insurance. According to his business partner, Julian Myrick, Ives called it a “great mission,” adding, “A life insurance policy is one of the definite ways of society for toughening its moral muscles for equalizing its misfortunes.” There is no evidence that one career gave him more happiness than the other, nor that he saw either as more inherently creative or important. more>

maxon introduces a multi-axis controller for highly dynamic positioning tasks

maxon is launching the next generation of Motion Controllers with its MiniMACS6-AMP-4/50/10. The controller is ideal for use in applications where PLC solutions may be too expensive or cannot meet customer-specific requirements.
maxon – maxon’s new multi-axis controller, the MiniMACS6-AMP-4/50/10, offers precise and highly dynamic control of up to six brushed DC motors or four brushless DC motors (up to 540 W continuous output power and 1.6 kW peak output power). The controller is an economical and compact solution for system designers who develop autonomous robots or shuttle systems.

A significant advantage of the new multi-axis solution is that it is programmable with the comprehensive ApossIDE automation software and the license-free Motion Control Library (written in C). Integrated bus interfaces enable efficient data exchange with higher-level controllers; however, it is also possible to run complete process sequences autonomously, without a PLC or PC. The MiniMACS6-AMP-4/50/10 will be available in early 2021.

This year, the COVID-19 pandemic has led to the cancellation of nearly all trade shows. Despite this, maxon is offering a digital trade show experience to all of its customers and anyone who’s interested in learning about the latest in drive technology. Visitors to maxon’s virtual booth will discover the benefits of our latest products such as the MiniMACS6 master controller, learn about high torque brushless DC motors as well as flat motors for robotics, and get to know the Mars rover. Visit virtualbooth.maxongroup.com and contact us to get your ideas moving. more>

Lurking in the shadows – the source of the next financial crisis?

By Justin Urquhart Stewart – In 2008 the collapse of Lehman Brothers was the start of the banking crisis. For those close to it, the issues had been lurking below the surface of the financial world for some time. The secondary banking crisis and the sub-prime mortgage fiasco were all in effect warning quakes for the “big one” to follow. However, even then no one really appreciated just how deep this disaster was going to be.

Other banks were supported either by shareholders or, more drastically, governments bailing them out as they teetered on the edge of collapse. For those of us watching there was fear over just how far this could go and how dangerous was the contagion of bad money poisoning good. There was also a feeling of just desserts for those arrogant and overpaid financial pseudo-aristocrats who had lorded it over their apparent domains. Not only had these people paid themselves astonishing sums of money, but then had the gall to turn to the citizens, through their governments, to bail them out, with little or no personal pain to themselves – for most at any rate. The real pain was felt by the taxpayers, the ordinary shareholders and the greater economy who bore the brunt of this.

Today’s issue is not just banking, be it commercial or investment, but rather something far more elusive – and that is the world of “shadow banking”. In essence, shadow banking is the provision of financial services but not through the usual banking outlets and companies. This may not seem to be such an issue until you consider issues such as regulation, compliance and risk management. In effect you now have new beasts on the wild financial savanna, but ones that previously you had not realized might be dangerous. Quite rightly, I will be wary of lions but don’t expect a nasty nibble from a wildebeest. more>

Reinventing the Internet for a society of change

By Francisco Jaime Quesado – The COVID-19 pandemic has led to the world to an unexpected opportunity wherein it can redesign the context and concept of the Internet for society.

The world is facing new and unprecedented strategic challenges as a result of the coronavirus outbreak, and the reinvention of the Internet is one strategic tool that could facilitate a new agenda for the future. This strategic process demands an effective push towards a more cooperative agenda, one that focuses on a prosperous and competitive economy, sustainable environment, and a more democratic, open, healthy society.

This reinvention process should be seen as a key and positive element that empowers both citizens and growing businesses to help build an innovative, secure and sustainable post-pandemic world.

More than ever, the society of change that we need demands a clear and balanced repositioning of the Internet, one that is fundamentally based on a full understanding of policy issues and the context to which they belong. Furthermore, a pragmatic strategy is needed for sustainable growth and prosperity so that the majority of society can respond to the following challenges that the world is now facing:

  • Transforming society into a high skill/high employment economy for a globalized environment;
  • Tackling the effects of an ageing population, while improving major public services;
  • This must be done in a way that takes into account foreseeable expenditures and environmental constraints;

It is absolutely critical that the world’s different social actors come to understand the extreme importance of these issues when it comes to promoting a real and effective process of reinventing the internet, particularly by the private citizens and various institutions who are decisive enablers of change. more>

Updates from McKinsey

CEO dialogue: Perspectives on reimagining operations for growth
The hyper-acceleration of the Fourth Industrial Revolution (4IR) has led to an unparalleled industry transformation, giving organizations a unique opportunity to reimagine operations for growth.
By Enno de Boer, Katy George, and Yves Giraud – In late March, CEOs representing leading innovative organizations from around the world joined McKinsey & Company in collaboration with the World Economic Forum for a discussion on the future of manufacturing. Hundreds of thousands of participants across dozens of industries tuned in to hear from Satya Nadella, CEO of Microsoft, Alex Gorsky, chairman and CEO of Johnson & Johnson, and 11 CEOs of companies that recently joined the Global Lighthouse Network, a community of world-leading companies using 4IR technologies to go beyond productivity improvements to create sustainable, profitable growth.

Their conversation has been edited for clarity and legibility.

“Digitization is going to touch every aspect of our business,” said Alex Gorsky, Johnson & Johnson. “I can´t imagine ten years from now that whether it’s our businesses, our manufacturing, our financial systems, our human-resource systems—it will just be so imbued into every process, every function, every connection that we make.”

Unique growth opportunities

By deploying 4IR technologies at scale, lighthouses are creating new revenue streams through new business models. These companies are more in touch with what their customers want, even as preferences change faster than ever—and they have built the capability to respond rapidly and gain market share in the void left by others that get stuck in pilot purgatory. In fact, being stuck in the pilot phase is a more common feeling in 2020. The three-year trend shows scaling Industry 4.0 tech is reversing. Industrials have had their investments pressure-tested, and as a result have realized they have not scaled as much as they thought. more>