The political-economy of conflicts over wealth: why don’t the rabble expropriate the rich?

The most striking feature of liberal democracies is the coexistence of large inequalities of wealth with a roughly egalitarian distribution of voting power. So far most attempts to explain this have asked ‘why don’t the poor form a coalition to expropriate the rich?’ This paper argues that this is not necessarily the best way to interpret the problem and attempts to provide an alternative unified political-economic model that is more consistent with standard assumptions about voting. This is done by studying what would happen if every possible coalition could form in a wealth distribution game. Among the main findings is that, if the marginal contribution of every individual to production is increasing sufficiently, there is a stable distribution of the product. This may include the egalitarian distribution. If individuals are not so valuable there is no stable distribution.     

Charismatic violence and the sanctification of the super-rich

Abstract

Drawing historical comparisons between the nineteenth century and the present, this paper describes and analyses how an elite section of the global rich, through mega-giving and a re-emerging notion of ‘noblesse oblige’ that is enshrined in the philanthrocapitalism movement, have fostered a sacred rationale for their extreme wealth. Not only do the new nobles hold the power of wealth but, through mega-giving, they generate a moral imagery akin to religious figures who ostensibly self-sacrifice for the good of everyone else. This generates a form of charismatic authority that affords the super-rich an influential space from which to spread a ‘theodicy of privilege’ – shielding growing wealth concentration from criticism and sanctifying the claim that individual mega-wealth is collectively beneficial. Through its contribution to and facilitation of the inegalitarian status quo, this theodicy engenders various forms of structural violence. Here we explore the mechanisms that enable wealthy donors to position themselves as apparent benefactors of humanity, including a reliance on metrics that appear to justify the claim that targeted philanthropic expenditures can and are reducing global wealth and health inequalities, but which raise unanswered questions surrounding the actual effects of the outcomes claimed.     

Spreading the Wealth

The new American president promoted the value of “spreading the wealth around” as an election theme, providing low-income families with tax breaks, rebates, and credits. The practice of using federal income taxes to re-distribute wealth, which sometimes reflects the noblest of goals, frequently generates significant unintended harm. Prominent among those unplanned casualties is a reduction in charitable giving: American voluntary wealth transfers (e.g., charitable contributions) are in danger of being crowded out by mandatory transfers (e.g., federal taxes) used to redistribute wealth. This paper considers the social and economic costs of raising taxes that crowd out charity.     

The Rich are Different: The Effect of Wealth on Partisanship

Rich voters tend to be Republicans and poor voters tend to be Democrats. Yet, in most settings it is difficult to distinguish the effects of affluence on partisanship from those of closely related variables such as education. To address these concerns I use state lottery and administrative records to examine the effect of changing economic circumstances on the partisanship of over 1,900 registered voters. Winning larger amounts in the lottery produces a small increase in the probability an individual is later a registered Republican, an effect that is larger for those who registered to vote after winning. This suggests that wealth does affect partisanship, particularly for those without preexisting attachments to a political party. Comparing estimates from the lottery to cross-sectional data suggests the latter exaggerates the relationship between wealth and partisanship, although controlling for additional variables produces largely similar estimates.     

Wealth Taxes: Stories, Metaphors and Public Attitudes

Wealth taxes are currently high on the policy agenda in Britain. These taxes will not be political sustainable without public support. However, evidence exists that indicates substantial public opposition to wealth taxes. For example, inheritance tax appears to provoke hostility among the public. Some observers have suggested that the way that wealth taxes are presented - particularly using stories and narratives - could enhance public support. This paper summarises focus group evidence on this suggestion. I report that using narratives and stories can have an impact, although this should not be overstated and much depends on how the narratives are shaped.     

Does inequality cause inflation?: The political economy of inflation,taxation and government debt

Public Choice - A democratic society in which the distribution of wealth is unequal elects political parties that are likely to represent the interests of poor people. It is in the interests of the...     

Global inequality as one of the root causes of the financial crisis: a suggested explanation

Abstract

The global financial crisis was caused because the volume of toxic assets in the financial system had grown to the point where the system could no longer cope. The dominant view among heterodox economists is that this point of critical mass was reached because of various failures in the financial system. This paper puts the accompanying view that the toxic assets were created largely in response to external pressures, a principle source of which was global inequality: while income inequality was an important factor behind the supply of those assets, wealth concentration was a major factor behind the demand for them. The policy implications of this analysis are that income distribution and wealth ownership have to be more equitably structured if global financial crises are to be avoided in the future. This is not to exclude other proposals for making the financial system more transparent and accountable. The point, rather, is that these proposals are insufficient on their own. No matter how radical the re-structuring of the financial system, as long as there remain external pressures on it to create products or to indulge in practices that are harmful to it, such products and practices will continue to be introduced and financial crises will continue to occur.     

Property rights vs. redistribution: Which path to national wealth?

Recent empirical and theoretical research suggests that egalitarian income distribution may spur economic growth. Another different strand of research suggests that property rights are important. These two results are not at odds. A model of switching between a career of rent-seeking and wealth producing shows that for redistribution to boost national income, property rights need to be secure. A more equal distribution of earned income can induce rent-seekers to switch to wealth making, but only if they can be assured that their earned income will be protected from other rent-seekers. The model suggests new directions for empirical testing.     

Stuck in Subprime? Examining the Barriers to Refinancing Mortgage Debt

Despite falling interest rates and federal policy intervention, many borrowers who could financially gain from refinancing have not done so. We investigate the rates at which, relative to prime borrowers, subprime borrowers seek and take out refinance loans, conditional on not experiencing mortgage default. We find that starting in 2009, subprime borrowers are about half as likely as prime borrowers to refinance, although they still shop for mortgage credit, indicating their interest in refinancing. This disparity is driven in part by the tightened credit environment postfinancial crisis, and the fact that many subprime borrowers were ineligible for the Home Affordable Refinance Program (HARP). In addition, we find that refinance rates have been significantly lower for black and Hispanic borrowers, even after controlling for borrower credit status. We argue that these barriers to refinancing for subprime borrowers have long-term implications for social stratification and wealth building.     

Limited government: An incoherent concept

Advocates of limited government argue that the role of government should be limited to preventing the use of coercion in exchanges and stopping people from harming others. They believe that government should not seek to change the distribution of wealth from that arising through voluntary exchange nor to influence the preferences people hold. But this view proves to be self-contradictory or incoherent. In order to define coercion and permissible harm, governments must make enormous numbers of determinations about how people are entitled to behave. These determinations, in addition to demanding extensive government activity, will also have important effects on the distribution of wealth and the preferences people hold.     

Endowments: Stable Largesse or Distortion of the Polity?

As ever more private resources are held in foundations and nonprofit organizations' endowment funds, more scholars and practitioners are demanding that these assets be put to good use immediately. Those favoring the preservation of capital—primarily representing private foundations—sound unnecessarily cautious. This article examines endowment conservation from a variety of critical angles, finding strong rationales for both conserving and liquidating endowments. Policy responses to the buildup of endowment assets include requiring a faster payout or regulating the amount and type of administrative expenses included in annual payout. This article reviews the relationship of the business cycle and wealth distribution to annual giving. The most prudent course, in view of the cyclical nature of giving as well as the substantial generational wealth currently held by elders, appears to be to conserve significant assets now in order to establish a stable flow of future social benefits.     

Foreclosing on the American dream? The financial consequences of low-income homeownership

Federal programs have consistently encouraged ever-lower-income households to buy homes, despite concerns about the long-term sustainability and desirability of homeownership from the perspective of wealth-building, especially since the recent housing market collapse and the epidemic of mortgage foreclosures. We ask in this paper: can very low-income households build wealth through sustainable homeownership, with the aid of an innovative public program? We answer this question by examining 122 very low-income households who purchased their homes between 1996 and 2007 after completing an extensive asset-building and homeownership education/counseling program offered by the Housing Authority of the City and County of Denver (DHA), called HOP. We analyze our own longitudinal surveys and focus groups, as well as data compiled from administrative agency sources, real estate records, and longitudinal census data from the Neighborhood Change Database and the Piton Foundation's Neighborhood Facts Database. We find that homeownership attained through HOP typically did provide very low-income households with opportunities to build home equity (both absolutely and relative to generic homeowner cohorts in Denver) and net wealth, although this was contingent on time of purchase and ethnicity. Our multivariate analyses revealed that changes in annualized home equity appreciation were associated with the ethnic composition of the neighborhood and age of property. Annualized wealth accumulation was associated with annualized home equity appreciation, being married throughout the tenure of homeownership, and year of home purchase. HOP homebuyers received exceptionally favorable initial mortgage terms and conditions, often enhanced with down-payment assistance from their own DHA escrow account or from local housing and neighborhood development organizations, resulting in a dramatically low rate of default and foreclosure to date. Moreover, HOP homebuyers were not immune to financial stresses, and the continuing lack of wealth for many makes them vulnerable to future interruptions in primary wage earner's employment or health. We discuss the implications for low-income homeownership policy and argue that the goal of expanding homeownership opportunities should not be abandoned.     

Dimensions of the economic vote: Valence,positional and patrimony voting in Portugal's 2011 elections

This article contrasts three dimensions of economic voting, namely valence, positional and patrimony voting. Whereas the first two dimensions have been frequently explored, the patrimony variable has scarcely been tested as an explanatory variable of voting behaviour. It measures the electors' assets (both risky and non-risky), and seeks to capture the elector's wealth at election time. Using the 2011 post-election survey carried out in Portugal following the June elections, the data show that comparing of the three dimensions, valence is the most important. It was found that patrimony variables, although not significant in a comprehensive vote model, are important explanatory factors of party identification, itself a key variable of vote choice in Portugal.     

Assessing the economic status of the aged and nonaged using alternative income-wealth measures

This exploratory article examines several aspects of the complex problem of combining data on income and wealth into a single measure of economic well-being. Examples of income-wealth measures that have been used are described. Estimates of the economic well-being of age groups in the current period are presented for several measures. To examine the sensitivity of the results to the choice of method, those estimates are compared. In this article, wealth is defined to include only financial assets. Data from the 1984 Survey of Income and Program Participation are used. The economic status of the aged relative to the nonaged improves when the measure of resources is changed from income to a combined income-wealth measure. The amount of improvement depends on the income-wealth measure used. When medians are examined, the differences among most of the measures compared are not very large. For every measure compared, the median rises as age increases, then falls. When the percentage of each age group that is in the bottom of the distribution is examined for several income-wealth measures, the differences among measures are small. In general, these percentages are relatively high for the young and old age groups, and relatively low for the middle age groups.     

Rationing Consumption of Private Goods that Produce Collective Bads

This article looks at collective decisions over the limits to consumption of a private good that produces a collective bad and studies the way in which these decisions are affected by changes in the distribution of wealth. It shows that a democratic voting program reduces the maximum permissible consumption of the good, whereas a benevolent planner, and a voting program dominated by the rich, will increase this level. It also shows that, under all programs, production of the bad is driven down by increases in inequality.     

“Grabbing Hand” or “Helping Hand”?: Corruption and the Economic Role of the State

This article seeks to disentangle which features of government intervention are linked to corruption and which are not, by distinguishing between the government roles of regulator, entrepreneur, and consumer. It finds that the degree of regulation of private business activity is the strongest predictor of corruption, and that high levels of public spending are related to low levels of corruption. There is no evidence of direct government involvement in production having any bearing on corruption. It is concluded that advanced welfare capitalist systems, which leave business relatively free from interference while intervening strongly in the distribution of wealth and the provision of key services, combine the most “virtuous” features of “big” and “small” government. This suggests that anti‐corruption campaigners should be relaxed about state intervention in the economy in general, but should specifically target corruption‐inducing regulatory systems.     

Can repressive regimes be moderated through foreign aid?

In what circumstances should foreign aid be given to less developed countries with repressive rulers? Repressive rulers are assumed to control the national income and to trade it against the probability of staying in office which is assumed in turn to depend positively on popular wealth and repression. A foreign donor aware of this process of optimization will pursue his international objectives by attaching conditions to his aid that alter the relative price of repression and popular wealth in the calculations of the tyrant. The effectiveness of direct and in-kind aid and the desirability of a “carrot an stick” aid policy depend on the direct and the interactive effects that popular wealth, repression, and the parameters of economic growth exert on the regime's stability and its level of income.     

The design of rent-seeking competitions

In the standard Tullock model of rent-seeking as a noncooperative game, aggregate expenditures by seekers can equal, exceed, or fall short of total rents depending on what is assumed about the number of seekers and the marginal return to a seeker's investment. If the supply of an input into the rent-seeking process is controlled by a politician who receives payment from seekers for it, the indeterminacy of the process becomes a less serious problem. He supplies it and designs the rent-seeking game to maximize his wealth. The author derives expressions for the number of seekers and the marginal return parameter which maximize the politician's wealth in one-input and two-input rent-seeking processes.     

Who controls the wealth? Electoral system design and ethnic war in resource-rich countries

Both natural resource wealth and electoral system design are frequently investigated factors in the civil wars literature. So far, however, there is no well-known study which explicitly considers the interaction effect between these two factors on the risk of violent ethnic conflict. We argue that resource-rich countries with a proportional electoral system for the legislature are less prone to ethnic civil war than resource-rich countries with a majoritarian or mixed electoral system, as proportional electoral systems tend to increase the effective number of parliamentary parties and thus the number of groups who can share state control over resource wealth. We find empirical support for this argument using binary time-series-cross-section analysis covering 83 to 140 countries between 1984 and 2007.     

Oil Wealth and Regime Survival in the Developing World, 1960–1999

This article examines contrasting claims made by scholars of oil and politics that oil wealth either tends (1) to undermine regime durability or (2) to enhance it. Using cross-sectional time-series data from 107 developing states between 1960 and 1999, I test the effects of oil wealth on regime failure, political protests, and civil war. I find that oil wealth is robustly associated with increased regime durability, even when controlling for repression, and with lower likelihoods of civil war and antistate protest. I also find that neither the boom nor bust periods exerted any significant effect on regime durability in the states most dependent on exports, even while those states saw more protests during the bust. In short, oil wealth has generally increased the durability of regimes, and repression does not account for this effect. Future research focused on the origins of robust coalitions in oil-rich states is most likely to provide fruitful explanations to this puzzle .