Income Inequality & Black Markets

Income Inequality & Black MarketsBenjamin Graham Lecture 25: IPE and War Benjamin Graham

Todays PlanHousekeepingReading Quiz

Todays topics:Income InequalityBlack Markets Lecture 25: IPE and War Benjamin Graham

HousekeepingPapers are due now.

Next spring you should take either IR 309: Introduction to Global Governance or IR 313: Religion and Violence with Professor Saha Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Reading QuizWhat type of tax was the tax reading talking about?A. Income TaxB. Sales TaxC. Value-Added TaxD. Wealth TaxE. Land Tax Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?U.S. Inequality Over Time Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Top 1% share over time (in U.S.) Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Thomas Piketty Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Notes on PikettyWealth inequality vs. income inequalityEarned vs. inherited incomeWealth Taxes, Land Taxes, and Estate Taxes

Financial Times plays copComes away looking a little petty and foolish

R>G is probably less important than savings rates of the rich and poor Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Deadweight Loss Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Global Inequality Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Global Inequality Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Is Income Inequality Self-Correcting in Democracies?Income inequality may be self-correcting in a democracy. Can we work through how that would work?

Hints:A. Each person gets one voteB. The government sets the level of redistribution i.e. the level of taxes and the level of government spending on welfare, unemployment etc. Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Five Reasons for Failure to Self Correct in the U.S.Bonica et al. 2014, JEP article1. Ideological shift toward a particular form of free market capitalism2. Immigration and low voter turnout among the poor3. Rising real incomes means a higher share of the public dont need social safety net programs.4. Campaign contributions, lobbying etc. give the rich a disproportionate voice in the political process.5. Institutions limit the accountability of politicians to voters and induce gridlock Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Five Reasons for Failure to Self Correct in the U.S.Bonica et al. 2014, JEP article1. Ideological shift toward a particular form of free market capitalism2. Immigration and low voter turnout among the poor3. Rising real incomes means a higher share of the public dont need social safety net programs.4. Campaign contributions, lobbying etc. give the rich a disproportionate voice in the political process.5. Institutions limit the accountability of politicians to voters and induce gridlock Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Five Reasons for Failure to Self Correct in the U.S.Bonica et al. 2014, JEP article1. Ideological shift toward a particular form of free market capitalism2. Immigration and low voter turnout among the poor3. Rising real incomes means a higher share of the public dont need social safety net programs.4. Campaign contributions, lobbying etc. give the rich a disproportionate voice in the political process.5. Institutions limit the accountability of politicians to voters and induce gridlock Lecture 25: IPE and War Benjamin Graham

Why start with supply and demand?Hundred Dollar Bills Lecture 25: IPE and War Benjamin Graham

What percentage of U.S. currency (in value) is in $100 bills?A. 20% or lessB. 40%C. 60%D. 80% Why start with supply and demand?Hundred Dollar Bills Lecture 25: IPE and War Benjamin Graham

80% of U.S. currency is in $100 billsUnder mattresses (savings)Used in the informal economy

Seignorage is worth about $20 billion a year to the U.S.Used to be more - credit cards are displacing cashWhy start with supply and demand?The Black Market Lecture 25: IPE and War Benjamin Graham

Upsides of operating in the black marketA. No taxesB. No regulation (e.g. drugs, guns, prostitution, stolen goods)C. AnonymityDownsides of operating in the black marketA. No protection from the copsB. No access to banksThis is a tough combinationWhy start with supply and demand?When do Black Markets Emerge? Lecture 25: IPE and War Benjamin Graham

Any time taxes, tariffs, or regulations are highCash-only businesses, under-the-table employmentAvoid taxes, avoid labor lawsSmuggling avoids tariffs and quotasBans on goods/services people want to sell and consume dont stop trade in those goods/servicesWhy start with supply and demand?Why is there still black market marijuana in Colorado? Lecture 25: IPE and War Benjamin Graham

A. Because taxes are highB. Because people dont know its legalC. Because businesses are heavily regulatedD. A & BE. All of the aboveWhy start with supply and demand?Why do people hire nannies under the table? Lecture 25: IPE and War Benjamin Graham

A. Because taxes are highB. Because employment paperwork is onerous C. Because some nannies are undocumentedD. A & BE. All of the aboveWhy start with supply and demand?U.S. Drug Interdiction Lecture 25: IPE and War Benjamin Graham

Why do we spray poppies in Afghanistan and Colombia?A. To reduce demand for opiates in the U.S.B. To reduce the supply of opiates in the global marketC. To increase the price of opiates in the global marketD. To decrease the price of opiates in the global marketE. B & CWhy start with supply and demand?U.S. Drug Interdiction Lecture 25: IPE and War Benjamin Graham

Who benefits from the U.S. spraying poppy fields in Afghanistan and Colombia?A. Opium producers in Burma and ThailandB. Opium users in the U.S.C. Opium users in Afghanistan and ColombiaD. Opium traffickers and distributorsWhy start with supply and demand?