Stressed out banks

On this show we focus on vulnerabilities in the banking sector. Kevin Rodgers, author of Why Aren’t They Shouting?, tells us why the technological advances that were once a boon for finance are now a source of instability. And our finance correspondent discusses the latest round of stress tests on Europe’s banks and why they ignore potential perils. Andrew Palmer hosts.

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What is the best way to redistribute income?

ECONOMISTS have two contradictory impulses when analysing policy. The first is to ignore its effects on the distribution of income or wealth, and argue that policymakers should shoot for efficiency and worry about redistribution later. This instinct often surfaces in discussion of policies like carbon taxes. These increase efficiency by raising the price of pollution, a harmful activity that, without intervention, comes too cheap for the polluter. But carbon taxes tend to hit poorer people, who spend a higher fraction of their income on fuel, the hardest. We should introduce the tax anyway, economists say, and re-distribute by other means.  

This first impulse is loosely based on the “fundamental welfare theorems”, which say that whatever the initial distribution of wealth, trade will lead to an efficient outcome. The best way to redistribute is not to interfere with trade, but to divvy up “endowments”—peoples’ initial wealth. On this view, inequality can be dealt with in isolation, after figuring out how best to lubricate markets.

The second, opposing impulse, which is on display in many DC think-tanks, is to…Continue reading

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British economy policy is not helping those at the bottom

WHAT should the new chancellor, Philip Hammond, do? Some sort of fiscal boost seems likely in light of Britain’s slowing economy. Much of the talk has been about infrastructure: Stephen Crabb, who challenged Thereas May for the prime-ministership, proposed a £100 billion to fund it. A focus on infrastructure is welcome; but the government also needs to do more for those at the bottom. This would make sense both economically and politically.

Current government policy is extremely regressive. The plan is to save £12 billion in working-age welfare between now and 2020. The Institute for Fiscal Studies has forecast that over that period tax-and-benefit changes will hit those at the bottom much harder than those at the top (see chart). Someone in the second-poorest income decile is expected to see their income fall by about 12% as a result of welfare changes, whereas those towards the top will see little if any change. It is surprising quite how few people realise Britain’s direction of travel in this regard. 

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