Property Rights, the Income Distribution and China

In my post, The UK and Europe: The Way Forward, I say that

"A persistent free fall in the financial markets will, if allowed to occur, cause a major recession. [ ... ] My recommendation is based on empirical research that shows a stable persistent connection between the value of financial assets and the unemployment rate."

Commenting on this blog, Blissex Walex replies,

"This seems to me the best and clearest yet expression of the neoliberal trickle-down policies aimed at redistribution from workers to asset owners.
It even goes further than B DeLong "suggestion" that Keynes would have added a fourth, one known to us today as the “Greenspan put" – using monetary policy to validate the asset prices reached at the height of the bubble"

There are two issues here that should not be confounded. 

First: Can central banks and national treasuries intervene in either asset markets or goods markets, or both, in a way that improves upon unregulated private markets? By 'improves upon' I mean: is there a feasible policy that can make everyone better off; both workers and capital owners? Keynes thought so. So do I, for the reasons I explain in my forthcoming book, Prosperity for All.

Second: why has the distribution of income, in the United States and Europe, tilted towards capital and away from labor over the past few decades? There is growing evidence that this redistribution is connected with the opening of trade with China. Globalization has lifted a billion Chinese workers out of poverty and it has led to huge income gains for Americans and Europeans at the top of the income and wealth distributions. These gains have not been shared with middle class and working class people in the US and Europe. This second issue is hugely important, but it is distinct from the question of asset price stabilization. Nobody will gain from a global depression. 

My own view is that solving the first issue at a national level will lead to a reformation of world capital markets and a redesign of global financial institutions. It is also possible to conceive of alternative forms of democracy that would provide greater rights to workers. Workers councils, for example, have proved to be relatively successful in Germany. 

The concept of private property is contingent on rights that are defined and enforced by national governments. Those rights are constantly evolving. When the US founding fathers signed the Declaration of Independence, it was still possible to buy and sell human beings. The idea that a national government would enforce the property rights of a slave owner is, to today's sensibilities, abhorrent. It is entirely possible that a system of property rights that allows a factory owner to close down a large manufacturing plant without consulting the workers whose livelihoods depend on its continued operation, will, in another two hundred years, appear to be equally abhorrent.

You can read more about these ideas in my new book, Prosperity for All.