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Desperately seeking a link between wages and productivity

November 17, 2017 4 comments

from David Ruccio

productivity

Everyone, it seems, now agrees that there’s a fundamental problem concerning wages and productivity in the United States: since the 1970s, productivity growth has far outpaced the growth in workers’ wages.*

Even Larry Summers—who, along with his coauthor Anna Stansbury, presented an analysis of the relationship between pay and productivity last Thursday at a conference on the “Policy Implications of Sustained Low Productivity Growth” sponsored by the Peterson Institute for International Economics.

Thus, Summers and Stansbury (pdf) concur with the emerging consensus,   Read more…

Where has all the surplus gone?

November 15, 2017 3 comments

from David Ruccio

profits abroad

Thanks to the release of the so-called Paradise Papers, and the additional research conducted by Gabriel Zucman, Thomas Tørsløv, and Ludvig Wier, we know that a large share of the surplus captured by corporations is artificially shifted to tax havens all over the world. This, of course, is on top of the conspicuous tax evasion practiced by the individual holders of a large portion of the world’s wealth.   Read more…

Conspicuous tax evasion

November 12, 2017 4 comments

from David Ruccio

The release of the so-called Paradise Papers confirms, with additional names and more salacious details, what we already knew from the Panama Papers and other sources: the world’s wealthy increasingly use offshore tax havens to engage in conspicuous tax evasion.

That’s on top of their participation in conspicuous consumptionconspicuous philanthropy, and conspicuous productivity.

According to Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, in a study published before the release of the Paradise Papers, the equivalent of 10 percent of world GDP is held in tax havens globally—and that’s only counting bank deposits, not the portfolios of equities, bonds, and mutual fund shares that wealthy individuals entrust to offshore banks.

And, as it turns out, offshore wealth is extremely concentrated: the top 0.1 percent of richest households own about 80 percent of it, while the top 0.01 percent own about 50 percent of offshore wealth.

So, how does it work? There is a great deal of evidence that the vast majority of offshore wealth, both legal and illegal, is not reported on tax returns. That’s because offshore wealth is done “by combining trusts, foundations, and holding companies, so as to disconnect assets from their beneficial owners.” Thus, tax authorities won’t be able to observe or collect taxes on either the wealth or investment income earned or reported offshore, except in rare circumstances (e.g., a taxable and properly declared inter-generational transfer of assets).   Read more…

Waiting for Godot

November 9, 2017 7 comments

from David Ruccio

The official unemployment rate continues to fall in the United States. And everyone, at least among top policymakers and the business press, has been promising that workers’ wages will finally break out.

As it turns out, the unemployment rate (the red line in the chart above) in September was 4.1 percent, far below the high of 10 percent in October of 2009 and a new low for the so-called recovery from the Second Great Depression. However, hourly wages (for production and nonsupervisory workers, the blue line) rose only 2.5 percent on an annual basis, even less than the 2.7 percent workers were gaining at the height of the depression.

The only possible conclusion is that, in the United States, expecting workers’ wages to finally begin to catch up is like Vladimir and Estragon waiting below a leafless tree for the arrival of someone named Godot.

Global rentier capitalism

November 7, 2017 8 comments

from David Ruccio

Mainstream economics lies in tatters. Certainly, the crash of 2007-08 and the Second Great Depression called into question mainstream macroeconomics, which has failed to provide a convincing explanation of either the causes or consequences of the most severe crisis of capitalism since the Great Depression of the 1930s.

But mainstream microeconomics, too, increasingly appears to be a fantasy—especially when it comes to issues of corporate power.

perfect_competition_long_run

Neoclassical microeconomics is based on a set of models that assume perfect competition. Read more…

Haunted by surplus

November 4, 2017 8 comments

from David Ruccio

income  wealth

Inequality in the United States is now so obscene that it’s impossible, even for mainstream economists, to avoid the issue of surplus.   Read more…

The gilded age: a tale of today*

November 2, 2017 5 comments

from David Ruccio

billionaires

The timing could not have been better, at least for me. It just so happens I’m teaching Thorsten Veblen’s Theory of the Leisure Class this week. It should become quickly obvious to students that, as I have argued before on this blog, we’re now in the midst of a Second Gilded Age.   Read more…

Reconcile this!

October 31, 2017 Leave a comment

from David Ruccio

SAfr

The world joined most South Africans in cheering when Nelson Mandela was finally released from prison, the apartheid regime was largely dismantled, and multiracial elections were eventually held.

Read more…

Growing old unequally

October 28, 2017 2 comments

from David Ruccio

fig1-18

Social Security may have decreased the rate of poverty among retirees in the United States.* But it certainly hasn’t solved the problem of inequality.

As is clear from the chart above, from a recent report from the Organisation for Economic Co-operation and Development, old-age inequality among current retirees in the United States is higher than in all other OECD countries, except Chile and Mexico.

But wait, it’s probably going to get worse. That’s because, within each generation of workers, inequality has been rising. For example, researchers tracked U.S. income inequality for four different generations—people born in 1920, 1940, 1960, and 1980. For each group, inequality has been more extreme than the previous generation.

Read more…

Balance this!

October 27, 2017 4 comments

from David Ruccio

MFG

Both Donald Trump and Eduardo Porter would have us believe the U.S. trade deficit is a serious problem—and that, if it can brought back into balance, jobs for American workers will be restored.

Nonsense!   Read more…

Laughter is the best medicine

October 23, 2017 5 comments

from David Ruccio

Sometimes we just have to sit back and laugh. Or, we would, if the consequences were not so serious.

I’ve been reading and watching the presentations (and ensuing discussions) at the Rethinking Macroeconomic Policy conference recently organized by the Peterson Institute for International Economics.

Quite a spectacle it appears to have been, with an opening paper by famous mainstream macroeconomists Olivier Blanchard and Larry Summers and a closing session—a “fireside chat” without the fire—with the very same doyens of the field.

The basic question of the conference was: does contemporary macroeconomics, in the wake of the Second Great Depression, require a few reforms or does it need a wholesale revolution? Blanchard lined up in the reform camp, with Summers calling for a revolution—with the added spice of Adam Posen referring to himself as Trotsky to Summers’s Lenin.

Most people would think it’s about time. They know that mainstream macroeconomics failed spectacularly in recent years: It wasn’t able to predict the onset of the crash of 2007-08. It didn’t even include the possibility of such a crash occurring. And it certainly hasn’t been a reliable guide to getting out of the crisis, the worst since the Great Depression of the 1930s.   Read more…

Pie in the sky

October 21, 2017 2 comments

from David Ruccio

Kevin Hassett and the other members of the president’s Council of Economic Advisers are just like the long-haired preachers Joe Hill sang about more than a century ago. They come out every night to tell us what’s wrong and what’s right. But when asked about something to eat, they answer in voices so sweet:

You will eat, bye and bye
In that glorious land above the sky
Work and pray, live on hay
You’ll get pie in the sky when you die.
That’s a lie

With one notable exception: according to the Council (pdf), that “glorious land above the sky” lies just on the other side of the Trump administration’s proposed tax reform. And workers, whose real wages have stagnated for decades now, won’t have to die to receive their pie in the sky.

Reducing the statutory federal corporate tax rate from 35 to 20 percent would. . .increase average household income in the United States by, very conservatively, $4,000 annually. The increases recur each year, and the estimated total value of corporate tax reform for the average U.S. household is therefore substantially higher than $4,000. Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger.

There’s no other way to put it. That’s a lie.   Read more…

Pie in the sky

October 19, 2017 4 comments

from David Ruccio

Kevin Hassett and the other members of the president’s Council of Economic Advisers are just like the long-haired preachers Joe Hill sang about more than a century ago. They come out every night to tell us what’s wrong and what’s right. But when asked about something to eat, they answer in voices so sweet:

You will eat, bye and bye
In that glorious land above the sky
Work and pray, live on hay
You’ll get pie in the sky when you die.
That’s a lie

With one notable exception: according to the Council (pdf), that “glorious land above the sky” lies just on the other side of the Trump administration’s proposed tax reform. And workers, whose real wages have stagnated for decades now, won’t have to die to receive their pie in the sky.

Reducing the statutory federal corporate tax rate from 35 to 20 percent would. . .increase average household income in the United States by, very conservatively, $4,000 annually. The increases recur each year, and the estimated total value of corporate tax reform for the average U.S. household is therefore substantially higher than $4,000. Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger.

There’s no other way to put it. That’s a lie.   Read more…

Tackle this!

October 16, 2017 11 comments

from David Ruccio

Inequality

The latest IMF Fiscal Monitor, “Tackling Inequality,” is out and it represents a direct challenge to the United States.

Read more…

Nobel economics: the behaviorism of economic decisions and its secret

October 12, 2017 13 comments

from David Ruccio

Lots of folks have been asking me about the significance of the so-called Nobel Prize in economics that was awarded yesterday to Richard Thaler.

They’re interested because they’ve read or heard about the large catalog of exceptions to the usual neoclassical rule of rational decision-making that has been compiled by Thaler and other behavioral economists.

One of my favorites is the “ultimatum game,” in which a player proposes an allocation of an endowment (say $5) and the second player can accept or reject the proposal. If the proposal is accepted, both players get paid according to the proposal; if the proposal is rejected, both players get nothing. What Thaler and his coauthors found is that most of the second players would reject proposals that would give them less than 25 percent of the endowment—even though, rationally, they’d be better off with even one penny in the initial offer. In other words, many individuals are willing to pay a cost (i.e., get nothing) in order to punish individuals who make an “unfair” proposal to them. Such a notion of fairness is anathema to the kind of self-interested, rational decision-making that is central to neoclassical economic theory.  Read more…

Inequality and immiseration (4 graphs)

October 9, 2017 3 comments

from David Ruccio

It’s clear that, for decades now, American workers have been falling further and further behind. And there’s simply no justification for this sorry state of affairs—nothing that can rationalize or excuse the growing gap between the majority of people who work for a living and the tiny group at the top.

But that doesn’t stop mainstream economists from trying.

fredgraph

Look, they say, American workers are clearly better off than they were before. Both real weekly earnings (the blue line in the chart) and the median household income (the red line) are higher than they were thirty years ago.   Read more…

Promises, promises (3 graphs)

October 6, 2017 5 comments

from David Ruccio

They keep promising, ever since the recovery from the Great Recession started more than eight years ago, that workers’ wages will finally begin to increase. But they’re not.

Sure, profits continue to rise. And so is the stock market. But not wages. And mainstream economists can’t come up with an adequate explanation of why that’s the case.

U3-wages

We’ve all heard or read the story. According to mainstream economists, as the unemployment rate falls (the blue line in the chart above), a labor shortage will be created and workers’ wages (the red line) will begin to rise.   Read more…

Mo’ better inequality blues

October 4, 2017 2 comments

from David Ruccio

Income shares

The latest Federal Reserve Board’s triennial Survey of Consumer Finances (pdf) is out and the news is not good—at least for the majority of Americans. They’re falling further and further behind those at the top.

Sure, on the surface, the results for the latest period of recovery from the Second Great Depression appear to be positive. Between 2013 and 2016, real gross domestic product in the United States grew at an annual rate of 2.2 percent, the civilian unemployment rate fell from 7.5 percent to 5 percent, and the annual rate of inflation averaged only 0.8 percent.   Read more…

From highway to master

September 28, 2017 5 comments

from David Ruccio

Adam Smith’s Wealth of Nations makes for uncomfortable reading these days. That’s because, as my students this semester have learned, the father of modern mainstream economics—who has become so closely (and mistakenly) identified with the invisible hand—held a narrow theory of money and advocated extensive regulation of the banking sector.

This is contrast to the obscene growth of banking in recent decades, which Rana Foroohar reminds “isn’t serving us, we’re serving it.”

According to Smith, the “judicious operations of banking” did nothing more than convert dead stock into active and productive stock—”into stock which produces something to the country.”

The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby to increase very considerably the annual produce of its land and labour.

Moreover, Smith also argued, banks were susceptible to speculative crises. Thus, even in his system of “natural liberty,” the banking sector needed to be regulated, in order to lessen the likelihood of such crises and to minimize the suffering of the poor when they did happen.  Read more…

Golden Age for American workers?!

September 27, 2017 Leave a comment

from David Ruccio

wage share-growth

We’ve been hearing this since the recovery from the Second Great Depression began: it’s going to be a Golden Age for workers!   Read more…