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Mind the growing gap

January 19, 2017 11 comments

from David Ruccio

8-billionaires-in-the-worldOxfam’s headline-grabbing numbers are bad enough: “Eight men are as rich as half the world.” But the international organization has presented an even more serious and severe indictment of current economic arrangements—which can’t be glossed over by merely encouraging those at the top to pay more taxes.

In the background paper, “An Economy for the 99 Percent” (a follow-up to last year’s “An Economy for the 1%“), Oxfam researchers both document the existence of grotesque levels of economic inequality in the world today and analyze the main causes of that inequality.

Regular readers of this blog will recognize the numbers indicating the obscene levels of contemporary inequality:  Read more…

Makers vs. takers?

January 14, 2017 5 comments

from David Ruccio

Like many liberal economic nationalists, who are concerned about both inequality and economic growth, Michael Lind attempts to make a distinction between “takers” and “makers.”

As against conservative economic nationalists, who blame immigrants and the welfare-dependent poor, Lind focuses his attention on the “rent-extracting, unproductive rich” for undermining the dynamism and fairness of contemporary capitalism.

The term “rent” in this context refers to more than payments to your landlords. . . “Profits” from the sale of goods or services in a free market are different from “rents” extracted from the public by monopolists in various kinds. Unlike profits, rents tend to be based on recurrent fees rather than sales to ever-changing consumers. While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.

This is a familiar trope within economic discourse. As I’ve explained before (e.g., here and here), it relies on a distinction between productive and unproductive economic activities, which is then overlain with other dichotomies: active vs. passive, doing vs. owning, and so on. The idea is that one group—the passive, owning, recipients of rent—increasingly serve as a drag on the other group—the active, doing, recipients of profits.   Read more…

Indignity of not-work?

January 12, 2017 7 comments

from David Ruccio

notwork1

Mainstream economists and economic commentators continue to invoke the so-called “dignity of work” to criticize the idea of a universal basic income.  Read more…

Charts of the year – 28

January 6, 2017 1 comment

from David Ruccio

As regular readers of this blog know, I try to make available and critically interpret charts of data—both to challenge others’ arguments and to provide a foundation for my own.

Last year, I spent much more time using publicly available data to make my own charts, which readers are free to use for their own purposes.

Here are some of those charts (just click on each chart to go to the post in which it originally appeared).

fredgraph Read more…

The machine is broken

January 3, 2017 6 comments

from David Ruccio

fredgraph

The capitalist machine is broken—and no one seems to know how to fix it.

The machine I’m referring to is the one whereby the “capitalist” (i.e., the boards of directors of large corporations) converts the “surplus” (i.e., corporate profits) into additional “capital” (i.e., nonresidential fixed investment)—thereby preserving the pact with the devil: the capitalists are the ones who get and decide on the distribution of the surplus, and then they’re supposed to use the surplus for investment, thereby creating economic growth and well-paying jobs.

The presumption of mainstream economists and business journalists (as well as political and economic elites) is that the capitalist machine is the only possible one, and that it will work.   Read more…

Back to the future?

December 31, 2016 23 comments

from David Ruccio

When it comes to artificial intelligence and automation, the current White House seems to want to have it both ways.

On one hand, it warns about the potentially unequalizing, “winner-take-most” effects of the economic use of artificial intelligence:

Research consistently finds that the jobs that are threatened by automation are highly concentrated among lower-paid, lower-skilled, and less-educated workers. This means that automation will continue to put downward pressure on demand for this group, putting downward pressure on wages and upward pressure on inequality. In the longer-run, there may be different or larger effects. One possibility is superstar-biased technological change, where the benefits of technology accrue to an even smaller portion of society than just highly-skilled workers. The winner-take-most nature of information technology markets means that only a few may come to dominate markets. If labor productivity increases do not translate into wage increases, then the large economic gains brought about by AI could accrue to a select few. Instead of broadly shared prosperity for workers and consumers, this might push towards reduced competition and increased wealth inequality.

But then it invokes, and repeats numerous times across the report, the usual mainstream economists’ nostrums about the “strong relationship between productivity and wages”—such that “with more AI the most plausible outcome will be a combination of higher wages and more opportunities for leisure for a wide range of workers.”

Except, of course, historically that has not been the case—certainly not in the United States.   Read more…

Ain’t gonna happen

December 28, 2016 7 comments

from David Ruccio

fredgraph

During the recent presidential campaign, Donald Trump promised to revitalize American manufacturing—and bring back “good” manufacturing jobs. So did Hillary Clinton.

What neither candidate was willing to acknowledge is that, while manufacturing output was already on the rebound after the Great Recession, the jobs weren’t going to come back.

As is clear from the chart above, manufacturing output has grown (by about 21 percent) since the end of the recession and is now nearing pre-recession levels (although still down from its pre-crash level by about 5 percent). But employment in the manufacturing sector is only up a small amount (8 percent) since its post-crash low and is still lower, by about 1.5 million jobs (or 11 percent), than in December 2007.   Read more…

China syndrome

December 22, 2016 3 comments

from David Ruccio

There are two sides to the recent China Shock literature created by David Autor and David Dorn and surveyed by Noah Smith.

On one hand, Autor and Dorn (with a variety of coauthors) have challenged the free-trade nostrums of mainstream economists and economic elites—that everyone benefits from free international trade. Using China as an example, they show that increased trade hurt American workers, increased political polarization, and decreased U.S. corporate innovation.

The case for free international trade now lies in tatters, which of course played an important role in the Brexit vote as well as in the U.S. presidential campaign.

On the other hand, invoking the China Shock has tended to reinforce economic nationalism—treating China as an unitary entity, a country has shaken up world trade patterns, and disregarding the conditions and consequences of increased trade with other countries, including the United States.   Read more…

Where does all the surplus go?

December 19, 2016 2 comments

from David Ruccio

top1

Where does all the surplus in the U.S. economy go?

Well, a large chunk of it is captured by the top 1 percent, whose share of national income almost doubled between 1970 and 2014—from 11 percent to 20.2 percent.

Equally interesting is the composition of that growing share of national income, which we can decompose thanks to new data from Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.

Read more…

You want to replace the pay working-class Americans have lost?

December 17, 2016 9 comments

from David Ruccio

falling

Neil Irwin is right: “Poor and working-class Americans have fallen behind over the last generation, receiving few of the gains of an expanding economy.” So, he wants to devise a tax plan to change that.

The problem is, Irwin only looks at raising the income of the bottom 20 percent of families to where they would be if they shared equally in the gains since 1979.  Read more…

The American Dream is quickly disappearing

December 15, 2016 1 comment

from David Ruccio

mobility

 

My students are worried—many of them obsessed by the possibility—they’re not going to be better off than their parents.

As it turns out, they’re right.   Read more…

The half that will never be told. . .

December 13, 2016 6 comments

from David Ruccio

slavery-1024x544

Certainly not by mainstream economists—not if they continue to defend their turf and to attack the new literature on “Slavery’s Capitalism” with the vehemence they’ve recently displayed.

It makes me want to forget I ever obtained my Ph.D. in economics and the fact that I’ve spent much of my life working in and around the discipline.

A recent article in The Chronicle of Higher Education [ht: ja] highlights Edward E. Baptist’s novel book, The Half Has Never Been Told (which I wrote about back in 2014), and some of the outrageous ways it has been criticized by mainstream economists—first in a review in the Economist (which was so over-the-top it was subsequently retracted) and then in a group of reviews published in the Journal of Economic History (unfortunately, behind a paywall).  Read more…

Insane inequality

December 10, 2016 2 comments

from David Ruccio

50-1

Income inequality continues to grow in the United States—which represents the very definition of insanity: “doing the same thing over and over again and expecting different results.”   Read more…

Carrier capitalism (or rule and law based vs. deal based capitalism)

December 8, 2016 9 comments

from David Ruccio

President-elect Donald Trump’s decision to bribe Carrier into keeping 800 manufacturing jobs in Indiana, instead of moving them to one of its Mexican plants, has met with opposition from mainstream economists, both liberal and conservative.

Clearly, it’s not about the size of the deal (although $7 million in incentives to keep less than one thousand jobs is a big deal). Carrier corporate parent United Technologies is still planning to outsource production that will eliminate 1300 jobs in Indiana. And 900 jobs make up a minuscule portion (0.17 percent, to be exact) of the total number of manufacturing jobs in that Midwestern state.*

No, mainstream economists’ opposition rests on other grounds. Justin Wolfers, for example, uses the silly analogy of a parking garage to defend the process of “creative destruction” and the idea that a “fluid labor market. . .is the secret of American dynamism.”  Read more…

Class and Trumponomics

December 7, 2016 Leave a comment

from David Ruccio

President-elect Donald Trump has inherited an economy that is as divided as the electorate. The question is, what will that economy look like if and when Trump’s right-wing national-populist promises and post-election proposals are enacted?

As I have shown in the three installments of the first part of this series, “Class Before Trumponomics” (here, here, and here), over the course of recent decades and continuing through the crash and recovery, the class nature of the U.S. economy was transformed in dramatic fashion. Capital was able to pump more surplus out of U.S. workers and, through the combined processes of financialization, globalization, and concentration, to capture more of the surplus from workers both at home and around the world. Labor, too, was radically transformed—and weakened by many forces, including automation, declining unionization, ethnic and racial disparities, immigration, and a low minimum wage. Overall, underlying the grotesque levels of inequality that characterize the United States have been the opposing forces of an increasing capital share and a declining labor share.

That’s what the U.S. economy looks like as Trump celebrates his victory and, along with his Cabinet, economic team, and a new Republican Congress, develops a set of economic plans to “make America great again.”

What will things look like moving forward? There is, of course, a high degree of uncertainty concerning the changes we can expect from the Trump administration’s proposals. For a variety of reasons, we don’t know what those proposals will be—not only because Trump put forward different versions of his “promises” (and, in some cases, like saving the Carrier plant jobs, he didn’t even remember he’d made such a promise on the campaign trail), but also because his Cabinet members and the Republican Congress have their own ideas of what they’d like to do. Plus, unexpected developments in the United States and around the world will surely require changes to whatever proposals are formulated or implemented.   Read more…

Über rich got richer

December 5, 2016 Leave a comment

from David Ruccio

top400

The total income reported on the top 400 individual tax returns rose 20 percent in 2014, according to Internal Revenue Service (pdf) data released last Thursday.   Read more…

Class before Trumponomics, part 3 (8 graphics)

December 3, 2016 Leave a comment

from David Ruccio

In the second installment of this series on “class before Trumponomics,” I argued that, in recent decades, while American workers have created enormous wealth, most of the increase in that wealth has been captured by their employers and a tiny group at the top—as workers have been forced to compete with one another for new kinds of jobs, with fewer protections, at lower wages, and with less security than they once expected. And the period of recovery from the Second Great Depression has done nothing to change that fundamental dynamic.

In this post, I want to focus on a more detailed analysis of the other side of the class relationship—capital.

fire

It should come as no surprise that one of the major changes in U.S. capital over the past few decades is the growing importance of financial activities. Since 1980, FIRE (finance, insurance, and real estate) has almost doubled, expanding from roughly 12 percent of the gross output of private industries to over 20 percent.   Read more…

Pay to model

December 1, 2016 1 comment

from David Ruccio

Back in 2010, Charles Ferguson, the director of Inside Job, exposed the failure of prominent mainstream economists who wrote about and spoke on matters of economic policy to disclose their conflicts of interest in the lead-up to the crash of 2007-08. Reuters followed up by publishing a special report on the lack of a clear standard of disclosure for economists and other academics who testified before the Senate Banking Committee and the House Financial Services Committee between late 2008 and early 2010, as lawmakers debated the biggest overhaul of financial regulation since the 1930s.

Well, economists are still at it, leveraging their academic prestige with secret reports justifying corporate concentration.

That’s according to a new report from ProPublica:   Read more…

Class before Trumponomics, part 2 (10 graphics)

November 29, 2016 4 comments

from David Ruccio

In the first installment of this series on “class before Trumponomics,” I argued that the recovery from the crash of 2007-08 created conditions that were favorable to capital at the expense of labor—and that trend represented a continuation of the class dynamic that had characterized the U.S. economy for decades, going back at least to the early 1980s.

There are, of course, many details that were left out of that story, and I want to present a more fine-grained class analysis of the U.S. economy prior to Donald Trump’s election in this post.

Let me start with labor. In the first post, my analysis actually understated the capital share and overstated the labor share. That’s because a large share of the surplus was actually included in wages, and thus attributed to labor, when in fact it properly belongs in the share captured by capital. The idea is that high-level executives and others (e.g., CEOs and those working in finance), while much of their income is reported as “wages,” are actually receiving a cut of the surplus from their employers. Therefore, their wages are actually part of the capital share, while the incomes of the rest of workers form the basis of the labor share properly understood.

This is clear in the chart below (modified, from a paper by Michael W. L. Elsby, Bart Hobijin, and Aysegül Sahin [pdf]), where the labor share is split up by income fractiles. Based on a rough class analysis of the U.S. labor force, the labor share actually includes the first two components (making up the bottom 95 percent of the labor force), while the other fractiles (those making up the top 5 percent) represent a distribution of the surplus from capital. As is evident from a quick glance at the chart, the share of total wages going to the working-class has been declining since the early 1970s, while the share representing distributions of the surplus has grown.  Read more…

Class before Trumponomics, part 1

November 24, 2016 9 comments

from David Ruccio

Right now, after Donald’s Trump surprising victory and in the midst of the messy transition, everyone is curious about how the U.S. economy will change if and when the president-elect’s economic policies are enacted.*

But first things first. We need to have a clear understanding of what the U.S. economy looks like now, during the uneven recovery from the Second Great Depression. In particular, it’s important to analyze the class dimensions of that recovery, even before the new administration takes action.inequality

Read more…