What inequality?!

from David Ruccio

Economic inequality in the United States and around the world is now so obscene, and has convinced more and more people to do something about it, that the business press has initiated a campaign to deny its very existence.

They and the folks they represent are losing the battle of public opinion. And they’ve decided to do something about it.

First up was the Economist, the “newspaper” of record for liberal capitalism [ht: sk], claiming that new research undermines the pillars of the seemingly universal belief that “inequality has risen in the rich world.” Yes, as I have documented from the very beginning on this blog (e.g., here, here, and here), there are plenty of mainstream economists who have attempted to prove that inequality isn’t really a problem—either because it doesn’t really exist or, if it does, it’s not something we can or should do much about. And so the Economist managed to find pieces of research that call into question some of the key pillars of the inequality argument—that the gap between the top 1 percent and everyone else is growing, the middle-class is shrinking, capital is gaining at the expense of labor, and wealth inequality is soaring.

Beyond GDP

from David Ruccio

The idea that GDP numbers don’t tell us a great deal about what is really going on in the world is becoming increasingly widespread.

David Leonhardt, in reflecting the emerging view, has argued that GDP doesn’t “track the well-being of most Americans.”

Now, we’d expect that someone like socialist Democratic candidate Bernie Sanders would question the extent to which the low unemployment numbers, associated with economic growth, hardly tells the whole story about the condition of the American working-class.

Unemployment is low but wages are terribly low in this country. And many people are struggling to get the health care they need to take care of their basic needs.

But even centrist candidates Joe Biden and Pete Buttigieg are making the case that the headline numbers, such as Gross Domestic Product and stock indices, hide the fact “that a very different reality exists for many Americans who have not seen much improvement in their own bottom lines.”

Inhuman development

from David Ruccio

There is a specter haunting capitalist development around the globe.

In fact, the latest Human Development Report begins by naming that menacing apparition:

The wave of demonstrations sweeping across countries is a clear sign that, for all our progress, something in our globalized society is not working.

Different triggers are bringing people onto the streets: the cost of a train ticket, the price of petrol, political demands for independence.

A connecting thread, though, is deep and rising frustration with inequalities.

If anything, that’s an understatement. It’s not just “something” that is wrong; contemporary capitalism as a whole is not working, except for a tiny—but quite powerful—group at the top. The rest of us are being subjected to what can only be called inhuman forms of development.

Let’s remember how the United Nations, following the work of Amartya Sen, defines human development:

people’s capabilities—their freedoms to make life choices—are fundamental. Capabilities are at the heart of human development. . .

Capabilities evolve with circumstances as well as with values and with people’s changing demands and aspirations. Today, having a set of basic capabilities—those associated with the absence of extreme deprivations—is not enough. Enhanced capabilities are becoming crucial for people to own the “narrative of their lives.”

For the past 20 years, capabilities have been defined in terms of what a person can be (“beings”) or do (“doings”). The objective of human development is then to expand the set of capabilities of each individual.

Taxing the surplus—not

from David Ruccio

There aren’t many ways ordinary Americans have a say in what happens to the surplus that determines their fate.

Most of the surplus in the United States is appropriated by the boards of directors of large corporations. But most employees are excluded from the decisions in their workplaces about what’s done with that surplus. Their local communities, where the corporations operate, don’t have much of a say either.

That leaves federal taxes. Corporate income taxes are pretty much the only way the nation—and therefore its citizen-workers—can lay claim to a share of the surplus, which it can then use to finance government programs.

Given the tremendous growth in corporate profits in recent decades—including in recent years, during the recovery from the Second Great Depression—taxes on corporate profits should have been sufficient to expand existing government programs, create new ones, and even close the deficit.

But that hasn’t happened. Not at all. As is clear from the chart above, while corporate profits (both before and after taxes) have soared, the tax receipts on corporate income have actually declined.

Dying too young

from David Ruccio

If there ever was an argument in support of Medicare for All it’s this: despite spending more on health care than any other country, the United States has seen increasing mortality and falling life expectancy for people ages 25 to 64, who should be in the prime of their lives.

A new report published in the Journal of the American Medical Association paints a bleak picture: overall life expectancy in the United States, which had increased for most of the past 60 years, has actually fallen for three consecutive years. But this is not just a recent trend. U.S. life expectancy began to lose pace with other countries in the 1980s, and, by 1998, had declined to a level below the average life expectancy among Organisation for Economic Cooperation and Development countries. While life expectancy in these countries has continued to increase, American life expectancy stopped increasing in 2010 and has been actually decreasing since 2014.*

The recent decrease in U.S. life expectancy was largely related to increases in all-cause mortality among young and middle-aged adults, as against other groups (infants, children, and the elderly) for whom mortality rates have declined. For individuals aged 25 to 64 years all-cause mortality rates were in decline in 2000, reached a nadir in 2010, and increased thereafter.

Wages of debt

from David Ruccio

Well that didn’t go so well. . .

Still, Elon Musk’s new Cybertruck would appear to be the perfect design for America’s contemporary dystopia. Its bullet-proof stainless steel alloy panels and transparent metal glass are tailor-made to keep its elite occupants safely guarded from attack. And even though the windows obviously need considerable improvement before production begins, and “despite ‘no advertising & no paid endorsement’,” Tesla has already received almost 150 thousand orders for the truck.

Clearly, there’s a lot of surplus available—in cash and loans—to the small group at the top of the U.S. wealth pyramid to purchase such vehicles.

“That makes me smart”

from David Ruccio

Emmanuel Saez and Gabriel Zucman begin their new book, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, with the moment in 2016 during the first presidential election debate between Donald Trump and Hillary Clinton when the former Secretary of State challenged the reality-show celebrity about how little he had paid in federal income taxes over the years. Trump proudly admitted it: “That makes me smart.” And Clinton, for all her carefully crafted technocratic proposals to fix the tax code, failed to effectively respond to Trump.

Jump ahead three years, and the issue of wealth inequality in America has risen to the top of the political agenda. Clinton lost the election, Trump is probably not worth what he has claimed, but the nation’s wealth is even more unequally distributed today—much worse even than the obscene inequalities in the distribution of income.

United States of inequality

from David Ruccio

Obscene levels of economics inequality in the United States are now so obvious they’ve become one of the main topics of public and political discourse (alongside and intertwined with two others, the climate crisis and the impeachment of Donald Trump).*

Most Americans, it seems, are aware of and increasingly incensed by the grotesque and still-growing gap between a tiny group at the top—wealthy individuals and large corporations—and everyone else. And this sense of unfairness and injustice is reflected in both the media and political campaigns. For example, Capital & Main, an award-winning nonprofit publication that reports from California, has launched a twelve-month long series on economic inequality in America, “United States of Inequality: 2020 and the Great Divide,” leading up to next year’s presidential election. And two of the leading presidential candidates in the Democratic Party, Bernie Sanders and Elizabeth Warren, have responded by making economic inequality one of the signature issues of their primary campaigns, regularly describing the devastating consequences of the enormous gap between the haves and have-nots and proposing policies (such as a wealth tax) to begin to close the gap and mitigate at least some of its effects.**

“It doesn’t feel like a boom yet”

from David Ruccio

Across American universities, corporations, and financial institutions, researchers are honing computer models designed to predict the winner in the November 2020 presidential election in which Donald Trump will face a Democratic candidate still to be determined.

Impoverishing economics

from David Ruccio

I cringe when I listen to or watch these interviews. But here it is, with the Real News Network.

The interview was based on my recent blog post, “Economics of poverty, or the poverty of economics.”

I also want to recommend a recent piece by Ingrid Harvold Kvangraven [ht: ms], who argues that

Economics of poverty, or the poverty of economics

from David Ruccio

Yesterday, the winners of the 2019 winners of the so-called Nobel Prize in Economics were announced. Abhijit Banerjee, Esther Duflo, and Michael Kremer were recognized for improving “our ability to fight global poverty” and for transforming development economics into “a flourishing field of research” through their experiment-based approach.

The Royal Swedish Academy of Sciences declared:

This year’s Laureates have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty. In brief, it involves dividing this issue into smaller, more manageable, questions–for example, the most effective interventions for improving educational outcomes or child health. They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected.

As every year, mainstream economists lined up to laud the choice. Dani Rodrik declared it “a richly deserved recognition.” Richard Thaler, who won the award in 2017 (here’s a link to my analysis), extended his congratulations to the Banerjee, Duflo, and Kremer and to the committee “for making a prize that seemed inevitable happen sooner rather than later.” While Paul Krugman, the 2008 Nobel laureate, refers to it as “a very heartening prize—evidence-based economics with a real social purpose.”

“Maybe we should change the system”

from David Ruccio

On behalf of millions of young people striking on behalf of climate justice, 15-year-old Greta Thunberg excoriated world leaders for “moving forward with the same bad ideas that got us into this mess.”

American dreams

from David Ruccio

The American Dream is dead. Long live the American Dream!

Let me explain. The official American Dream, the one that has been produced and disseminated at least as far back as the transition from the farm to the factory (in other words, since the late-nineteenth century), lies in tatters. Americans have long been encouraged to believe that everyone gets what they deserve—and, with equal opportunity, those who start at the bottom have a real chance of working their way to the top. Within generations, all workers had a chance to “make it.” And, between generations, children would likely be better off than their parents.

That promise—let’s call it the capitalist American dream—is now in tatters. It is dead and (almost) buried.

It’s not the first time, of course, that the capitalist American Dream has been called into question. During the Great Depression of the 1930s, American capitalism was not able to deliver the goods, at least for the majority of the population. Widespread unemployment and poverty, as capitalists shuttered their factories were shuttered and banks foreclosed on farms, meant that most Americans were faced with an economic nightmare. And much the same happened after the crash of 2007-08 when, in the midst of the Second Great Depression, millions of Americans were unable to find a decent job or purchase (unless they went further into debt) the necessary goods and services, for themselves and their children.

“Our economic fundamentals are strong.”

from David Ruccio

Talk is cheap

from David Ruccio

The same day I wrote that capitalism was coming apart at the seams, indicated by the shocking disparity between the compensation of corporate CEOs and workers, the Business Roundtable published its new statement of purpose of a corporation.* The 180 or so corporate executives who signed the statement declared that all their stakeholders, not just owners of equity shares, were important to their mission.

Many business pundits, such as Andrew Ross Sorkin, greeted the new statement as a sign that the era of shareholder democracy (what he refers to as “shareholder primacy”) had finally come to an end and that a “significant shift” in corporate responsibility to society would be ushered in. Readers, however, had their doubts, most of them echoing JDK’s response to Sorkin’s piece: “Talk is cheap.”

Coming apart

from David Ruccio

American capitalism is coming apart at the seams.

Truth be told, it’s been coming apart for decades now—and that trend has only continued during the recovery from the worst crash since the 1930s.

Time is running out

from David Ruccio

Richard Reeves is right about one thing: time is crucial to capitalism’s legitimacy. The premise and promise of capitalism are that the future will be better than the present. And “if capitalism loses its lease on the future, it is in trouble.”

The fact is, things are not getting better for the vast majority of American workers. They’re falling behind. For example, as is clear in the chart above, the labor share in the U.S. nonfarm business sector has fallen more than 13 percent since early 2001—and there’s no indication that trend will be reversed anytime in the foreseeable future.

Time is clearly running out on capitalism.

It’s not as though Americans are unaware of this and other related trends, such as the looming climate crisis.*

Econ 101

from David Ruccio

It’s time to get back to blog writing—after a 6-month hiatus during which I taught my final two courses at the University of Notre Dame (A Tale of Two Depressions and Marxian Economic Theory) and prepared for my retirement (which involved, among other things, sorting through, packing up, and moving decades of “stuff”). Now, after 38 years of teaching, I am officially Professor of Economics Emeritus. But, rest assured, I plan to continue this blog and other writing projects. 

For the first time in almost four decades (aside from a few research sabbaticals), I don’t face the prospect of returning to campus and teaching economics. But, I can’t help it, I still worry about what millions of students in the United States and around the world will learn—or at least be subjected to—when they enroll in their economics classes this fall.

One of the major issues for any economics class, especially an introductory or principles course, is how to make it useful for students.

Promises, promises

from David Ruccio

They keep promising, ever since the recovery from the Great Recession started more than eight years ago, that the share of national income going to American workers will finally begin to increase. But it’s not. 

Wages, surplus, and inequality

from David Ruccio

Mainstream economists continue to insist that workers benefit from economic growth, because wages rise with productivity.

Here’s the argument as explained by Donald J. Boudreaux and Liya Palagashvili: