Author Archive

Sharing in the booty

October 18, 2016 8 comments

from David Ruccio


We’ve just learned that the corporate payouts—dividends and stock buybacks—of large U.S. firms are expected to hit another record this year. At the same time, John Fernald writes for the Federal Reserve Bank of San Francisco that the “new normal” for U.S. GDP growth has dropped to between 1½ and 1¾ percent, noticeably slower than the typical postwar pace.

What’s the connection?

Read more…

Taking on global poverty and inequality

October 13, 2016 3 comments

from David Ruccio

To read National Public Radio’s [ht: ja] article on the latest World Bank report on Poverty and Shared Prosperity: Taking on Inequality, you’d think the problem of global poverty was well on the way to being solved.

Is that just wishful thinking?

In terms of the headline numbers, the author of the article is correct:

In 2013, fewer than 800 million people lived on less than $1.90 a day. That’s less than 11 percent of the global population. As recently as 1990, about 35 percent of all people lived in such extreme poverty.

That means about 1.1 billion people rose out of extreme poverty.

But, before we get too excited, there are 3 key issues to keep in mind.

First, the World Bank itself follows the presentation of the numbers with a note of caution:

Although this represented a noticeable decline, the poverty rate remains unacceptably high given the low standard of living implied by the $1.90-a-day threshold.

That’s right. The threshold is a miserly $1.90 a day, an update taking into account inflation of the previous limit of $1 a day. If they used anything more reasonable—say, an absolute level of $5 a day or, even better, a relative level of 50 percent of mean income—the level of global poverty would be much higher.*


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“Children of the Great Recession”

October 10, 2016 4 comments

from David Ruccio

In a recently leaked audio file (from a private fundraiser in February), Hillary Clinton referred to them as “children of the Great Recession. . .living in their parents’ basement,” who “feel they got their education and the jobs that are available to them are not at all what they envisioned for themselves. And they don’t see much of a future.”*

Well, as it turns out, the children of the Great Recession, especially those who completed college in recent years, were right: the jobs that have been available to them have not been at all what they envisioned for themselves.


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Crash and learn?

October 7, 2016 13 comments

from David Ruccio

The case for changing the way we teach economics is—or should be—obvious.

It certainly is apparent to the students of Manchester University’s  Post-Crash Economics Society and to the other 44 student groups, members of Rethinking Economics, pressing for pedagogical changes on campuses from Canada to Italy and from Brazil to Uganda.

But as anyone who teaches or studies economics these days knows full well, the mainstream that has long dominated economics (especially at research universities, in the United States and elsewhere) is not even beginning to let go of their almost-total control over the curriculum of undergraduate and graduate programs.

That’s clear from a recent article in the Financial Times, in which David Pilling asks the question, “should we change the way we teach economics?”

Me, I’ve heard the excuses not to change economics for decades now. But it still jars to see them in print, especially after the spectacular failure of mainstream economics before, during, and after the worst economic crisis since the first Great Depression.

Here’s one—the idea that heterodox economics is like creationism, in disputing the “immutable laws” captured by mainstream theory:  Read more…

Lengthening shadows

from David Ruccio


While Wells Fargo (whose CEO blamed employees for his bank’s failings) has put traditional banks in the news lately, the resurgence of the so-called shadow banking sector has largely gone unnoticed.

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Harvard’s incorrectly political ignorant gay-bashing bloviating right-wing infotainment war-crimes-apologist historian finally gets one right

September 29, 2016 7 comments

from David Ruccio



Niall Ferguson, Harvard’s incorrectly political ignorant gay-bashing bloviating right-wing infotainment war-crimes-apologist historian, finally gets something right.

In explaining the “fight isn’t going as planned” for Hillary Clinton, Ferguson writes:  Read more…

What about the white working-class?

September 27, 2016 1 comment

from David Ruccio

We can thank Donald Trump for one thing: he’s put the white working-class on the political map.*

In recent months, we’ve seen a veritable flood of articles, polls, and surveys about the characteristics, conditions, and concerns of white working-class voters—all with the premise that the white working-class is fundamentally different from the rest of non-working-class, non-white Americans.

But why are the members of the white working-class attracting so much attention? My sense is, they both represent a threat—because many plan to vote for Trump and, more generally, reject much elite opinion (including, but not limited, to Trump)—and, at the same time, are assumed to be a dying breed—as the U.S. working-class becomes more female, more racially and ethnically diverse, and increasingly employed in non-manufacturing jobs. So, the argument goes, the white working-class, supposedly radically different from the rest of Americans, is motivated by fear and resentment occasioned by a loss of identity and standing.**

Hence the curiosity—best exemplified by a new CNN/Kaiser Family Foundation [ht: ja] poll, about what white working-class Americans think. The results of the poll are interesting, if only because on many issues (aside from support for or opposition to Trump and immigration) the white working-class holds views that are not all that different from other whites, blacks, and Hispanics.  Read more…

Liberal trickledown economics

September 26, 2016 16 comments

from David Ruccio

Has the policy consensus on economics fundamentally changed in recent years?

To read Mike Konczal it has. I can’t say I’m convinced. While some of the details may have changed, I still think we’re talking about different—liberal and conservative—versions of the same old trickledown economics.

But first Konczal’s argument. He begins with a pretty good summary of the policy consensus before the crash of 2007-08:

Before the crash, complacent Democrats, whatever their disagreements with their Republican peers, tended to agree with them that the economy was largely self-correcting. The Federal Reserve possessed the tools to nudge the economy to full employment, they thought. What’s more, government programs, while sometimes a necessary evil, were likely to be an inefficient drag compared with the private market. Inequality was something to worry about, sure, but hardly a crisis, and policies were correspondingly timid and market-focused.

And it’s true: the debate about the conditions and consequences of the crash—after Occupy Wall Street, in the midst of the Second Great Depression—challenged that consensus, by focusing much more attention on inequality and disrupting the idea that the growing gap between rich and poor is somehow natural and necessary and by calling into question the idea that capitalist markets are self-stabilizing and full employment can be guaranteed by relying on markets.  Read more…

Hold the champagne

September 23, 2016 1 comment

from David Ruccio


Last week, to judge by the commentary on the latest Census Bureau report, Income and Poverty in the United States: 2015 (pdf), you’d think the fountain of broadly shared economic prosperity had just been discovered.

Binyamin Appelbaum is a good example:   Read more…

Phlogiston, the identification problem, and the state of macroeconomics

September 22, 2016 5 comments

from David Ruccio

The other day, I argued (as I have many times over the years) that contemporary mainstream macroeconomics is in a sorry state.

Mainstream macroeconomists didn’t predict the crash. They didn’t even include the possibility of such a crash within their theory or models. And they certainly didn’t know what to do once the crash occurred.

I’m certainly not the only one who is critical of the basic theory and models of contemporary mainstream macroeconomics. And, at least recently (and, one might say, finally), many of the other critics are themselves mainstream economists—such as MIT emeritus professor and former IMF chief economist Olivier Blanchard (pdf), who has noted that the models that are central to mainstream economic research—so-called dynamic stochastic general equilibrium models—are “seriously flawed.”

Now, one of the most mainstream of the mainstream, Paul Romer (pdf), soon to be chief economist at the World Bank, has taken aim at mainstream macroeconomics.* You can get a taste of the severity of his criticisms from the abstract:  Read more…

Mind the gaps: compensation and productivity (3 graphs)

September 21, 2016 Leave a comment

from David Ruccio


According to the norms of both neoclassical economic theory and capitalism itself, workers’ wages should increase at roughly the same rate as their productivity.* Clearly, in recent years they have not.  Read more…

Rising tides and marginal productivity theory

September 19, 2016 4 comments

from David Ruccio

A constant refrain among mainstream economists and pundits since the crash of 2007-08 has been that, while the state of mainstream macroeconomics is poor, all is well within microeconomics.

The problems within macroeconomics are, of course, well known: Mainstream macroeconomists didn’t predict the crash. They didn’t even include the possibility of such a crash within their theory or models. And they certainly didn’t know what to do once the crash occurred.

What about microeconomics, the area of mainstream economics that was supposedly untouched by all the failures in the other half of the official discipline? Well, as it turns out, there are major problems there, too—especially given the obscene levels of inequality that both preceded and have resumed since the crash erupted, not to mention the slow economic growth that rising inequality was supposed to solve.

In particular, as I have written many times over the years, the idea that a rising tide lifts all boats—along with its theoretical justification, marginal productivity theory—needs to be questioned and ultimately abandoned.

But you don’t have to take my word for it. Just read the latest essay by Nobel Prize-winning economist Joseph Stiglitz.

Stiglitz first explains that neoclassical economists developed marginal productivity theory as a direct response to Marxist claims that the returns to capital are based on the exploitation of workers.  Read more…

Inheritance taxes, equity, and the gift

September 16, 2016 Leave a comment

from David Ruccio

You’d think a Harvard economics professor would be able to do better than invoke horizontal equity as the sole argument for reducing the U.S. inheritance tax.

But not Gregory Mankiw, who uses the silly parable of the Frugals and the Profligates to make his case for a low tax rate on the estates of the wealthiest 0.2 percent of Americans who actually owe any estate tax.*

I’ll leave it to readers to judge whether or not it’s worth spending the time to compose a column on a tax that affects such a tiny percentage of rich—very rich—American households. And then to argue not for raising the tax, but for lowering it.

Me, I want to raise a few, more general issues about how mainstream economists like Mankiw think about inheritance taxes.

First, Mankiw presents one principle—horizontal equity, the “equal treatment of equals”—and never even mentions the other major tax principle—vertical equity, the “unequal treatment of unequals,” the idea that people with higher incomes should pay more taxes. Certainly, on the vertical criterion, those who receive large inheritances (for doing nothing more than being born into and raised within the right family) should pay taxes at a much higher rate than those who do not.  Read more…

“Who will own the robots?”

September 14, 2016 27 comments

from David Ruccio

I’ve been writing for some years now about the emergence of new technologies, especially automation and robotics, and their potential contribution to raising already-high levels of inequality even further.

The problem is not, as I have tried to make clear, technology per se but the way it is designed and utilized within existing economic institutions. In other words, the central question is: who will own the robots?

If capital owns the robots, even if their development and use increases labor productivity, the returns mostly go to capital and the workers (those who are left, in addition to those who have been displaced) are the ones who lose out.

But you don’t have to believe me. That’s the conclusion of a recent piece published in Finance & Development, the research journal of the International Monetary Fund.

The authors, Andrew Berg, Edward F. Buffie, and Luis-Felipe Zanna, designed an economic model in which they assume robots are a particular sort of physical capital, one that is a close substitute for human workers.* They also consider three versions of the model: one in which robots are almost perfect substitutes for human labor; another in which robots and human labor are close but not perfect substitutes (i.e., “people bring a spark of creativity or a critical human touch” that cannot, at least for the foreseeable future, be replaced by robots); and a third in which they distinguish between “skilled” and “unskilled” workers. Read more…

Protest of the century

September 13, 2016 3 comments

David Ruccio

During the past couple of weeks, the only real India economic news in the Western press was the decision by “the Ranbir Kapoor of banking,” Raghuram G. Rajan, to step down from his position as the head of the Reserve Bank of India.

But we read almost nothing about the 2 September nationwide strike by 150 million Indian workers [ht: Magpie], which was certainly the largest strike in India’s long labor history—and may have been the largest general strike in world history.

As Vijay Prashad explained,  Read more…

What shared prosperity?!

September 10, 2016 8 comments

from David Ruccio


In a recent New York Times article, Quoctring Bui reveals some fascinating details about the geography of inequality in the United States—including the fact that  Read more…

Capitalism vs. democracy

September 8, 2016 31 comments

from David Ruccio

I have been arguing for some time on this blog that contemporary capitalism faces a profound legitimation crisis. It has failed to deliver on its promises, and therefore is being calling into question.

As it turns out, Martin Wolf, the chief economics commentator at the Financial Times, has also sounded a warning about the ongoing legitimacy crisis. But for him it’s a bit different. The problem, as he sees it, is the tension between democracy and capitalism.

A natural connection exists between liberal democracy — the combination of universal suffrage with entrenched civil and personal rights — and capitalism, the right to buy and sell goods, services, capital and one’s own labour freely. They share the belief that people should make their own choices as individuals and as citizens. Democracy and capitalism share the assumption that people are entitled to exercise agency. Humans must be viewed as agents, not just as objects of other people’s power.

Yet it is also easy to identify tensions between democracy and capitalism. Democracy is egalitarian. Capitalism is inegalitarian, at least in terms of outcomes. If the economy flounders, the majority might choose authoritarianism, as in the 1930s. If economic outcomes become too unequal, the rich might turn democracy into plutocracy.

Historically, the rise of capitalism and the pressure for an ever-broader suffrage went together. This is why the richest countries are liberal democracies with, more or less, capitalist economies. Widely shared increases in real incomes played a vital part in legitimising capitalism and stabilising democracy. Today, however, capitalism is finding it far more difficult to generate such improvements in prosperity. On the contrary, the evidence is of growing inequality and slowing productivity growth. This poisonous brew makes democracy intolerant and capitalism illegitimate.

Read more…

Inequality in the US and mainstream macroeconomics

September 7, 2016 1 comment

from David Ruccio

I have argued many times over the years that mainstream economists, especially mainstream macroeconomists, largely ignore the issue of inequality. And when they do see it, they tend to misunderstand both its causes (often attributing it to exogenous events, such as globalization and technical change) and its consequences (often failing to connect it, other than through “political capture,” to events like the crash of 2007-08).

In my view, mainstream economists overlook or forget about the role inequality plays, especially in macroeconomic events, for two major reasons. First, their theoretical and empirical models—either based on a representative agent or undifferentiated macroeconomic relationships (such as consumption and investment)—can be solved without ever conceptualizing or measuring inequality. The models they use create a theoretical blindspot. But, second, even when it’s clear they could include inequality as a significant factor, they don’t. They literally choose not to see inequality as a relevant issue in making sense of macroeconomic fluctuations. So, as I see it, when it comes to inequality, mainstream economics (especially, as I say, mainstream macroeconomics) is haunted by both a theoretical and an ethical problem.


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Beyond the carried interest tax loophole

September 4, 2016 Leave a comment

from David Ruccio

capital gains

Everyone (from President Obama to venture capitalist Alan Patricof) agrees the carried tax loophole—which allows investment fund managers to treat much of their income as capital gains (taxed at a top rate of 23.8 percent) rather than as income (for which the top rate is 39.6 percent)—should be closed.

But, as Michael Hiltzik reminds us, it’s a tax break the super rich are willing to give up in order to keep the loophole they really value: the capital gains tax break. Read more…

“Bougie playground”—now, then, and in the future

September 1, 2016 2 comments

from David Ruccio
wealth shares

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