Book this!

from David Ruccio

The premise and promise of the Republican tax cuts—officially, the Tax Cuts and Jobs Act—are that lower corporate taxes would lead to increased investment and thus more jobs and higher wages for American workers.

We all knew at the time that the logic was a sham. As I explained last August, one of the likely outcomes of the kind of corporate tax cuts Donald Trump and his fellow Republicans supported—and, as we saw, eventually rammed through—would be an increase in inequality. That’s because, since corporations aren’t facing any kind constraint in profits or their ability to borrow beyond their current profits, we likely wouldn’t see more investment, but instead some combination of more mergers and acquisitions, more payouts to shareholders, and more distributions of the surplus to CEOS.

More recently, I explained that inequality would also increase because corporations would likely use a portion of their higher profits to engage in stock buybacks, leading to an increase in stock prices. And stock ownership in the United States is already grotesquely unequal. Therefore, the rise in equity prices would disproportionately benefit the small group at the top of the wealth pyramid. And that’s exactly what is happening.

Utopia and work

from David Ruccio

The goal of mainstream economists is to get everybody to work. As a result, they celebrate capitalism for creating full employment—and worry that capitalism will falter if not enough people are working.

The utopian premise and promise of mainstream economic theory are that capitalism generates an efficient allocation of resources, including labor. Thus, underlying all mainstream economic models is a labor market characterized by full employment.

Thus, for example, in a typical mainstream macroeconomic model, an equilibrium wage rate in the the labor market (W_f, in the lower left quadrant) is characterized by full employment (the supply of and demand for labor are equal, at L_f), which in turn generates a level of full-employment output (Y_f, via the production function, in the lower right quadrant) and a corresponding level of prices (P₀, in the upper quadrants). If the money wage is flexible it is possible to ignore the top left quadrant, because, in that case, the equilibrium real wage, employment and output are W_f, L_f and Y_f, respectively, whatever the price level. With flexible money wages, the aggregate supply curve is independent of the price level and is represented by Y_FY_F.

Class struggle according to liberals

from David Ruccio

Liberals like to talk about all kinds of social ills and identity-laden tensions—but not class struggle. That’s their persistent and enduring blindspot.

Except, it seems, when it comes to Donald Trump. 

Utopia and technology

from David Ruccio

Forget Bitcoin. It’s the underlying technology, blockchain, that is generating the most excitement. Even utopia!

Bitcoin is a digital currency that was invented in 2009 by a person (or group) who called himself Satoshi Nakamoto. His stated goal was to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community, and subsequently vanished.

Unequal wealth of nations

from David Ruccio

The premise and promise of capitalism, going back to Adam Smith, have been that global wealth would increase and serve as a benefit to all of humanity.* But the experience of recent decades has challenged those claims: while global wealth has indeed grown, most of the increase has been captured by a small group at the top. The result is that an obscenely unequal distribution of the world’s wealth has become even more unequal—and, if business as usual continues, it will turn out to be even more grotesquely unequal in the decades ahead. 

Marx ratio

from David Ruccio

First there was the Great Gatsby curve. Then there was the Proust index. Now, thanks to Neil Irwin, we have the Marx ratio.

Each, in their different way, attempts to capture the ravages of contemporary capitalism. But the Marx ratio is a bit different. It was published in the New York Times. Its aim is to capture one of the underlying determinants of the obscene levels of inequality in the United States today—not class mobility or the number of years of national income growth lost to the global financial crash. And, of course, it takes its name from that ruthless nineteenth-century critic of mainstream economics and capitalism itself.

Now, to be clear, there are lots of ratios than can be found in Marx’s critique of political economy—for example, the rate of exploitation, the intensity of labor, the technical productivity of labor, the exchange-value per unit use-value, and the value rate of profit (as illustrated above in a fragment from one of my class handouts)—and the ratio Irwin presents is not one of them.

But that doesn’t make Irwin’s ratio wrong, or uninteresting. On the contrary. 

Poverty of anti-poverty (3 graphics)

from David Ruccio

The majority of government expenditures in the United States go towards social insurance and means-tested transfers.* And the good news is, they work.

According to recent report by Bruce D. Meyer and Derek Wu, Social Security cuts the poverty rate by a third—more than twice the combined effect of the five means-tested transfers. Among those transfers, the Earned-Income Tax Credit and food stamps (officially, the Supplemental Food Assistance Program) are most effective. All programs except for the tax credit sharply reduce deep poverty (below 50 percent of the poverty line), while the impact of the tax credit is more pronounced at 150 percent of the poverty line. For the elderly, Social Security single-handedly slashes poverty by 75 percent, more than 20 times the combined effect of the means-tested transfers.** Supplemental Security Income, Public Assistance, and housing assistance have the highest share of benefits going to the pre-transfer poor, while the tax credit has the lowest.***

And the bad news? 

Utopia and markets

from David Ruccio

Maarten Vanden Eynde, The Invisible Hand (2015)*

We hear it all the time. On a regular basis. Having to do with pretty much everything.

Why is the price of gasoline so high? Mainstream economists respond, “it’s the market.” Or if you think you deserve a pay raise, the answer again is, “go get another offer and we’ll see if you’re worth it according to ‘the market’.”

Capitalism doesn’t provide decent-paying jobs

from David Ruccio

The usual suspects have attacked Bernie Sanders’s proposal for the federal government to guarantee a job paying $15 an hour and health-care benefits to every American worker “who wants or needs one.” 

Utopia and economic development

from David Ruccio

From the very beginning, the area of mainstream economics devoted to Third World development has been imbued with a utopian impulse. The basic idea has been that traditional societies need to be transformed in order to pass through the various stages of growth and, if successful, they will eventually climb the ladder of progress and achieve modern economic and social development.

Perhaps the most famous theory of the stages of growth was elaborated by Walt Whitman Rostow in 1960, as an answer to the following questions: 

Their beautiful recovery

from David Ruccio

Does anyone really need any additional evidence of the lopsided nature of the current recovery? 

Inequality and fairness

from David Ruccio

While Amazon let it slip last week that its Prime program—the annual membership that offers discount pricing and free 2-day shipping—now tops 100 million members, there’s another number people might be curious about: the company’s average annual wage, which Amazon revealed in compliance with a new regulation that asks companies to show a comparison between an average worker’s wage and the salary of their CEO.

Utopia and macroeconomics

from David Ruccio

From the beginning, mainstream macroeconomics has been a battleground between the visible and the invisible hand.

Keynesian macroeconomics, represented on the left-hand side of the chart above, has an aggregate supply curve with a long horizontal section at levels of output (Y or real GDP) below full employment (Yfe). What this means is that the aggregate demand determines the actual level of output, which can be and often is at less than full employment (e.g., when AD falls from AD1 to AD2, output to Y1, and prices to P2), with no necessary tendency to return to full employment and price stability. Therefore, according to Keynesian economists, the visible hand of government needs to step in and, through a combination of fiscal and monetary policy, move the economy toward full employment (at Yfe) and stable prices (at P1).

World employers report

from David Ruccio

The history of capitalism is actually a combination of two histories: it’s a history of employers attempting to hire workers and develop new technologies to make profits and expand the reach of capitalism; it’s also a history of workers banding together to improve wages and working conditions and imagine ways of moving beyond capitalism.

The World Bank’s World Development Report, currently in draft form, comes down firmly on the side of employers and their historical role.

The theme of the 2019 report is the “changing nature of work.” As envisioned by the reports authors,

Work is constantly being reshaped by economic progress. Society evolves as technology advances, new ways of production are adopted, markets integrate. While this process is continuous, certain technological changes have the potential for greater impact, and provoke more attention than others. The changes reshaping work today are fundamental and long-term, driven by technological progress, globalization, shifting demographics, urbanization and climate change.

Beneath the typically lofty but vague rhetoric, the two trends that haunt the report are the increasing gap between the top 1 percent and everyone else and the jobs that will be eliminated with the use of automation and other labor-saving technologies—leading to “rising concerns with unemployment, inequality and unfairness that are accompanying these changes.” 

Debt and taxes

from David Ruccio

As federal deficits and debt grow, they end up receiving,
not paying for, a larger and larger share of federal expenditures.

Tax cuts and spending increases enacted by Republicans over the past four months will lead to wider than previously expected budget deficits, according to the Congressional Budget Office. The federal budget deficit would total $804 billion this year, 43 percent higher than it had projected last summer, and exceed $1 trillion a year starting in 2020.

Larger deficits will, of course, add to the national debt: debt held by the public will hit $28.7 trillion at the end of fiscal 2028, or 96.2 percent of gross domestic product, up from 78 percent of GDP in 2018.

Those estimates assume current law will remain in effect, meaning Congress would allow some tax cuts to expire and spending caps to take effect again in the coming years. If Congress extends the tax cuts, as many Republicans want to do, the CBO predicted higher deficits and publicly held debt of about 105 percent of GDP by the end of 2028—a level exceeded only once in U.S. history, in the immediate aftermath of World War II.

So, what do these escalating deficit and debt numbers mean?

Clearly, in the first instance, the Republican deficit hawks have gone the way of moderate Republicans and all other extinct species of politicians and other mammals. They existed for decades, always in an attempt to cut entitlement programs and other public expenditures for poor and working-class Americans. But once it was possible to pass massive tax cuts for corporations and wealthy individuals and boost military spending, the deficit hawks on the Republican side of the aisle simply disappeared into the walls of Congress.* 

Ten years after the crash (8 charts)

from David Ruccio     

“. . . ten years on, U.S. capitalism has created the conditions for
renewed instability and another, dramatic crash.”

The economic crises that came to a head in 2008 and the massive response—by the U.S. government and corporations themselves—reshaped the world we live in.* Although sectors of the U.S. economy are still in one of their longest expansions, most people recognize that the recovery has been profoundly uneven and the economic gains have not been fairly distributed.

The question is, what has changed—and, equally significant, what hasn’t—during the past decade?

Let’s start with U.S. stock markets, which over the course of less than 18 months, from October 2007 to March 2009, dropped by more than half. And since then? As is clear from the chart above, stocks (as measured by the Dow Jones Composite Average) have rebounded spectacularly, quadrupling in value (until the most recent sell-off). One of the reasons behind the extraordinary bull market has been monetary policy, which through normal means and extraordinary measures has transferred debt and put a great deal of inexpensive money in the hands of banks, corporations, and wealth investors. 

“Capitalism was built on the exploitation and suffering of black slaves and continues to thrive on the exploitation of the poor”

from David Ruccio

50 years ago, Martin Luther King Jr. was assassinated, just days after joining a march of thousands of African-American protestors down Beale Street, one of the major commercial thoroughfares in Memphis, Tennessee. King and the other marchers were demonstrating their support for 1300 striking sanitation workers, many of whom held placards that proclaimed, “Union Justice Now!” and “I Am a Man.” 

Privatization of public education

from David Ruccio

For the first time in American history, students in more than half of all U.S. states are paying more in tuition to attend public colleges or universities than the government contributes.

The privatization of public education has been under way for decades but this inflection point was hastened by deep cuts states made to their higher-education appropriations in the midst of the Second Great Depression.

Millennials’ retirement plan: socialism?

from David Ruccio

Millennials may be the largest, best educated, and most diverse generation in U.S. history. But they’re also generation screwed. As a result, they’re more likely than their elders to think of themselves as working-class and less likely to identify as middle-class.  

Utopia and epistemology

from David Ruccio

It was Paul Samuelson who, in 1997, declared with morbid optimism that “Funeral by funeral, economics does make progress.”*

What Samuelson presumed is that, over time, wrong ideas would be killed and laid to rest and better ideas would flourish, thus creating the foundation for progress in economic thought.

That’s what I consider to be the epistemological utopianism of mainstream economic thought: using the correct scientific methods, the work that economists do gets closer and closer to the Truth—the singular, incontestable, capital-t truth. It used to be the case (for Samuelson and many others, such as fellow Nobel laureates Kenneth Arrow, Gerard Debreu, and Paul Krugman) that mathematical models represented the best way of making progress (inspired by a particular conception of nineteenth-century physics).** The current fad is to rely on randomized experiments and big data as evidence that economics is finally becoming a real, empirical science (akin to biology and medicine).

In the first case, rationalism is the reigning theory of knowledge; in the second case, it’s empiricism. However, both theories represent two sides of the same epistemological coin, defined by a radical separation between theory and reality and some sort of correspondence between them. In other words, both rationalism and empiricism are foundationalist theories of knowledge according to which the gap between theory and reality is eventually—”funeral by funeral”—closed.