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

from David Ruccio

source

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: 

What about the white working-class?

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. 

Liberal trickledown economics

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. 

Hold the champagne

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:  

Phlogiston, the identification problem, and the state of macroeconomics

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: 

Mind the gaps: compensation and productivity (3 graphs)

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. 

Rising tides and marginal productivity theory

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. 

Inheritance taxes, equity, and the gift

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. 

“Who will own the robots?”

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.

Protest of the century

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, 

What shared prosperity?!

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 

Capitalism vs. democracy

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.

Inequality in the US and mainstream macroeconomics

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.

Beyond the carried interest tax loophole

from David Ruccio

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.

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

from David Ruccio

Unhealthy healthcare: workers pay

from David Ruccio

On Tuesday, I began a series on the unhealthy state of the U.S. healthcare system—starting with the fact that the United States spends far more on health than any other country, yet the life expectancy of the American population is actually shorter than in other countries that spend far less.

Today, I want to look at what U.S. workers are forced to pay to get access to the healthcare system.

Unhealthy healthcare

from David Ruccio

 

While I was finishing up the latest right-wing libertarian dystopian finance novel, I was also trying to figure out the dystopia that the U.S. healthcare system has become.

Not so fast!

from David Ruccio

Everyone has read or heard the story: the labor market has rebounded and workers, finally, are “getting a little bigger piece of the pie” (according to President Obama, back in June).

And that’s the way it looked—until the Bureau of Labor Statistics revised its data. What was originally reported as a 4.2 percent increase in the first quarter of 2016 now seems to be a 0.4 decline (a difference of 4.6 percentage points, in the wrong direction).

What’s more, real hourly compensation for the second quarter (in the nonfarm business sector) is down another 1.1 percent.

Education, inequality, and power

from David Ruccio

Is education the solution to the problem of growing inequality?

As I wrote in early 2015,

Americans like to think that education is the solution to all economic and social problems. Including, of course, growing inequality.

Why? Because focusing on education—encouraging people to get more higher education—involves no particular tradeoffs. More education for some doesn’t mean less education for others (at least in principle). And providing more education doesn’t involve any structural changes in society—just more funding. (Of course, suggesting more education under current conditions—when public financing of higher education continues to decline, and students and their families are forced to take on more and more debt—is itself disingenuous).

As a result, there’s a broad consensus in the middle—among conservatives and liberals alike—that encouraging more young people who have yet to enter the labor market and existing workers who want to get ahead to obtain a college education will solve the problem of inequality.

And I proceeded to show how, in terms of declining wages for workers at various levels of education and increasing inequality within the top 1 percent, more education does not actually solve the problem of inequality.

But education is still the preferred solution of mainstream Democrats, and inequality itself is receiving less attention. And Thomas Frank [ht: sm] (in an interview with Jennifer Berkshire aka EduShyster) explains why: 

“Wealth helps accumulate more wealth”

from David Ruccio

The world economy only grew by 3.1 percent in 2015. But the world’s billionaires did much better. As David Barks, associate director of custom research for Wealth-X, understands, “Wealth helps accumulate more wealth.”

According to the latest Wealth-X report on the global billionaire population, the world’s billionaire population grew by 6.4 percent, to 2,473, last year. And their combined wealth increased by 5.4 percent, to a record $7.7 trillion.