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Myth of “the market”

July 29, 2017 4 comments

from David Ruccio

We’ve all heard it at one time or another.

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’.”

CEOpay

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Globalization—how did they get it so wrong?

from David Ruccio

There is perhaps no more cherished an idea within mainstream economics than that everyone benefits from free trade and, more generally, globalization. They represent the solution to the problem of scarcity for the world as a whole, much as free markets are celebrated as the best way of allocating scarce resources within nations. And any exceptions to free markets, whether national or international, need to be criticized and opposed at every turn.

That celebration of capitalist globalization, as Nikil Saval explains, has been the common sense that mainstream economists, both liberal and conservative, have adhered to and disseminated, in their research, teaching, and policy advice, for many decades.

Today, of course, that common sense has been challenged—during the Second Great Depression, in the Brexit vote, during the course of the electoral campaigns of Bernie Sanders and Donald Trump—and economic elites, establishment politicians, and mainstream economists have been quick to issue dire warnings about the perils of disrupting the forces of globalization.

I have my own criticisms of Saval’s discussion of the rise and fall of the idea of globalization, especially his complete overlooking of the long tradition of globalization critics, especially on the Left, who have emphasized the dirty, violent, unequalizing underside of colonialism, neocolonialism, and imperialism.*

However, as a survey of the role of globalization within mainstream economics, Saval’s essay is well worth a careful read.

In particular, Saval points out that, in the heyday of the globalization consensus, Dani Rodrick was one of the few mainstream economists who had the temerity to question its merits in public.  Read more…

‘Til debt do us part

July 23, 2017 3 comments

from David Ruccio

fredgraph (1)

Sometimes you just have to sit back and admire capitalism’s ingenuity.

It’s able to make profits twice over. First, capitalists know that, when they keep workers’ wages down—even when there’s “full employment”—they can make spectacular profits. And, second, they can make additional profits by loaning money to those same workers, who are desperate to purchase goods and services and send their children to college, thereby financing the demand for the goods and services industrial capitalists need to sell to realize their profits.

Thus, as we can see in the chart at the top of the post, the amount of consumer credit is once again soaring to record highs. In relation to personal income, consumer credit fell after the Great Recession (to just under 20 percent in December 2012)—as households “deleveraged”—and then it began to rise once again, reaching 23.3 percent four years later.   Read more…

Economics as religion?

from David Ruccio

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Mainstream economists have been taking quite a beating in recent years. They failed, in the first instance, with respect to the spectacular crash of 2007-08. Not only did they not predict the crash, they didn’t even include the possibility of such an event in their models. Nor, of course, did they have much to offer in terms of explanations of why it occurred or appropriate policies once it did happen.

More recently, the advice of mainstream economists has been questioned and subsequently ignored—for example, in the Brexit vote and the support for Donald Trump’s attacks on free trade during the U.S. presidential campaign. And, of course, mainstream economists’ commitment to free markets has been held responsible for delaying effective solutions to a wide variety of other economic and social problems, from climate change and healthcare to minimum wages and inequality.

All of those criticisms—and more—are richly deserved.   Read more…

Inequality and climate change

July 19, 2017 4 comments

from David Ruccio

The effects of climate change are, as we know, distributed unequally across locations. Therefore, the damages from climate change—in terms of agriculture, crime, coastal storms, energy, human mortality, and labor—are expected to increase world inequality, by generating a large transfer of value northward and westward from poor to rich countries.

What about within countries—specifically, the United States?

A new report, published in Science, predicts the United States will see its levels of economic inequality increase due to the uneven geographical effects of climate change—resulting in “the largest transfer of wealth from the poor to the rich in the country’s history,” according to Solomon Hsiang, the study’s lead author.   Read more…

Rocking the boat

July 18, 2017 6 comments

from David Ruccio

As I argued a couple of days ago, recent events—such as Brexit, Donald Trump’s presidency, and the rise of Bernie Sanders and Jeremy Corbyn—have surprised many experts and shaken up the existing common sense. In short, they’ve rocked the neoliberal boat.

The question is, where does this leave us?

Thomas Edsall thinks it means we’ve reached the end of class-based politics. I’m not convinced.

Yes, the response to the problems with neoliberal globalization has challenged and cut across traditional party families and their positions on domestic matters, in the United States as in Western Europe. But that doesn’t mean the differences between the Left and the Right have disintegrated or that class politics have become irrelevant.

To take but one of Edsall’s examples, just because there’s no one-to-one correspondence between people who have lost and gained from existing forms of globalization and those who voted for or against Donald Trump doesn’t mean class has declined in political importance, much less that it’s been displaced by a simple “globalism versus nationalism” opposition. Plenty of voters in economic distress voted for Trump and for Clinton—in part because of their different ways of framing class issues, but also because class politics have always been overlain with other, salient identities, resentments, and desires. The 2016 presidential election was no exception.   Read more…

Technology, employment, and distribution

July 17, 2017 2 comments

from David Ruccio

New technologies—automationroboticsartificial intelligence—have created a specter of mass unemployment. But, as critical as I am of existing economic institutions, I don’t see that as the issue, at least at the macro level. The real problem is the distribution of the value that is produced with the assistance of the new technologies—in short, the specter of growing inequality.

David Autor and Anna Salomons (pdf) are the latest to attempt to answer the question about technology and employment in their contribution to the recent ECB Forum on Central Banking. Their empirical work leads to the conclusion that while “industry-level employment robustly falls as industry productivity rises. . .country-level employment generally grows as aggregate productivity rises.”

To me, their results make sense. But for a different reason.

fredgraph

It is clear that, in many sectors—perhaps especially in manufacturing—the growth in output (the red line in the chart above) is due to the growth in labor productivity (the blue line) occasioned by the use of new technologies, which in turn has led to a decline in manufacturing employment (the green line).   Read more…

‘Til debt do us part

July 15, 2017 2 comments

from David Ruccio

fredgraph (1)

Sometimes you just have to sit back and admire capitalism’s ingenuity.

It’s able to make profits twice over. First, capitalists know that, when they keep workers’ wages down—even when there’s “full employment”—they can make spectacular profits. And, second, they can make additional profits by loaning money to those same workers, who are desperate to purchase goods and services and send their children to college, thereby financing the demand for the goods and services industrial capitalists need to sell to realize their profits.

Thus, as we can see in the chart at the top of the post, the amount of consumer credit is once again soaring to record highs. In relation to personal income, consumer credit fell after the Great Recession (to just under 20 percent in December 2012)—as households “deleveraged”—and then it began to rise once again, reaching 23.3 percent four years later.  Read more…

This is the end—or is it?

from David Ruccio

Obviously, recent events—such as Brexit, Donald Trump’s presidency, and the rise of Bernie Sanders and Jeremy Corbyn—have surprised many experts and shaken up the existing common sense. Some have therefore begun to make the case that an era has come to an end.

The problem, of course, is while the old may be dying, it’s not all clear the new can be born. And, as Antonio Gramsci warned during the previous world-shaking crisis, “in this interregnum morbid phenomena of the most varied kind come to pass.”

For Pankaj Mishra, it is the era of neoliberalism that has come to an end.

In this new reality, the rhetoric of the conservative right echoes that of the socialistic left as it tries to acknowledge the politically explosive problem of inequality. The leaders of Britain and the United States, two countries that practically invented global capitalism, flirt with rejecting the free-trade zones (the European Union, Nafta) they helped build.

Mishra is correct in tracing British neoliberalism—at least, I hasten to add, its most recent phase—through both the Conservative and Labour Parties, from Margaret Thatcher to Tony Blair and David Cameron.* All of them, albeit in different ways, celebrated and defended individual initiative, self-regulating markets, cheap credit, privatized social services, and greater international trade—bolstered by military adventurism abroad. Similarly, in the United States, Reaganism extended through both Bush administrations as well as the presidencies of Bill Clinton and Barak Obama—and would have been continued by Hillary Clinton—with analogous promises of prosperity based on unleashing competitive market forces, together with military interventions in other countries.  Read more…

What do unions do?

June 22, 2017 5 comments

from David Ruccio

unions

When I ask my students that question, they don’t really have an answer. That’s because, like much of the rest of the U.S. population, they don’t have much experience with unions, either directly or indirectly—not when the union membership rate has fallen to below 11 percent nationwide and is only 6.4 percent in the private sector.   Read more…

Bread and roses

June 21, 2017 5 comments

from David Ruccio

fredgraph

Mainstream economists and politicians have answers for everything.

Lose your job? Well, that’s just globalization and technology at work. Not much that can be done about that.

And if you still want a job? Then just move to where the jobs are—and make sure your children go to college in order to prepare themselves for the jobs that will be available in the future.

The fact is, they’re not particularly good answers. And people know it. That’s why working-class voters are questioning business as usual and registering their protest by supporting—in the case of Brexit, the 2016 U.S. presidential election, the 2017 snap election in Britain, and so on—alternative positions and politicians.   Read more…

American myth

June 16, 2017 2 comments

from David Ruccio

wealth

One of the most pernicious myths in the United States is that higher education successfully levels the playing field across students with different backgrounds and therefore reduces wealth inequality.

The reality is quite different—for the population as a whole and, especially, for racial and ethnic minorities.  Read more…

Capital’s rising shares

from David Ruccio

capital shares

Recently, I showed that conventional thinking about factor shares has been finally overturned: they are not necessarily constant, especially within existing economic institutions.

In fact, labor’s shares have been declining for decades now.

The opposite is true of capital’s shares: they’ve been rising for almost three decades.   Read more…

Pulling away

from David Ruccio

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Apparently, Richard Reeves is worried that the top echelons of the U.S. middle class—those earning over $120,000—are separating from the rest of the country, and pulling up the drawbridge behind them.

“The upper middle class families have become greenhouses for the cultivation of human capital. Children raised in them are on a different track to ordinary Americans, right from the very beginning,” he writes.

The upper middle class are “opportunity hoarding” – making it harder for others less economically privileged to rise to the top; a situation that Reeves says places stress on the efficiency of the US economic system and creates dynastic wealth and privilege of the kind the nation’s fathers sought to avoid.

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Hiding the surplus

from David Ruccio

Most of us pay the taxes we’re required to pay. That’s because there aren’t many ways to avoid them. Sales, property, payroll, or income—the tax is paid at the time of the purchase, the amount is deducted from our paychecks, or the records go directly to the government. There’s no real way around them. And we pay those taxes out of wages and salaries more or less willingly, since that’s how government services are financed.

Not so for those who are able to capture the surplus. Large corporations and wealthy individuals pay far less than their fair share of taxes. Their ability to evade taxes is only matched by their insistent demand that their tax rates be lowered even more.

We’ve known for a long time that large corporations use a variety of mechanisms—from claiming tax deductions and using loopholes to stashing profits in tax havens abroad—to lower their effective tax burden.

Thus, for example, according to Oxfam America (pdf), between 2008 to 2014, the top 50 companies in the United States paid an effective tax rate (to the federal government as well as to states, localities, and foreign governments) of just 26.5 percent overall, 8.5 percent points lower than the statutory rate of 35 percent and just under the average of 27.7 percent paid by other developed countries. And then they use their tax savings to lobby for even more tax advantages.  Read more…

Bottom line

from David Ruccio

The business press is having a hard time figuring out this one: the combination of unrelenting drama in and around Donald Trump’s White House and the stability (signaled by the very low volatility) on Wall Street.

As CNN-Money notes,

One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era.

Despite enormous question marks swirling around the fate of President Trump’s economic agenda and his political future, American financial markets have remained unusually calm.

What’s going on?

fredgraph (1)

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Making corporate taxes great again

from David Ruccio

fredgraph (1)

I continue to maintain that Congressional Republicans will stick with President Donald Trump until they get their favorite policies enacted—or until Trump’s missteps and declining popularity stand in the way of their getting what they want.

And one of the things they want is tax reform—specifically, a cut in corporate taxes.

Here’s the problem: U.S. corporations aren’t taxed too heavily. They’re taxed too little.

As is clear from the chart above, corporate profits (as a percentage of GDP) have risen dramatically since the mid-1980s—from 5.8 percent in 1985 to 11.8 percent in 2016.  Read more…

Risk vs. arrogance

from David Ruccio

Most of us are pretty cautious when it comes to spending our money. The amount of money we have is pretty small—and the global economic, financial, and political landscape is pretty shaky right now.

And even if we’re not cautious, if we’re not prudent savers, then no harm done. Spending everything we have may be a personal risk but it doesn’t do any social harm.

It’s different, however, for the global rich. The individual decisions they make do, in fact, have social ramifications. That’s why, back in 2011, I suggested we switch our focus from the “culture of poverty” to the pathologies of the rich.

Consider, for example, the BBC [ht: ja] report on the findings of UBS Wealth Management’s survey of more than 2,800 millionaires in seven countries.

Some 82 percent of those surveyed said this is the most unpredictable period in history. More than a quarter are reviewing their investments and almost half said they intend to but haven’t yet done so.

But more than three quarters (77 pct) believe they can “accurately assess financial risk arising from uncertain events”, while 51 percent expect their finances to improve over the coming year compared with 13 percent who expect them to deteriorate.

More than half (57 pct) are optimistic about achieving their long-term goals, compared with 11 percent who are pessimistic. And an overwhelming 86 percent trust their own instincts when making important decisions.

“Most millionaires seem to be confident they can steer their way through the turbulence without so much as a dent in their finances,” UBS WM said.

Most of us can’t afford that kind of arrogance in the face of risk. But the world’s millionaires can. Just as they did during the lead-up to the crashes of 1929 and of 2008.

They trusted their instincts—and everyone else paid the consequences.

Late capitalism?

from David Ruccio

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Apparently, “late capitalism” is the term that is being widely used to capture and make sense of the irrational and increasingly grotesque features of contemporary economy and society. There’s even a recent novel, A Young Man’s Guide to Late Capitalism, by Peter Mountford.

A reader [ht: ra] wrote in wanting to know what I thought about the label, which is admirably surveyed and discussed in a recent Atlantic article by Anne LowreyRead more…

Crimes against humanity

from David Ruccio

As regular readers of this blog know, I am no fan of the way healthcare is currently organized in the United States.

The U.S. healthcare system, as it is currently configured, only really works for those who make a profit—selling health insurance, pharmaceuticals, and in-patient and acute-care services in hospitals—and those who have the wherewithal to finance their own healthcare.

But Republican plans to repeal the Affordable Care Act, aka Obamacare, and replace it with the American Health Care Act will move us even further from the goal of providing universal, affordable, high-quality healthcare for the American people.

The new act, aka Trumpcare, hasn’t yet been been scored by the Congressional Budget Office. And it will likely change as Senate Republicans get their hands on it.

AHCA

source [ht: ja]   Read more…