Monday, October 31, 2016
Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: EPIC Radio Podcasts
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The BEA released the Personal Income and Outlays report for September:
Personal income increased $46.7 billion (0.3 percent) in September according to estimates released today by the Bureau of Economic Analysis ... Personal consumption expenditures (PCE) increased $61.0 billion (0.5 percent).
Real PCE increased 0.3 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
On inflation: The PCE price index increased 1.2 percent year-over-year due to the sharp decline in oil prices (This was up from 1.0% year-over-year in August). The core PCE price index (excluding food and energy) increased 1.7 percent year-over-year in September (the same as in August).
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Anyone have the answer? This is from Brad Setser:
When The Trade Data Does Not Add Up: This is ... about a rather puzzling thing that I only noticed as a result of the Brexit debate. ...
A big part of the non-EU surplus in services comes from the United States. In 2015, the UK reported a 27 billion GBP (just over $40 billion) surplus in services trade with the U.S. and an overall surplus in goods and services with the United States.
The funny thing? The U.S. also thinks it runs a surplus in services trade with the UK. A $14 billion surplus in 2015...
It is pretty hard to square those two data points. UK data is from the Office of National Statistics' Pink Book, U.S. data is from the Bureau of Economic Analysis (BEA), table 1.3 of the "International Transactions" data set.
It turns out that the U.S. thinks it sells more services to the UK than the UK thinks it buys...
And the UK thinks it sells more services to the U.S. than the U.S. thinks it buys. ...
My guess is that such discrepancies are actually common in the services trade numbers. Goods trade is calculated by customs bureaus. Lots of the numbers on services trade come from surveys, estimates, and the like.
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In a recent postI talked about the "neoliberal fantasists who voted Leave". Hereis Ryan Bourne from the influential Institute of Economic Affairs. He notes that "the mood music from the post-referendum Conservative party — with former Remain backers in No 10 and the Home Office overcompensating with a caricatured view of what voters want — is not a good sign for the short-term". But he still believes that Brexit can be transformed into some kind of neoliberal wet dream, with a bonfire of regulations and a unilateral abolition of UK tariffs on trade.
The economics of this was always fantasy, as John Van Reenen and colleagues painstakingly demonstrate here, but it also seems politically naive. After all the Leave campaign was a success largely because it promised to control immigration as a result of leaving the EU, controls which are distinctly anti-neoliberal. Controlling immigration is not a caricature of what the majority of Leave voters wanted, but instead what most were voting for. It does seem naive to believe that a government after Brexit would try and quietly forget about this, particularly when led by someone who had spent the previous 6 years trying and failing to control immigration. It also seems naive to imagine that this turn against neoliberalism would not go beyond immigration.
And yet, the 'southern strategy' was highly successful for the Republican party in the US. This combined an economic policy that favoured finance and corporates, increased inequality and free markets with an identity politics that appealed to race, religion and cultural identity. (I could perhaps add geographical identity here as well: see this articleby David Wong.) Perhaps the UK party of the right could follow a similar course, using immigration as a substitute (and for some a proxy) for race, whilst pursuing an otherwise neoliberal agenda?
Is this what the Conservative party tried to do under Cameron and Osborne? Actually I think that is the wrong question, for reasons I will come to shortly. In terms of what the Coalition government actually did, Jonathan Portes summarisesit thus:
"The promise to cut net migration to the "tens of thousands" was generally regarded by immigration policy experts as unachievable, or achievable only at an economic cost no sensible government was willing to pay. In practice, the latter course was never tested: resistance from within government from the Department of Business, supported to a greater or lesser extent by the Treasury, meant that even non-EU migration was only reduced very substantially for non-HE students; for most other routes it has stabilised. Non-EU net migration is currently about 150,000 a year, slightly higher than EU net migration
This does not mean the policy changes had no impact: the increase in the regulatory burden on business and the education sector has been substantial, and has certainly resulted in some reduction in skilled and student migration. The most damaging single decision was probably the closing of the Post-Study Work Route. However, overall, any economic damage was considerably mitigated."
Of course that resistance from the Department of Business came from a Liberal Democrat, Vince Cable, and not a Conservative. Which leaves open the possibility that the economic damage from attempts to hit the immigration target might have been greater if just the Conservatives had been in power. So it is not clear that the Conservative focus on immigration was just so they could win elections with zero cost to their more neoliberal objectives. It still remains the case that, just as Trump exposed the flawin the Republican's southern strategy, so Brexit was the critical flaw in Cameron's emphasis on the problem of immigration and his failure to meet his own targets.
I said it was the wrong question, because I think in this case it was not a political party that was calling the shots but a section of the print media: the right wing tabloids. As Andy Beckett writes in thiscomprehensive history of this part of the UK media:
"[Brexit] was an outcome for which the tabloids had campaigned doggedly for decades, but never more intensely – or with less factual scrupulousness – than this spring and summer, when the front pages of the Sun, Mail and Express bellowed for Brexit, talking up Britain's prospects afterwards, in deafening unison, day after day. Two days before the referendum, the Sun gave over its first 10 pages to pro-Brexit coverage."
And the principle means the tabloids used to obtain this result was the "endless xenophobic nudges of its immigration coverage." Of course these newspapers will say they were just expressing their readers fears, but when they are reduced to making up stories to encourage this fear any claim to innocence becomes very hollow. Fueling anti-immigration feeling was their version of a southern strategy, and Brexit saw its culmination.
Having achieved this objective, will the tabloids start ignoring the immigration issue, enabling the greater immigration and zero tariffs that Mr. Bourne desires? Or will the influence of these tabloids, perhaps now greater than it has ever been, start to fade away? To the extent that these seem silly questions reveals the political naivety of the neoliberal Leavers. It is highly unlikely that Theresa May will become squeamish about damaging business through immigration controls to enable her to meet her immigration target. The best hope of those who do not want to go down this path is that, as Jonathan Portes expects, the Brexit vote itself starts to reduce the immigration numbers.
Brexit will also put other pressures on May which are likely to move her away from neoliberal policies, as the assurances given to Nissan indicate. As Bourne writesin a recent blog: "if this is a commitment to permanent or semi-permanent support to almost 'make up for' changed trade arrangements then it is hugely misguided." Misguided it may be, but that is the direction the politics will push a Prime Minister determined to be seen as making a success of Brexit. Just as Republican's have agonisedover how to deal with Donald Trump, so it will become clear to UK neoliberals the damage to their cause that Brexit will generate.
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While oil prices have stabilized somewhat in recent months, there are good reasons to believe they won't return to the high levels that preceded their historic collapse two years ago. For one thing, shale oil production has permanently added to supply at lower prices. For another, demand will be curtailed by slower growth in emerging markets and global efforts to cut down on carbon emissions. It all adds up to a "new normal" for oil.
The "new" oil supply
Shale has been a game changer. Unexpectedly strong shale-oil production of 5 million barrels per day contributed to the global supply glut. That, along with the surprising decision by the Organization of the Petroleum Exporting Countries (OPEC) to keep production unchanged, contributed to the oil price collapse that started in June 2014.
Although the price collapse led to a massive cut in oil investment, production was slow to respond, keeping supply in excess. What's more, the resilience of shale production to lower prices again surprised market participants, leading to even lower prices in 2015. Shale drillers significantly cut costs by improving efficiency, allowing major players to avoid bankruptcy. While reduced investment is expected to result in lower production by non-OPEC countries in 2016, production still exceeds consumption. Many experts expect oil markets to balance in 2017, albeit with high level of inventory (Chart 1). That said, there is uncertainty regarding supply, especially regarding the cost associated with extraction as well as production from so-called shale "fracklog"—drilled but uncompleted wells. The latter can add to production flows in a matter of weeks and hence considerably change the dynamics of production compared to conventional oil—that features long lead times between investment and production.
Against that backdrop, OPEC countries and Russia have been increasing output, and Iran's return to markets has added even more supply. (While OPEC members have recently agreed to cut production, that agreement is yet to be finalized.) There are other factors at play. Recent data suggest that shale-oil production may be once again more resilient than expected. And the anticipation of an OPEC production cut in cooperation with other exporters has boosted prices to the level that will further stimulate output by many shale producers.
The "new" oil demand
Falling prices spurred oil-demand growth, which rose to a record high of about 1.8 million barrels per day in 2015. That's expected to slow to the trend level of 1.2 million barrels per day in 2016 and 2017. Using basic estimates for demand elasticity with respect to price suggests the "price effect" accounts for a 0.8 million-barrel per day increase in demand. A sizable share of oil demand growth is attributable to the price drop rather than income gains. With limited scope for further declines in prices in dollar terms, increases in oil demand will depend largely on prospects for global economic growth.
The outlook for demand growth isn't encouraging. In the past couple of years, oil demand has been driven by China and other emerging-market and developing countries. While China accounts for just 15 percent of world oil consumption, its contribution to oil demand growth is significant (Chart 2) because its economy is growing much faster than those of advanced nations (the same is true of some other developing nations). Further slowdowns in emerging and advanced economies can change the demand picture significantly. Structural shifts in emerging economies, especially China's effort to shift from an investment and export led growth model to a domestic demand led growth model, can also potentially have major implications.
Over the medium to long run, the transition away from oil and other fossil fuels further clouds the outlook for oil demand albeit lower prices may delay the transition. Energy policies will have to be altered significantly to meet the goals set at the December 2015 Paris Climate Conference (COP21), and a significant portion of oil reserves will have to remain under the ground and unburned. Lack of clarity about the specific actions needed to achieve those goals only adds to uncertainty about the oil-demand outlook.
Granted, futures markets point to slight gains in oil prices. But a glance at shifts in futures-price curves in the past few months suggests that the prospects for higher prices have been worsening (see Chart 3). That shouldn't come as a surprise. Downward revisions to global growth forecasts, especially for emerging markets, offset supporting factors, such as the growth in oil demand buoyed by lower prices in the past year. Turmoil in financial markets, plus a strong dollar, has put downward pressure on oil prices. These trends, along with the secular drop in petroleum consumption in advanced economies and the growth of shale, all point to a "lower for longer" scenario for oil prices.
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By Liz Stanton
Cross-posted from Liz Stanton Consulting's Public Goods Blog.
Getting ourselves, our kids, and all of the material goods of our economy from point A to point B resulted in 1.9 billion metric tons of carbon dioxide released into the atmosphere in 2015. That's 35 percent of all U.S. carbon pollution and 6 percent of global carbon emissions—just from U.S. transportation. Worldwide, transportation is responsible for one-seventh of all greenhouse gas emissions. To keep global temperature rise below 2°C (or even below 3 or 4°C) we'll need a vast, all-encompassing transformation. Incremental changes—a little bit better gas mileage, a few more people taking public transit—aren't going to cut it. Staying below 2°C, and thereby avoided a climate catastrophe, will require us to completely reimagine our way of getting around.
A new report from the Frontier Group does a good job laying out a detailed agenda for decarbonizing the U.S. transportation sector. The report discusses not just the policy reforms needed to achieve the basics—electrification of all vehicles paired with decarbonization of the electric grid—but also the more transformative, and therefore more difficult and more amorphous, changes that will be needed. Here are the parts that we don't talk about enough:
· Changing the way we design our cities and towns: Much of the U.S. urban and suburban landscape can be difficult, if not impossible, to navigate without a car. Walkable cities, safe paths and dedicated lanes for biking, and public transportation that makes sense in a suburban setting are all essential to decarbonizing transportation.
· Changing our choices and behavior: Harder still, it won't be enough to change the built environment. Car travel is the norm in most neighborhoods. Building safe reliable alternatives is a start but getting people to make different choices will require a societal shift in expectations.
Change is under weigh. Today, the cost of an electric vehicle is on par with that of a gasoline-power vehicle, and powering an electric vehicle costs less per mile than paying for gasoline. In a few states, non-profit groups are helping electric vehicle buyers to band together to get significant discounts from car dealers to make these vehicles even more affordable, like Refuel Colorado and the soon-to-be released Drive Green for Massachusetts and Rhode Island. (Stay tuned! Mass Energy's Drive Green program is slated to begin in early November.)
Changing middle-class families' vehicle purchases from gasoline to electric is a first critical step of many. To really make a difference in reducing our greenhouse gas emissions electric-vehicle adoption needs work in concert with the other shifts discussed in the Frontier Group report—greening the electric grid, smart urban and municipal planning, and changes in norms and expectations—and also resolve a few thorny issues.
First, to achieve total decarbonization of transportation public policy and technical innovation need to reach beyond cities and towns into rural America. We need solutions that fit the needs and constraints of rural families and businesses. Lower transportation costs would be a tremendous boon to rural communities. But the technologies that work for urban dwellers simply cannot accommodate transportation needs in sparsely populated areas.
The second challenge for decarbonizing transportation is making greener options available to low-income families. Public transportation systems need to reach all neighborhoods, operate consistently and efficiently, and be affordable. Poor communities clustered nearby to highways or industrial sites are some of the least walkable urban neighborhoods, and public transportation systems are rarely designed with the aim of connecting low-income housing with jobs, schools, and shopping. Whether living in the city or the country, driving is often the only or best option for many families, and buying a new car on credit is a privilege reserved for the middle class.
Making public transit and electric vehicles accessible to low-income families is no small task. But it's a challenge that—if met—holds tremendous opportunity for reducing poverty in the United States. With good policy design, green transportation has the potential to be cheaper, quicker, and safer for all families.
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Would Higher Interest Rates Boost US Growth? - Brad DeLong Models of Economic Policymaking - The Baseline Scenario The case for basic income - Stumbling and Mumbling Certified random co-authors - VoxEUA Little-Noticed Fact About Trade: It's No Longer Rising - The New York Times Doesthe Stock Market Cares Who Wins the Election? - Uneasy Money Competing Views on How to Regulate Illegal Migration - The New York Times Global reflation: still weak and patchy - Gavyn Davies Coleman on the classification of social action - Understanding Society The Last Chapter Problem - The Baseline Scenario The Consequences of a Trump Shock - Simon Johnson Brexit and neoliberalism - mainly macro James Tobin - Thomas Palley
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Sunday, October 30, 2016
Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Johnny Dollar ALL DAY
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Friday, October 28, 2016
It is hard to escape the conclusion that the world is seeing a renaissance of populist authoritarianism
October 9, 2016
As the world’s finance ministers and central bank governors came together in Washington last week for their annual global financial convocation, the mood was sombre. The spectre of secular stagnation and inadequate economic growth on the one hand and ascendant populism and global disintegration on the other led to widespread apprehension. Unlike in 2008 when the post-Lehman crisis was a preoccupation or 2011 and 2012 when the possibility of the collapse of the euro system concentrated minds, there was no imminent crisis.
Instead, the pervasive concern was that traditional ideas and leaders were losing their grip and the global economy was entering into unexplored and dangerous territory.
International Monetary Fund growth forecasts released before the meeting were again revised downwards. While recession does not impend in any large region, growth is expected at rates dangerously close to stall speed. Worse is the realisation that the central banks have little fuel left in their tanks.
Recessions come intermittently and unpredictably. Containing them generally requires 5 percentage points of rate cutting. Nowhere in the industrial world do central banks have anything like this kind of room even making allowance for the effects of unconventional policies like quantitative easing. Market expectations suggest that it is unlikely they will gain room for years to come.
After seven years of economic over-optimism there is a growing awareness that challenges are not so much a legacy of the financial crisis as of deep structural changes in the global economy. There is increasing reason to doubt that the industrial world is capable of simultaneously enjoying reasonable interest rates that support savers, financial stability and the current financial system and adequate economic growth at the same time. Saving has become overabundant, new investment insufficient and stagnation secular rather than transient.
It can hardly come as a great surprise that when economic growth falls short year after year and when its beneficiaries are a small subset of the population, electorates turn surly. They lose confidence in traditional policy approaches and their advocates.
Looking back at the political traumas of 1968 when there were people in the streets in many countries, it is clear that there was something going on beyond specific issues like Vietnam in the US.
In the same way as with Brexit, the rise of Donald Trump and Bernie Sanders, the strength of rightwing nationalists in many European countries, Vladimir Putin’s strength in Russia and the return of Mao worship in China, it is hard to escape the conclusion that the world is seeing a renaissance of populist authoritarianism.
These developments are mutually reinforcing. Weak economics promotes angry politics which raises uncertainty leading to even weaker economics. And so the cycle starts again. People have lost confidence both in the competence of economic leaders and in their commitment to serving the wider public rather than the global elite.
A number of traditional economic leaders in the public and private sector seemed to be making their way through the traditional grief cycle — starting with denial, moving to rage, then to bargaining and ultimately to acceptance of new realities.
It is untenable to ignore public sentiment. Nor, as 60 years of experience with populist policy cycles in Latin America demonstrates, is economic nationalism a viable strategy. Rather the challenge is to find a path forward in which international co-operation is supported and enhanced. This should focus on the concerns of a broad middle class rather than of global elites.
Concretely, this means rejecting austerity economics in favour of investment economics. At a time when markets are pointing to the problem over the next generation as being inadequate rather than excessive inflation, central bankers need to spur demand and co-operate with governments.
Enhancing infrastructure investment in the public and private sector should be a fiscal policy priority.
And the focus of international economic co-operation more generally needs to shift from opportunities for capital to better outcomes for labour. The achievement of this objective will require substantially enhanced co-
operation with respect to what might be thought of the as the dark side of capital mobility — money laundering, regulatory arbitrage, and tax avoidance and evasion.
These are a few ideas. The general point should be clear. Few things will be as important for the success of the next president as the restoration of confidence in the global economy.
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How Did The Race Get Close? - Paul KrugmanSocial Security Is Not a Main Driver of Budget Problem - Dean Baker Trump was completely wrong about the Fed last night - Jared Bernstein Back to the '80s, Courtesy of the Wage Growth Tracker - macroblog The Downward Trend in Consumer Inflation Expectations - FRB Cleveland This Inequality Chart Does Not Say What You Think It Says - Baseline Scenario Is Inequality Rising or Falling? - The Baseline Scenario The Liquidity Trap and How to Escape It - Roger Farmer The Scoring of Trump’s Economic Proposals - EconoSpeak A Reply to the Critique of the Cost-Benefit State - RegBlogLabour's advantages - Stumbling and Mumbling
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Institute for New Economic Thinking, October 27, 2016
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Economically speaking, are we better off than we were ten years ago? Twenty years ago? When asked such questions, Americans seem undecided, almost schizophrenic, with large majorities saying the country is heading “in the wrong direction,” even as they tell pollsters that they are optimistic about their personal financial situations and the medium-term economic outlook.
In their thirst for evidence on this issue, commentators seized on the recent report by the Bureau of the Census, which found that real median household income rose by 5.2 percent in 2015, as showing that “the middle class has finally gotten a raise.” Unfortunately, that conclusion puts too much weight on a useful, but flawed and incomplete, statistic. Among the more significant problems with the Census’s measure are that: 1) it excludes taxes, transfers, and non-monetary compensation like employer-provided health insurance; and 2) it is based on surveys rather than more-complete tax and administrative data, with the result that it has been surprisingly inconsistent with the official national income numbers in recent years. Even if precisely measured, data on income exclude important determinants of economic well-being, such as the hours of work needed to earn that income.
Distinguished Fellow in Residence - Economic Studies
While thinking about the question, we came across a recently published article by Charles Jones and Peter Klenow, which proposes an interesting new measure of economic welfare. While by no means perfect, it is considerably more comprehensive than median income, taking into account not only growth in per capita consumption but also changes in working time, life expectancy, and inequality. Moreover, as the authors demonstrate, it can be used to assess economic performance both across countries and over time. In this post we’ll report some of their results, and extend part of their analysis (which ends before the Great Recession) through 2015.
The bottom line: According to this metric, Americans enjoy a high level of economic welfare relative to most other countries, and the level of Americans’ well-being has continued to improve over the past few decades despite the severe disruptions of the last one. However, the rate of improvement has slowed noticeably in recent years, consistent with the growing sense of dissatisfaction evident in polls and politics.
Cross-country welfare comparisons
The Jones-Klenow method can be illustrated by a cross-country example (we’ll look at comparisons over time in a moment). Suppose we want to compare the economic welfare of citizens of the United States and France in a particular year—following the paper, we’ll choose 2005.
In 2005, as the authors observe, real GDP per capita in France was only 67 percent that of the United States, and real consumption per capita (a more-direct measure of living standards) was only 60 percent as high, making it appear Americans were economically much better off than the French on average. However, that comparison omits other relevant factors, of which Jones and Klenow choose to focus on three: leisure time, life expectancy, and economic inequality. The French take long vacations and retire earlier, so typically work fewer hours; they enjoy a higher life expectancy at birth (80 years in 2005, compared to 77 in the U.S.), presumably reflecting advantages with respect to health care, diet, lifestyle, and the like; and income and consumption are somewhat more equally distributed there than in the U.S. Because of these mitigating differences, comparing France’s per capita GDP or consumption with the U.S.’s overstates the gap in economic welfare.
How much do these other factors matter? To quantify their effect in a single measure, the authors formalize the following question: If someone had to choose between switching places with a random person living in the U.S.—with its consumption, inequality, life expectancy, and leisure—or a random person living in France, how much would U.S. consumption have to change before he or she would be equally happy with either outcome? To answer this question, the authors use detailed data for each country to convert the factors into “consumption equivalents,” using a simple model of household preferences and some plausible assumptions, for example, about the relative value of leisure and consumption. At the end of this exercise, they estimate that, in units of consumption equivalents, in 2005 a randomly chosen French citizen was actually about 92 percent as well off, on average, as a randomly picked American, despite the large gap between the two countries in consumption per capita.
Similar calculations can be used to compare the U.S. and other countries. Table 1 below shows the Jones-Klenow estimates of economic welfare, as well as income per capita, in a number of selected countries in the early-to-mid-2000s. (The exact years of comparison vary based on data availability.) U.S. values are set to 100, so the entries in the table should be interpreted as percentages of the U.S. level:
Table 1 confirms the conventional view that, broadly measured, American living standards are comparable to those of the richest Western European nations but much higher than living standards in emerging-market economies. For example, this calculation puts economic welfare in the United Kingdom at 97 percent of U.S. levels, but estimates Mexican well-being at 22 percent. Interestingly, this comparison shows Western European countries (like the U.K., France, and Italy) as considerably closer to the U.S., in terms of economic welfare, than differences in per capita income or consumption would suggest, reflecting the fact that Western European countries do relatively well on the other criteria considered (leisure, life expectancy, inequality). For emerging and developing economies, however, differences in income or consumption per person generally understate the advantage of the United States, according to this measure, largely due to the greater levels of inequality and lower life expectancies in those countries.
Improvements in economic well-being over time
The Jones-Klenow measure can also assess an economy’s performance over time. Since their published results only cover the period before the 2007-09 financial crisis and the Great Recession, we use publicly available data to estimate U.S. results through 2015 based on the Jones-Klenow computer program available online. Where our and their results overlap, they are comparable. Obviously, however, the authors are not responsible for the assumptions we made to get our results or the accuracy of our calculations.
Table 2 shows our results for the 1995-2015 period and for two sub-periods. The first two columns report the annual growth rates of per capita GDP and of our estimates of the Jones-Klenow measure of economic welfare. Also shown in the table, and displayed graphically in Figure 1, is the decomposition of our economic welfare growth estimates into four components: changes in life expectancy, consumption, leisure, and consumption inequality.
Table 2 shows that economic welfare improved at quite a rapid pace over the two decades before the crisis (1995-2007), at more than 3 percent per year, notably faster than the growth rate of per capita GDP, at about 2 percent. As shown by the four rightmost columns of Table 2 and, graphically, in Figure 1, the gains in welfare were driven primarily by increases in per capita consumption and by improvements in life expectancy, which rose by 2.3 years over the period, from 75.8 to 78.1 years. Rising consumption inequality subtracted between 0.1 and 0.2 percentage points from the annualized growth rate in welfare during the pre-crisis period, and changes in leisure/work hours per person (which were stable) made only a very small contribution.
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What about the more recent period (2007-2015)? As can be seen in the table and the accompanying figure, economic well-being has continued to improve (growth in welfare is positive), but the pace of improvement has slowed considerably, to just about 0.9 percent per year. The biggest reason for the slowdown is the decline in the growth rate of per capita consumption, to only about 0.4 percent per year since 2007—about the same as the growth rate of per capita GDP. In other words, disappointing economic growth, including the slow improvement in consumer spending power, is the dominant reason for the decline in the pace of welfare gains, even by this broader measure. Life expectancy has continued to improve since 2007, adding about a half percentage point to welfare growth; however, the contribution from this source is less than in the pre-crisis period, a difference that accounts for about 0.6 percentage points of the slowdown.  The longer-term trend toward inequality continued and intensified slightly after 2007, subtracting about a quarter percentage point from welfare growth.
We draw several conclusions:
Broad economic indicators like GDP, disposable income, and median household income are important measures of economic welfare, but inherently incomplete. Jones and Klenow have provided a concrete example of how to construct a more comprehensive measure of economic well-being from existing data.According to the Jones-Klenow measure, as of the early-to-mid-2000s, the United States had the highest economic welfare of any large country. However, several Western European countries, including the United Kingdom and France, came close to the U.S. when differences in leisure, life expectancy, and inequality are taken into account. In terms of welfare, emerging-market and developing economies were further behind the U.S. than per capita income or consumption figures indicate, largely because of greater inequality and shorter life expectancies in those countries.Longer-term trends in economic welfare in the United States are mostly positive. According to our extension of the Jones-Klenow analysis, U.S. economic welfare has increased at about 2.3 percent per year since 1995, for a cumulative gain in two decades of 60 percent. Gains in income and consumption per capita and in life expectancy are the major reasons for improved welfare. Increased inequality of consumption has subtracted about 0.2 percentage points a year from the welfare measure since 1995.Since 2007, economic welfare in the U.S. has continued to improve, according to our calculation. However, the pace of improvement has slowed markedly relative to the pre-crisis era, reflecting slower economic growth, some slowdown in the rate of improvement in life expectancy, and continuing increases in inequality.This measure confirms that life in America is good, compared to other countries and to the country’s own past, and still improving. But there has been a significant slowdown in the pace of improvement that requires attention from policymakers.
Methodologically, the lesson from Jones and Klenow’s research is that economic welfare is multi-dimensional. Their approach is flexible enough that in principle other important quality-of-life changes could be incorporated—for example, the 63% decrease in total emissions of six of the most common pollutants from 1980 to 2014 and the decline in crime rates. We need better measures of how well Americans are being served by the economy, and frameworks such as this one are a promising direction.
 To state the obvious, this comparison is assumed to be made based only on the four factors considered. We’re ignoring (among many other things) cultural preferences, like a taste for fresh baguettes or a consuming interest in the National Football League.
 They report that the results are not much changed by moderately varying their assumptions. Note that they are making the usual economist’s assumption that leisure is a “good,” which may underweight some positive psychological and social benefits of work. Note also that high levels of inequality are a negative in this framework only because, holding constant the average level of consumption, a person in a very unequal country has a high chance of living in poverty; this risk is assumed not to be compensated for by the fact that, in an unequal country, there is also a higher probability of having a very high living standard. “External” effects of inequality—the possibility that people prefer to live in more-equal society, whatever their own personal living standard—are not included here.
 In other words, the Jones-Klenow calculation implies shifting from the United States to France is economically equivalent to losing 8 percent of average consumption.
 For recession periods, their method has the problem that it can’t differentiate “voluntary” leisure, such as vacations or earlier retirements, from cyclical unemployment. So, interpretation of their measure for a period of high cyclical unemployment, like 2008 or 2009, would be problematic. Our extension of their results below mitigates this problem by making comparisons between the pre-crisis period and 2015, a year in which cyclical unemployment was closer to normal levels.
 Jones and Klenow use detailed micro-level surveys for some analyses, but for comparing broader sets of countries they instead used more easily available macro data. (They refer to these as their “micro” and “macro” approaches.) Where there is an overlap, they find that the two sets of results correspond closely. For data availability reasons we use “macro” data for the United States in constructing Table 2. Differences with the Jones-Klenow results reflect data revisions, different sample periods, minor adjustments in assumptions, and in two cases, a switch to U.S.-specific data sources: We pull our consumption data from the National Income and Product Accounts instead of the Penn World Tables, and our life expectancy data from the Center for Disease Control instead of the World Bank.
 Since the CDC has not published life expectancy numbers for 2015, for our calculation we assume that it stayed at its 2014 level of 78.8 (which was also its level in 2012 and 2013). Regarding inequality, the OECD estimate of the Gini coefficient for U.S. disposable income that we use only goes through 2014, so we impute the 2015 number based on the 10-year average relationship between the OECD figure and the Gini coefficient for (pre-tax, pre-transfer) income produced by the Bureau of the Census. Following Jones and Klenow, we impute the consumption Gini coefficient for the US based on cross-country evidence on the relationship between Gini coefficients for disposable income and consumption.
 For the period 1980-2007, Jones and Klenow find that the growth rate of welfare was 3.11 percent per year (Table 9, p. 2455). Using more detailed micro data, they calculate a growth rate of 3.09 percent for 1984-2006 (Table 3, p. 2445).
 The Jones-Klenow calculation does not include inequality in life expectancy, which in principle could be incorporated. Chetty et al. (2016) showed that, between 2001 and 2014, life expectancy rose considerably more for people in the upper portion of the income distribution than in the lower portion; Case and Deaton have pointed out the relative increases in mortality among US white men with lower education. Another issue is how to treat the reduction in hours of work, which, as shown in Table 2, contributes about 0.2 percentage points to welfare growth since 2007. We might discount some of this as reflecting remaining cyclical influences or structural factors, particularly the absence of good job opportunities for less-educated, prime-age men. However, retirements and the aging workforce account for a substantial part of the decline in hours worked. Finally, note that our data on life expectancy go only through 2014 (footnote 5), so that any more recent improvement on that dimension has been missed.
 Using detailed micro data, Jones and Klenow report (Table 3, p. 2445) that increasing consumption inequality subtracted about 0.24 percentage points from welfare growth annually over the 1984-2006 period. In addition, increasing inequality in leisure subtracted another 0.08 percentage points.
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How to tell apart trade agreements that undermine democratic principles from those that don't [feedly]
I discussed in an earlier post on Brexit how to think about international agreements and the constraints on state action they entail in terms of democratic legitimacy. Since that discussion has relevance beyond Brexit, I've pasted the relevant part here below. The basic point is this: the fact that an international rule is negotiated and accepted by a democratically elected government does not inherently make that rule democratically legitimate.
The optimistic argument has been best formulated by the political scientists Bob Keohane, Steve Macedo and Andy Moravcsik. They point there are various ways in which global rules can enhance democracy -- a process that they call “democracy enhancing multilateralism.” Democracies have various mechanisms for restricting the autonomy or the policy space of decision makers. For example, democratically elected parliaments often delegate power to independent or quasi-independent autonomous bodies. Central banks are often independent and there are various other kinds of checks and balances in constitutional democracies. Similarly, global rules can make it easier for national democracies to attain the goals that they pursue even if they entail some restrictions in terms of autonomy. Keohane at al. discuss three specific mechanisms: global rules can enhance democracy by offsetting factions, protecting minority rights, or by enhancing the quality of democratic deliberation.
However, just because globalization can enhance democracy does not mean that it always does so. In fact there are many ways in which global governance works in quite the opposite way from that described by Keohane et al. Anti-dumping rules, for example, augment protectionist interests. Rules on intellectual property rights and copyrights have privileged pharmaceuticals companies and Disney against the general interest. Similarly, there are many ways in which globalization actually harms rather than enhances the quality of democratic deliberation. For example, preferential or multilateral trade agreements are often simply voted up or down in national parliaments with little discussion, simply because they are international agreements. Globalization-enhancing global rules and democracy-enhancing global rules may have some overlap; but they are not one and the same thing.
More broadly, international commitments can be used to tie the hands of governments in both democratically legitimate and illegitimate ways. External discipline can be sought in two different kinds of settings--one of which is much more defensible on the traditional democratic delegation grounds than the other.
Consider first the case where the government faces a "time-inconsistency" problem. It would like to commit to free trade or to fiscal balance, but realizes that over time it will give in to pressure and deviate from what is its optimal policy ex ante. So it chooses to tie its hands through external discipline. This way, when protectionists and big spenders show up at its door, the government says: "sorry, the WTO or the IMF will not let me do it." Everyone is better off, save for the lobbyists and special interests. This is the good kind of delegation and external discipline.
Now consider the second kind. Here, the government fears not its future self, but its future opponents: the opposition party (or parties). The latter may have different views on economic policy, and if victorious in the next election, may well choose to shift course. Now when the incumbent government enters an international agreement, it does so to tie the hands of its opponents. From an ex-ante welfare standpoint, this strategy has much less to recommend itself. The future government may have better or worse ideas about government policy, and it is not clear that restricting its policy space is a win-win outcome. This kind of external discipline has much less democratic legitimacy because, once again, it privileges one set of interests against others.
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William Saas, Jorge Amar, David Glotzer, and Scott Ferguson
This is the first part of a three-part series on Spain’s economic crisis, the program of the new leftist political party Podemos, and both the limitations and potential of the Spanish left today. The authors point to the importance of employment policy (and especially a job guarantee) for pulling Spain out of the crisis, the necessity of a “left exit” (lexit) from the euro, and the relevance of Modern Monetary Theory (MMT) in transcending conventional balanced-budget thinking.
William O. Saas is an assistant professor of rhetoric at Louisiana State University. His work has appeared in symplokē and Rhetoric & Public Affairs.
Jorge Amar is a Spanish economist, president of Asociación por el Pleno Empleo y la Estabilidad de Precios, or Full Employment and Price Stability Association), and a doctoral candidate in applied economics at the Universidad Valencia. Recently, Amar served as economic advisor for Spain’s Unidad Popular party.
David Glotzer is a valuation analyst at Solidifi, and freelance writer whose background is in Economics and Mathematics. His writings have appeared in CounterPunch, Investig’Action, Strategic Culture Foundation, and Young Progressive Voices.
Scott Ferguson is an assistant professor of humanities and dultural studies at the University of South Florida. He is also a Research Scholar at the Binzagr Institute for Sustainable Prosperity. His essays have appeared in CounterPunch, Naked Capitalism, and Flassbeck Economics International.
They are beautiful sights, the public squares of Madrid—open spaces, lush gardens, and sparkling fountains, all surrounded by striking architecture dating from the city’s days as seat of a colonial empire. These ornate public spaces now serve as makeshift residences for a growing number of Spanish dispossessed. After nearly a decade of austerity, depression, chronic unemployment, and perpetual political submission to the dictates of the Troika (the International Monetary Fund, European Central Bank, and European Commission), thousands displaced from work and home are left with little choice but to seek refuge in the few parcels of public infrastructure that remain available to them.
Improvisation is the name of the game for members of the new Spanish precariat. At Madrid’s main square, the Plaza Mayor, newly homeless citizens (some highly educated) rise early for work busking or selling scrap metal. Throughout the country, members of the growing reserve army of ninis—or “neither nors,” the quarter of the young Spanish who are neither in school, nor employed, nor in training programs—forage for food to take home to their squatted apartments. Los irrecuperables (“unrecoverables”), the more than half of long-term unemployed Spanish over age 50, are meanwhile forced to figure out how to subsist on severely reduced pensions and the charity of their fellows.
The homeless, ninis, and irrecuperables are not alone in their plight. Indeed, stability and security elude even the employed afortunados in austerian Spain. Recent labor law reforms, first passed by the center-left (and resolutely neoliberal) Spanish Socialist Workers’ Party (PSOE) and then expanded by the conservative People’s Party (PP), have eroded workers’ rights and enabled employers to seize an even larger share of national income. Wages and benefits are taking a beating, too. Total worker compensation fell from about €523 million in 2007 to less than €510 million in 2015. Even as unemployment has risen, total spending on unemployment benefits has fallen more than 25%. Temporary work is replacing traditional employment, with the average length of contract falling from 77 days in 2008 to 57 by 2014. (Formal contracts between employer and employee are legally required in Spain.) Part-time work constitutes one third of all labor contracts. Finally, the percentage of unpaid overtime rose from less than 40% in 2008 to over 55% in 2015—a sum equal to the lost income of approximately 87,000 full-time jobs.
Nearly 30% of the Spanish population is currently classified by the Unión General de Trabajadores (General Union of Workers, or UGT) as “at risk” of poverty. Any may consider joining the estimated 700,000 Spaniards who have fled the country to find marginal employment elsewhere. Most will opt to stay, however, knowing full well that that they are not welcome in other EU countries, and that their prospects would not improve by much in any of those countries, anyway.
What relief does the Spanish left have to offer a population so imperiled? The simple answer is: not much. On the one hand, the PSOE has consistently—if not exclusively—made things worse for Spain over the last decade. That the PSOE is presently in the throes of a slow and torturous death spiral is no consolation for the years of impoverishment and despair that resulted from the party’s servile deference to the Troika’s commands. On the other hand, the slick façade of the only-slightly-further-left Podemos makes poor cover for the purple party’s own orthodox underbelly. In the face of all evidence to the contrary, Podemos leadership appears convinced that “balanced budgets” are the best remedy for Spain’s economic ills. As recent elections have demonstrated, Spanish voters were less than inspired by Podemos’ master plan to squeeze more euros out of domestic businesses and middle-class families in order to facilitate increases in public spending. A similar plan—to transcend austerity through more efficient tax collection—has clearly not worked out well for Syriza and the Greeks. Spaniards simply want—and deserve—better.
The far left coalition, the United Left (UL), would give it to them, were it in a position to do so. While Podemos’ top economist Nacho Álvarez advocates for better tax enforcement as the key to achieving a more symmetrical balance sheet, Eduardo Garzón, economic advisor to UL and researcher at the Fundación por la Europa de los Ciudadanos, argues that a municipal jobs guarantee program is the only viable path to renewed Spanish prosperity. For Álvarez, the vital first steps to recovery are to “reduce the deficit more slowly” and to “broaden the tax base.” For Garzón, deficits and taxes are secondary to the need for “construction of a new alternative economic model that puts the current economy at the service of the people.” The disparity of ambition between the proposals of Álvarez and Garzón—an archaic and conservative accounting target for the former, a progressive full-employment agenda for the latter—is stark. Of the two, only one bears any real chance of achieving meaningful relief for the Spanish working class. Unfortunately, the force of Garzón’s rejoinder to Álvarez’s plan for functional-in-name-only finance is presently attenuated by UL’s minority position in the Podemos-led Unidos Podemos (“United We Can”) coalition, where the spirit of “sound finance” otherwise prevails unabated. Moreover, the very public conflict between Podemos’ top officials—“number one” Pablo Iglesias and “number two” Íñigo Errejón—makes for splashier headlines than does news of disagreement within the coalition regarding how best to escape from austerity.
The Jobs Guarantee
A “jobs guarantee” program is the best political tool for breathing new life into the Spanish economy. A proposal of this kind was presented to the Spanish parliament in 2014. Designed by Eduardo Garzón and presented to parliament by his brother, Alberto Garzón, the jobs guarantee program would have put a large portion of the ninis, irrecuperables, and the homeless back to work. As opposed to the current system, under which the last to be fired is the first to be hired, the Spanish jobs guarantee program sought to put most idle labor to work immediately, involving Spain’s dispossessed in socially meaningful and adequately compensated communal projects. In accordance with MMT, meanwhile, financing for Spain’s full employment economy would not be contingent upon tax revenues or government borrowing. Unlike the short-term and revenue constrained New Deal programs deployed in the United States during the 1930s, the Spanish jobs guarantee program should be financed through direct government authorization and appear as a fixed charge on the federal balance sheet.
Garzón’s proposal suffered a resounding defeat in 2014. Deluded by the poor logic of the neoliberal consensus and a punishing phantom gold standard, opponents of the program ignored Garzón’s arguments and voted against the bill without comment (here the Spanish saying, “no hay mayor desprecio que no hacer aprecio” or, there is no bigger contempt than not listening at all, is apt). It is also worth noting that, had the jobs guarantee been implemented under the aegis of the EU’s budget rules, the policy’s overall impact would have been severely limited by the fiscal straitjacket of Maastricht.
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This is the first part of a seven-part series with Peter Drahos, a Professor in the RegNet School of Regulation and Global Governance at the Australian National University. He holds a Chair in Intellectual Property at Queen Mary, University of London and is a member of the Academy of Social Sciences in Australia. In 2004 he and his co-author Professor John Braithwaite won the Grawemeyer Award in Ideas Improving World Order for their book Global Business Regulation. Prof. Drahos is interviewed by Lynn Fries, producer at The Real News Network.
Full text below the break.
PETER DRAHOS: Think for a moment about the history of mathematics. The rules of arithmetic were created, invented, discovered many, many centuries ago in ancient civilizations in Persia, in Greece, in Egypt and later in the Great Islamic Empires. Europe was something of a late-comer, actually, to mathematics. Many Europeans of course benefit from these profound discoveries in mathematics. Imagine if Europe had to pay licensing fees to these earlier societies. How would that have affected Europe’s development?Think of the rules of addition, or the rules of division. These are things that you learned as a child – multiplication tables. They’re driven by algorithms. The rule of arithmetic – lying behind them – are algorithms. So think of an algorithm of addition, for example, X + O = X. Every day we use that rule. We do mental calculations in our head. Everyday trillions of calculations are performed by computers using the algorithm of addition. An intellectual property owner could lay claim to an algorithm. So the social consequences of creating a private property right in something as important as the algorithms for addition are very, very profound.
LYNN FRIES: Welcome to TRN, I’m LF in Geneva. That was a clip from a talk on Understanding IP by Peter Drahos. How intellectual property rights got linked to trade is the story of TRIPS. Current trade deals like the Transpacific Partnership, TTIP, CETA are TRIPS-plus. So what’s TRIPS? The most important IP agreement of the 20th century, TRIPS was a trade agreement. TRIPS stands for Trade Related Aspects of Intellectual Property Rights, a World Trade Organization agreement; Two key words being, trade related which in one fell swoop, integrated intellectual property into the world system of trade and so globalized intellectual property rights. On the first of January, 1995 TRIPS literally came into force as it criminalized any infringement of its IP standards. Standards that define knowledge as private property needing criminal protection from theft, much like a car. TRIPS-plus trade deals push harder & further for more & more. Peter Drahos says the role of free trade agreements is to expand intellectual property’s empire.Joining us from Australia to explain the story of IP linked to trade is Peter Drahos. Peter Drahos is a Professor at the Australian National University, the School of Regulation & Global Governance. He holds the Chair in Intellectual Property at Queen Mary, the University of London. Peter Drahos is co-author with John Braithewaite of Information Feudalism: Who Owns the Knowledge Economy? and the award winning Global Business Regulation. Welcome Peter.
DRAHOS: Thank you Lynn. I’m very glad to be here.
FRIES: Let’s start with some big picture context on TRIPS.
DRAHOS: Yes, intellectual property or TRIPS was part of a much broader agenda. And this agenda had really been laid out by the OECD back in the 1960s and early 1970s. In which a lot of these ideas for transforming the world economy were thought about and written about.The idea was really to free the world in terms of capital investment. So the idea was that capital could move wherever it liked and obtain the most favorable circumstances that it could. Now the problem with that is that a lot of regulation has to be removed along the way in order for that to happen. Because obviously not all countries are equally wealthy. Some countries for example regulate prices of patents. That was something that the pharmaceutical industry was opposed to. They really wanted unregulated patent prices. And of course the effect of that is to raise the price of medicines. So if you are really committed to the idea of capital moving freely throughout the world without any restrictions the implication for national sovereignty is pretty profound.TRIPS is probably the most significant agreement of the 20th century. There were a lot of them but TRIPS really created a global platform for multinationals. Every country that joins the WTO, the World Trade Organization, has to comply with TRIPS.The TRIPS case study I think it’s a very important study in how a trade negotiation fails citizens. Because it was conducted in secrecy. Consumers weren’t present but even more importantly it was drafted by the corporations themselves because corporations have a lot of technical expertise. That have patent attorneys. They have intellectual property lawyers that are advising them. And so they were actually able to draft clauses, in fact, there was an entire draft agreement that was tabled by the Intellectual Property Committee before negotiators in the late 1980s. And essentially multinationals from Japan and from Europe and from the United States said to world governments this is what we want.So it’s not just a case of simple lobbying. It’s a very sophisticated form of global networking in which actual text produced to influence what are ultimately public laws. So the idea that private power drafts laws that we all have to abide by is something that should worry people in democracies.
FRIES: You’ve written extensively that a corporate elite has played the knowledge game for over a century but wanted to change the rules of the game several decades back. And that the appointment of Edmund Pratt to Pfizer as CEO in the 1970s was a key event in making it happen. Talk about that.
DRAHOS: Well I think the Pfizer story is a really interesting story about how one can change the world. How individuals can change the world. So we often talk about globalization as this abstract thing but what we don’t realize is that individuals have important ideas. Now in the case of Pfizer & Edmund Pratt as well as the consultants that he hired or that gave him advise their big idea was to stick intellectual property into trade agreements. It’s a simple but very, very powerful idea. So the whole significance of this story in a way lies in the fact that individuals change the rules of the game. Globalization is not just an abstract force. People make our world and they make it in response to certain values or goals that they have.
FRIES: Talk about the key players and their agenda.
DRAHOS: The key players were the pharmaceutical industry because they were amongst the first companies to internationalize. They saw the possibility of markets in poorer countries like India & China. But aside from pharmaceutical companies there were also telecommunications companies or what we now broadly understand to be information technology companies because they could see the importance of global markets. Agricultural companies, companies that related in farm related activities like Monsanto. But as well automotive and manufacturing companies such as General Electric. Companies that essentially took out a lot of patents. And of course, then there were the cultural industries. So the movie industry for example where obviously the United States had a lot of important interests because of its very strong motion picture industry.So there were a range of industries that came to understand that they would do better if they could strengthen their monopolies. It’s not that they didn’t already have intellectual property rights. They did. But what they wanted was to strengthen them far more. They essentially wanted to turn knowledge which is a public good into a private good. It’s a kind of simple but powerful idea.A way to think about it is say look knowledge is inherently a public good. Knowledge basically just diffuses throughout the world. It has for most of human history. The reason we have the equality in the world that we do is because knowledge has moved around. People have learned how to do things from other people.So TRIPS was really about eliminating competitors. So for example, the Indian generic industry was able to manufacture high quality products that people all around the world benefited from. So the idea that the US pharmaceutical industry had was that it could use TRIPS to impose product patents on Indian pharmaceutical manufacturers. The motion picture industry saw a way of strengthening copyright. And very importantly the big advantage of sticking intellectual property rights into a trade agreement was that the GATT or the WTO as we now know it had an enforcement mechanism. So that you basically had a means of enforcing these rights if countries did not comply with the standards. That was the real power behind the idea. That you basically could retaliate against countries using your trade defense tools. Whatever they happen to be.
FRIES: So US corporate leaders were the key players?
DRAHOS: It wasn’t just the United States that was ultimately involved in TRIPS because to impose a set intellectual property rights on the entire world when most countries are going to be losers from intellectual property rights, I mean not many poor people are going to gain from high priced text books in places like Pakistan or Vietnam or some of the really poor countries in the world. You are really raising the cost of education for these countries. You are raising the cost of medicines for these countries. You’re increasing inputs into farming. I mean why on earth would countries take on a deal like that?So these corporate leaders in the United States needed the help, the assistance of their European counterparts. So it wasn’t just US pharmaceutical companies that got in on the game. It wasn’t just US agricultural companies & US IT companies. And the same is true for Japan. I mean Japan also had pretty strong interests. We forget that Japan was the second biggest economy in the world by this stage. And so it’s really these three countries that come together and have interests.So it wasn’t that the United States had it all its own way. It had to compromise. It had to recognize European interests. But we can essentially talk about this as a sort of Anglo-American hegemony in which Japan assisted. And they essentially then inflicted this agreement on the rest of the world who were profound losers.
FRIES: We are going to break and be back with Part 2. Please join us as we continue this series on IP linked to trade with Peter Drahos. Peter Drahos, thank you.
DRAHOS: Thank you.
FRIES: And thank you for joining us on the Real News Network.
Originally posted at The Real News Network.
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Annual inflation-adjusted earnings of the top 1.0 percent of wage earners grew 2.9 percent in 2015, and the top 0.1 percent’s earnings grew 3.4 percent, according to our analysis of the latest Social Security Administration wage data. What is relatively unique about 2015 was that the 3.4 percent wage growth for the bottom 90 percent matched that of the top 0.1 percent. This strong wage growth for the bottom 90 percent reflects both the lull in inflation (up just 0.1 percent) and the failure of wage inequality to continue its growth in 2015. Annual wages of the bottom 90 percent now stand 3.5 percent above what they were pre-recession in 2007, with all of that growth essentially occurring in 2015. The top 1.0 percent’s earnings have surpassed their previous high point, attained in 2007, by a mere 0.2 percent, recovering from the steep 15.6 percent fall during the financial crisis from 2007–09. High earners between the 90th and 99.9th percentile have seen the strongest growth since 2007, with earnings rising 7.7 percent. It’s only the earnings of the top 0.1 percent that remain below 2007 levels (down 5.1 percent).
Wage inequality has grown tremendously over the longer-term period from 1979 through 2015. The annual earnings of the top 1.0 percent rose 156.7 percent from 1979 to 2015 while the very top 0.1 percent enjoyed earnings growth of 338.8 percent. In contrast, the bottom 90 percent of wage earners had annual earnings grow by just 16.7 percent over the 1979–2007 period and an additional 3.5 percent between 2007 and 2015 for a cumulative annual earnings growth of 20.7 percent over the thirty-six years from 1979 to 2015.
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The national recovery since the end of the Great Recession has been needlessly held back by spending cuts at all levels of government. Figure A below compares the growth in per capita spending by federal, state, and local governments in this recovery with previous recoveries.
As tight as federal spending growth has been in recent years, the bulk of the differences between the current recovery and previous ones shown in Figure A actually stems from state and local spending decisions. These state-level spending cutbacks have held down growth substantially.
States, unlike the federal government, are generally constrained in their ability to boost spending by the need to raise revenue. But as a general rule, government spending boosts economic activity in a weak economy more than tax cuts drag on activity. (In economist jargon, spending increases have higher “multipliers” than revenue increases.)
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