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Monday, January 30, 2017

EPIC Radio Podcasts:The Poetry Show Podcast featuring Dame Carol Ann Duffy

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Blog: EPIC Radio Podcasts
Post: The Poetry Show Podcast featuring Dame Carol Ann Duffy
Link: http://podcasts.enlightenradio.org/2017/01/the-poetry-show-podcast-featuring-dame.html

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Summers: Markets enjoying a sugar high that will not last [feedly]

Markets enjoying a sugar high that will not last
http://larrysummers.com/2017/01/29/markets-enjoying-a-sugar-high-that-will-not-last/

This week the Trump rally continued as the Dow crossed 20,000 and our President issued a celebratory tweet. How much does this mean? To what extent is it a vindication of the economic policy approaches pursued by the new Administration? Will the post election rally continue? No one knows these answer and market timing is a fool's game but I remain persuaded that markets and the economy are most likely enjoying a sugar high that will not last a year.

First Dow 20,000 is a meaningless benchmark and crossing it means little. Its numerology not analysis to focus on round numbers. The Dow is an odd and arbitrary index which weights companies by their share price not their market value. It is highly limited in who is included with Goldman Sachs accounting for over 20 percent of the gain in the 30 stock index since election day.

Second, as Bob Rubin constantly reminded his colleagues in the Clinton administration "markets go up, markets go down" and it is a mistake to judge policy on immediate market reactions rather than concentrating on fundamentals. The observation that the best post-election pre-inauguration performance of the stock market in the last 100 years occurred during Herbert Hoover's transition underscores this point as does the market's poor performance during the Roosevelt and Obama transitions.

Third, there are indicators in markets of possible trouble ahead. While financial stocks have been very strong over the last several months, insider sales have soared.

Despite what most observers see as highly uncertain environment, market expectations of near term volatility are near record lows suggesting scope for sudden disillusionment. Rapid inflows into mutual funds could easily go into reverse.

Fourth, the fundamental basis for a big market rally is very unclear. If "pro business policies" were key over time it would not be the case that Democrat administrations have consistently seen stronger markets than Republican ones over the last 70 years. Recall also that nearly half of S&P 500 revenue is earned abroad and will not be enhanced by new US domestic policies but may be hurt by new nationalist measures. It is far from clear that corporate tax reform on the scale envisioned by the new administration will pass this year and even the hallmark 1986 Act had only modest stock market impacts. The impact of regulatory changes will be felt only in some sectors and may be offset by new populist measures such as restrictions on pharmaceutical pricing.

Fifth, and most important new governments with authoritarian tendencies have historically brought about bull markets even before they led to disaster. Governments with much stronger authoritarian tendencies than anything plausible in the USA like those of Hitler or Mussolini nonetheless saw strong markets in their early years.

I am not sure which is more difficult: predicting what President Trump will do next or timing the market. Either way after the events of the last week it is much easier to imagine downside than upside scenarios.


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Dean Baker: Truthiness on Trade [feedly]

Truthiness on Trade
http://cepr.net/publications/op-eds-columns/truthiness-on-trade

With the official death of the Trans-Pacific Partnership (TPP) and the likely renegotiation of the North American Free Trade Agreement (NAFTA), the proponents of these deals are doubling down in their defense of the current course of US trade policy. While there are serious arguments that can be made in defense of these policies, advocates are instead seeking to deny basic reality.

These trade policy proponents are trying to deny that these policies have hurt large segments of the workforce and are claiming that the people, who believe that they were hurt by trade, are simply misinformed. The proponent's story is that the real cause of job loss was the impersonal force of technology, not a trade policy that deliberately placed US manufacturing workers in direct competition with low paid workers in the developing world.

Fortunately this is a case where the facts are clear. The people who think they were hurt by trade are right. It is the people who blame technology who are misinformed or worse.

The obvious error in the technology or automation story is that automation is not anything new. We have been seeing increases in productivity in manufacturing forever; it is not something that just happened in the last two decades. In fact, the most rapid period of technological change was in the quarter century from 1947 to 1973, not the last two decades.

In spite of increases in productivity growth, there was relatively little net change in manufacturing employment in the three decades from 1970 to 2000. There were 17.8 million jobs in manufacturing in 1970 and 17.3 million in 2000. There were cyclical ups and downs, but the downward trend was relatively modest. To be clear, manufacturing was declining as a share of total employment, but there was little change in the absolute level of employment.

This changed in the years from 2000 to 2007. During this seven-year period, manufacturing employment fell by 3.4 million jobs to 13.9 million. Note that 2007 is before the collapse of the housing bubble that threw the economy into recession. The reason for this plunge in employment is simple, the trade deficit exploded to almost 6 percent of GDP, more than $1.1 trillion in today's economy.

To argue that this surge in the trade deficit was not associated with a loss of manufacturing jobs is absurd on its face. Does anyone seriously want to argue that if the trade deficit had remained near 1.5 percent of GDP (its mid-1990 level), that we would not have more manufacturing jobs. Or to flip the question, can we add more than $1 trillion to our annual output in manufacturing without hiring additional workers?

And these job losses were concentrated in the traditional industrial states that featured prominently in the fall election. Ohio lost 250,000 manufacturing jobs during this period, one quarter of its total. Michigan lost 280,000 jobs, more than 30 percent of its manufacturing employment. Pennsylvania lost more than 300,000 manufacturing jobs, roughly one-third of its total.

None of these numbers are seriously contestable outside of Donald Trump's alternative fact universe. They all come from the Bureau of Labor Statistics and can be easily verified by any of the commentators blaming automation, if they were interested in actually knowing anything about the issue.

In fact, this story really understates the impact of trade since the imbalances that lead to the housing bubble and the subsequent crash and Great Recession were directly tied to the massive trade deficit the United States ran in this period. For this reason, people would not be wrong to say that our trade policies were an important contributor to the Great Recession and its devastating impact on the labor market.

It is also worth pointing out we could have pursued trade policies that were not so harmful to these workers. Our high dollar policy, which began under Treasury Secretary Robert Rubin in 1996, was central to the huge trade deficits of the next decade.

Also, contrary to the folk wisdom of the elites, we have selective protectionism, not free trade. While it is easy to import manufactured goods produced by the cheapest labor anywhere in the world, even a highly qualified foreign doctor would get arrested for practicing medicine in the United States unless they first completed a US residency program. We subjected our manufacturing workers to international competition, while largely protecting our most highly paid professionals.

This reality check is important. The people who turned away from the Democrats and voted for Trump really did have legitimate grievances. Trade policies supported by the leadership of both parties had a devastating impact on the lives of millions of workers and their families.

This doesn't justify voting for a realty-challenged bigot like Trump, but it is flat out dishonest to deny the damage that our trade policies have inflicted on large segments of the country. Denying this reality is not a promising path for winning back the support of these voters, although it may make the people who benefited from these trade policies feel better about themselves.


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EPIC Radio Podcasts: Fanny Interviews legendary labor organizer Stewart...

EPIC Radio Podcasts: Fanny Interviews legendary labor organizer Stewart...: Fanny interviews legendary organizer Stewart Acuff Jan 24th, 2017 by democracyroad Storytelling with Fanny Crawford: Fanny elicits a d...

EPIC Radio Podcasts:Fanny Interviews legendary labor organizer Stewart Acuff

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Blog: EPIC Radio Podcasts
Post: Fanny Interviews legendary labor organizer Stewart Acuff
Link: http://podcasts.enlightenradio.org/2017/01/fanny-interviews-legendary-labor.html

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EPIC Radio Podcasts:Interview with Sammi Brown

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Blog: EPIC Radio Podcasts
Post: Interview with Sammi Brown
Link: http://podcasts.enlightenradio.org/2017/01/interview-with-sammi-brown.html

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Eastern Panhandle Independent Community (EPIC) Radio:Monday Lineup on EPIC Radio, Jan 30, 2017

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Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Monday Lineup on EPIC Radio, Jan 30, 2017
Link: http://www.enlightenradio.org/2017/01/monday-lineup-on-epic-radio-jan-30-2017.html

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Sunday, January 29, 2017

Eastern Panhandle Independent Community (EPIC) Radio:EPIC Calendar

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Check out the revised EPIC Calendar. Get involved in community educational radio

Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: EPIC Calendar
Link: http://www.enlightenradio.org/p/epic-calendar.html

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Fwd: [Ualeindiv] WaPo: 1000s of academics sign protest of immigration order


pLEASE FORWARD TO OTHER ACADEMICS

Petition and instructions at link. 

https://notoimmigrationban.com/

Here's some press: 

20 Nobel laureates, thousands of academics sign protest of Trump immigration order

The list is already huge. But here's something everyone at or near a campus can do: search through for your campus and see whom you know who hasn't yet signed. 

ACADEMICS AGAINST IMMIGRATION EXECUTIVE ORDER

We are still gathering and verifying signatures.
To add your name, please send an email to [NoToImmigrationEO AT gmail DOT com] from your academic email.
The subject of your email must be one line: name, award/distinction, title, affiliation
(e.g. John Doe, Nobel Laureate (Physics 1999), Professor, Harvard University)
-----------------------------------------------------------------------------------

Summary of notable signatories:
35 Nobel Laureates
34 Winners of Fields/Dirac/Clark/Turing/Poincare Medals, Breakthrough Prize, Pulitzer Prize, MacArthur Fellowship
178 Members of the American Mathematical Society and National Academies of Arts, Sciences, Engineering
-----------------------------------------------------------------------------------

The Petition


President Donald Trump has signed an Executive Order (EO) proposing a 90-day suspension of visas and other immigration benefits to all nationals of Iran, Iraq, Syria, Sudan, Yemen, Libya and Somalia. The unrealistic conditions required for discontinuing the suspension make it very likely that this EO will turn into a permanent ban. We, the undersigned academics and researchers from a variety of fields of study, backgrounds, and personal convictions, would like to voice our concern and strongly oppose this measure on three grounds:

1.    This Executive Order is discriminatory. The EO unfairly targets a large group of immigrants and non-immigrants on the basis of their countries of origin, all of which are nations with a majority Muslim population. This is a major step towards implementing the stringent racial and religious profiling promised on the campaign trail. The United States is a democratic nation, and ethnic and religious profiling are in stark contrast to the values and principles we hold.

2.    This Executive Order is detrimental to the national interests of the United States. The EO significantly damages American leadership in higher education and research. US research institutes host a significant number of researchers from the nations subjected to the upcoming restrictions. From Iran alone, more than 3000 students have received PhDs from American universities in the past 3 years. The proposed EO limits collaborations with researchers from these nations by restricting entry of these researchers to the US and can potentially lead to departure of many talented individuals who are current and future researchers and entrepreneurs in the US. We strongly believe the immediate and long term consequences of this EO do not serve our national interests.

3.    This Executive Order imposes undue burden on members of our community: The people whose status in the United States would be reconsidered under this EO are our students, friends, colleagues, and members of our communities. The implementation of this EO will necessarily tear families apart by restricting entry for family members who live outside of the US and limiting the ability to travel for those who reside and work in the US. These restrictions would be applied to nearly all individuals from these countries, regardless of their immigration status or any other circumstances. This measure is fatally disruptive to the lives of these immigrants, their families, and the communities of which they form an integral part. It is inhumane, ineffective, and un-American.

These bans, as proposed, have consequences that reach beyond the scope of national security. The unethical and discriminatory treatment of law-abiding, hard-working, and well-integrated immigrants fundamentally contravenes the founding principles of the United States.

We strongly denounce this ban and urge the President to reconsider going forward with this Executive Order.

Signed by 4888 academicians 

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Saturday, January 28, 2017

Gates and Buffet talk the(ir) future

Eastern Panhandle Independent Community (EPIC) Radio: New EPIC Podcasts

Eastern Panhandle Independent Community (EPIC) Radio: New EPIC Podcasts: Check out these new podcasts of EPIC Radio Shows The Hound Dog and Abel Eakin Show does Shepherdstown Truth. Jan 27 Paris on the Pot...

Eastern Panhandle Independent Community (EPIC) Radio:New EPIC Podcasts

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Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: New EPIC Podcasts
Link: http://www.enlightenradio.org/2017/01/new-epic-podcasts.html

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Resistance News:Stewart Acuff’s Inaugural RESISTANCE RADIO Show

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Blog: Resistance News
Post: Stewart Acuff’s Inaugural RESISTANCE RADIO Show
Link: http://resistance.enlightenradio.org/2017/01/stewart-acuffs-inaugural-resistance.html

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Arrivals To U.S. Blocked And Detained As Trump's Immigration Freeze Sets In [feedly]

Arrivals To U.S. Blocked And Detained As Trump's Immigration Freeze Sets In
http://www.npr.org/sections/thetwo-way/2017/01/28/512158238/arrivals-to-u-s-blocked-and-detained-as-trumps-immigration-freeze-sets-in

Less than a day after President Trump suspended immigration from seven countries, airports in the U.S. and abroad are seeing the effects. Several passengers have been held or blocked from entry.

(Image credit: Olivier Douliery-Pool/Getty Images)

VISIT WEBSITE
 -- via my feedly newsfeed

Real GDP increased at 1.9% Annualized Rate in Q4 [feedly]

Real GDP increased at 1.9% Annualized Rate in Q4
http://economistsview.typepad.com/economistsview/2017/01/real-gdp-increased-at-19-annualized-rate-in-q4.html

Calculated Risk:

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2016 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent. 
...
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports, a deceleration in PCE, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment.

The advance Q4 GDP report, with 1.9% annualized growth, was below expectations of a 2.2% increase. ...


 -- via my feedly newsfeed

Links for 01-27-17 [feedly]

Friday, January 27, 2017

Thinking straight about fair trade [feedly]

Thinking straight about fair trade
http://rodrik.typepad.com/dani_rodriks_weblog/2017/01/thinking-straight-about-fair-trade.html

In the previous entry, I discussed the real-world distributional effects of trade agreements, in the specific case of NAFTA. Why should we care about such redistribution and how should we deal with it?

It is useful to distinguish between two different versions of an argument as to why trade may be problematic from a social or political perspective.

  1. Trade is problematic because it redistributes income.
  2. Trade is problematic because it violates norms and understandings embodied in our institutional arrangements – it undercuts domestic social bargains.

The first case is no different than a million other things in a market economy that can have distributional implications. It does not in general require that we target trade specifically.

But the second case is different, and may require trade remedies. I associate the valid core of fair-trade or social-dumping concerns with this particular possibility.

I elaborate on this argument here. Here is a teaser:

Economists like to claim that the purpose of free trade is to eliminate barriers that impair the efficient global allocation of resources, while helping some of the world's poorest people. It's an argument undermined by a simple thought experiment. Suppose we wiped the slate clean of the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, and other similar trade deals, and the world's trade negotiators banged their heads to figure out the best way of achieving their stated goals. What would they be negotiating about?

Tariffs? Rules on intellectual property rights? Investment regulations?

Read the rest here.


 -- via my feedly newsfeed

Trade War Threat Grows [feedly]

Trade War Threat Grows
http://triplecrisis.com/trade-war-threat-grows/

Jomo Kwame Sundaram

New American President Donald Trump has long insisted that the United States has been suffering from poor trade deals made by his predecessors. Renegotiating or withdrawing from these deals will be top priority for his administration which views trade policy as key to US economic revival under Trump. What will that mean?

The new administration promises 'tough and fair agreements' on trade, ostensibly to revive the US economy and to create millions of mainly manufacturing jobs. The POTUS is committed to renegotiating the North American Free Trade Agreement (NAFTA), signed in 1994 by the United States, Canada and Mexico. And if NAFTA partners refuse what the White House deems to be a 'fair' renegotiated agreement, "the President will give notice of the United States' intent to withdraw from NAFTA".

Constraints?

Presidential fiat may well be extended in radically new ways by the incoming president with, or perhaps even without the support of a Republican-controlled Senate and Congress. However, in terms of trade, Trump may be constrained by his own party's 'free trade' preferences, while the minority Democratic Party is likely to remain generally hostile to him. 

Many informed observers doubt the ability of the US President to unilaterally impose trade policies, as the POTUS is subject to many checks and balances, conditions and constraints. But a widely held contrary view is that existing legislation allows the president considerable leeway. But as such ambiguity can be interpreted to grant the president broad authority over trade policy, Trump is likely to use this to the fullest. 

Worryingly, Trump and his appointees often appear to see trade as a zero -sum game, implying that the only way for the US to secure its interests would be at the expense of its trading partners. Their rhetoric also implies that the most powerful country in the world has previously negotiated trade deals to its own disadvantage – a view almost no one else agrees with. 

Thus, Trump's belligerent rhetoric threatens trade wars or acquiescence to the US as the only means to change the status quo. But future deals even more favourable to the US can only be achieved with weaker partners, e.g., through bilateral treaties, or those with ulterior motives for accepting even less favourable terms and conditions. 

Unequal effects

Of course, the real world is more complicated than one of competing national interests. For example, while US corporations and consumers may benefit from relocating production abroad, American workers who lose their jobs or experience poorer working conditions will be unhappy. Clearly, there is no singular national interest. 

Trump's rhetoric so far implies an opposition of American workers to the 'globalist' US elite with scant mention of consumer interests, the main source of support for the globalists. The unequal effects of freer trade have long been recognized by international trade economists except globalization cheerleaders who insist that freer trade lifts all boats – a myth belied by the experiences of increasing numbers of American workers and others in recent decades. 

Meanwhile, US protectionists have been in denial about labour-displacing automation throughout the economy. They also fail to recognize how 'laissez faire' American capitalism has let the devil take the growing ranks of the hindmost. In contrast, 'managed' capitalism has often ensured less disruptive and painful transitions due to trade liberalization and automation, e.g., through government retraining schemes.

Trade rules biased

Nevertheless, it remains unclear how the Trump administration's trade strategy will unfold. While trading system rules are skewed to favour the powerful, US relations with trading partners have sometimes become dysfunctional and perhaps less advantageous. Hence, a more aggressive Trump administration may well secure better deals for US interests. Some options favouring US companies would only involve minor disruptions, while others could disrupt the US as well as the world economy, possibly precipitating another global recession.

Besides renegotiating or rejecting bilateral and plurilateral deals, the US could also bring more cases before the World Trade Organization (WTO). After all, the US and Europe wrote most WTO rules after the Second World War, and the US has almost never revised its trade rules and practices, even after losing cases. The US has long used the WTO dispute settlement mechanism to great effect until it began disrupting its functioning recently after losing a case.

Trump has long threatened targeted duties to ensure compliance and more favourable deals. While trade lawyers debate the scope for and legality of such actions, most trade economists have argued that US consumers will pay much higher prices to save relatively few jobs.

Triggering trade war

However, instead of imposing duties on specific products, as allowed for by WTO rules, emergency authority may be invoked to impose broad-based tariffs on exports from specific countries, as Trump has threatened to do. 

Such an escalation risks causing significant economic damage all round, especially if it provokes retaliatory actions, with no guarantee of securing a more favourable deal. A relatively minor trade dispute can thus easily spin out of control to become a very disruptive global trade war.

After Trump's inauguration, the White House announced US withdrawal from the Trans-Pacific Partnership (TPP) trade deal, effectively killing the agreement. Ironically, the Obama administration had claimed the TPP would enable the US to write economic rules for the region instead of China, Trump's favourite bogey. Thus, even presidential one-upmanship can trigger the new world trade war.

Bullying as global trade strategy?

In yet another irony, in Davos last week, a Goldman Sachs veteran announced the sale of a majority stake in his multibillion dollar business to a Chinese group before joining the Trump administration as senior trade adviser. Perhaps as a foretaste of what to expect, in response to Chinese President Xi's reminder that "No one will emerge as a winner in a trade war", he warned that China stands to lose 'way more' than the US if it retaliates when the new administration imposes selective tariffs on its exports.

Originally published by Inter Press Service.

Triple Crisis welcomes your comments. Please share your thoughts below.


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As I always say, don’t conflate trade deals with trade (or the trade deficit) [feedly]

As I always say, don't conflate trade deals with trade (or the trade deficit)
http://jaredbernsteinblog.com/as-i-always-say-dont-conflate-trade-deals-with-trade-or-the-trade-deficit/

Over at the NYT.

Special for OTE readers, parts that had to be cut for space:

"Since the mid-1970s, the US has regularly imported more than we've exported. Net exports (exports-imports) have averaged just under -4 percent of GDP since 2000. Trade deficits are by definition a drag on growth, and that's especially true in sectors, like manufacturing, that drive the deficit. By linking the trade deficit to manufacturing job loss, Trump made a legitimate argument that resonated with some of his core voters.

There are, of course, many moving parts in the economy, and the trade deficit's drag on growth has often been offset by other components of GDP. In 2007, the trade deficit was -5 percent of GDP while the unemployment rate was a low 4.6 percent. But the offset in play—the housing bubble—came at a great cost (and was itself, through inflows of cheap capital, related to the trade deficit)."

The idea here is to explain why targeting the economically large and persistent US trade deficit is a reasonable policy goal.

This view is not widely accepted among economists. Everyone gets the by identity, the trade deficit is a drag on growth, but numerous arguments push back on the idea that it's a problem.

Dean Baker and I tackle the issue here. The punchline, as suggested above, is not that the drag impact of the trade deficit never gets offset. It clearly does, at times. But when offsets are less forthcoming–the Fed's run out of ammo; the fiscal authorities have gone all austere–the demand-reducing drag from trade imbalances is a problem.

Second, even in flush times, the trade deficit, which is exclusively in manufactured goods, affects the industrial composition of employment, and it is in this regard that Trump has been able to so effectively tap its politics. While high-ranking democrats were running around pushing the next trade deal, he was talking directly to those voters who clearly perceived themselves far more hurt than helped by globalization.

Third, the parenthetical reference above to cheap capital inflows plays a central role in my analysis. Details here and in links therein, but I find that many economists who view the trade deficit as wholly benign fail to deal with these macrodynamics.


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The Fruits of Growth: Economic Reforms and Lower Inequality [feedly]

The Fruits of Growth: Economic Reforms and Lower Inequality
https://blog-imfdirect.imf.org/2017/01/26/the-fruits-of-growth-economic-reforms-and-lower-inequality/

v

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Paul Krugman: Making the Rust Belt Rustier [feedly]

Paul Krugman: Making the Rust Belt Rustier
http://economistsview.typepad.com/economistsview/2017/01/paul-krugman-making-the-rust-belt-rustier.html

Will Trump Repeat Reagan's mistake?:

Making the Rust Belt Rustier: Donald Trump ... appears serious about his eagerness to reverse America's 80-year-long commitment to expanding world trade. On Thursday the White House said it was considering a 20 percent tariff on all imports from Mexico; doing so wouldn't just pull the U.S. out of NAFTA, it would violate all our trading agreements. ...
Taken together, the new regime's policies will probably lead to a faster, not slower, decline in American manufacturing.
How do we know this? We can look at the underlying economic logic, and we can also look at what happened during the Reagan years, which in some ways represent a dress rehearsal for what's coming. ...
What Reagan did ... was blow up the budget deficit with military spending and tax cuts. This drove up interest rates, which drew in foreign capital. The inflow of capital, in turn, led to a stronger dollar, which made U.S. manufacturing uncompetitive. The trade deficit soared — and the long-term decline in the share of manufacturing in overall employment accelerated sharply.
Notably, it was under Reagan that talk of "deindustrialization" and the use of the term "Rust Belt" first became widespread.
It's also worth pointing out that the Reagan-era manufacturing decline took place despite a significant amount of protectionism, especially a quota on Japanese car exports ... that ended up costing consumers more than $30 billion in today's prices.
Will we repeat this story? The Trump regime will clearly blow up the deficit, mainly through tax cuts for the rich. (Funny, isn't it, how all the deficit scolds have gone quiet?)..., interest rates have already risen in anticipation of the borrowing surge, and so has the dollar. So we do seem to be following the Reagan playbook for shrinking manufacturing. ...
And there's a further factor to consider: ... Manufacturing is a global enterprise, in which cars, planes and so on are assembled from components produced in multiple countries. ... There will, inevitably, be huge dislocation: Some U.S. factories and communities will benefit, but others will be hurt, bigly, by the loss of markets, crucial components or both.
Economists talk about the "China shock," the disruption of some communities by surging Chinese exports in the 2000s. Well, the coming Trump shock will be at least as disruptive.
And the biggest losers, as with health care, will be white working-class voters who were foolish enough to believe that Donald Trump was on their side.
VISIT WEBSITE
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Dollars and Sense New Issue!-- Trump and neo-liberalism [feedly]

New Issue!
http://dollarsandsense.org/blog/2017/01/new-issue-7.html

Our January/February issue is finally out–sent to e-subscribers a couple of days ago, and in the mail to print subscribers.  We most recently posted David Bacon's contribution to the issue, What Trump Can and Can't Do to Immigrants, especially timely given Trump's recent executive orders.

Here is the issue's editorial note:

Arise!

If you've just awakened from a Rip Van Winkle-like sleep, you should probably stay lying down for a little while. You're in for a shock.

A presidential candidate who slandered Mexican immigrants as criminals and rapists, claimed a Mexican-American judge was inherently biased against him, called for a ban on Muslims coming to the United States, called for compulsory registration of Muslims in the country, boasted of sexually assaulting women, insinuated that gun advocates might assassinate his opponent, and pledged to abide by the election result "if I win" … was elected president.

Here's another shocker. Who among us expected to hear the Republican nominee for president—just four years after the party's nominee was private-equity mogul Mitt Romney—say the following, as Donald Trump did in a October 2016 speech? "The establishment has trillions of dollars at stake in this election. For those who control the levers of power in Washington and for the global special interests. They partner with these people who don't have your good in mind. … It's a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities."

The leading figures in the mainstream of the Democratic Party certainly did not expect an adversary raging against corporate globalization (even with the anti-Semitic dog whistles audible in Trump's denunciations of the "global elite"). For decades, leading Democrats had bought into the neoliberal economic agenda, steering away from policies that could get them branded as "anti-business." They derided criticism from the left as juvenile and quixotic, not dreaming that they would be outflanked on the right by a populism like Trump's.

The analysis by liberal and progressive commentators since the election has focused largely on why Trump won and what it says about the country. We have to remember, however, that election results are not revelations of the national soul—especially not under the United States' non-majoritarian presidential election system. The overt racism, nativism, and misogyny of Trump, his allies, and supporters are important facts about the United States today, but they are not the singular truth about the country or its people.

Yet there is nothing to be gained by minimizing what Trump has conjured. He tapped into widespread sentiments of grievance in a manner typical of right-wing populists: simultaneously directing his supporters' ire at (some of) the wealthy and powerful and (some of) the poor and marginalized—blaming both, jointly, for the ruin of the country. The people Trump speaks to and claims to speak for are overwhelmingly white, predominantly male, and the grievances to which he gives voice are not simply those of workers and poor people in general. They are, rather, the particular grievances of those who recoil at gradually sinking into a mass they see as beneath them.

The articles in this issue attempt to dig deeply into both what has gotten us to this point, and what are possible ways forward.

Our cover article for the issue, by political scientist Sasha Breger Bush, argues that what we're seeing is not the end of neoliberalism, but rather its transformation, from globalized neoliberalism into "national neoliberalism," and its culmination: a corporate capture of government now more complete than ever.

Steve Pressman and Gerald Friedman both add depth to our understanding of Trump and what he represents. Pressman explains Trump in light of the squeeze on "middle class" incomes and the rise of economic inequality. Friedman adds to his previous analysis of American nativism (the November/December 2016 cover story) an "Economy in Numbers" on U.S. immigration in the current era.

David Bacon and Frank Ackerman, meanwhile, turn from retrospect to prospect. What does the coming period hold in store? Bacon focuses on immigration policy, noting the constraints under which a Trump administration will operate. Even in an era of increased border enforcement and deportations nationwide, Bacon argues, immigration policy will continue to be driven by employers' need for a cheap and controllable labor force.

Meanwhile, Ackerman looks at the prospect for meaningful climate action, even with the Denier-in-Chief in the White House. He argues for a consortium of U.S. state and local governments—a "Green-State America"—committing to meet the emissions-reduction goals set down in the Paris climate agreement. "And this could be a model for other issues," he concludes. "Green-State America might also want to support international treaties on the rights of women, the treatment of migrants, the rights of indigenous peoples, and more."

To be sure, there will be many struggles ahead. Time to arise.


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Eastern Panhandle Independent Community (EPIC) Radio:Big Lineup for Friday on EPIC Radio

John Case has sent you a link to a blog:



Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Big Lineup for Friday on EPIC Radio
Link: http://www.enlightenradio.org/2017/01/big-lineup-for-friday-on-epic-radio.html

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Thursday, January 26, 2017

Austerity Economics has just been Smashed. By the IMF. [feedly]

Austerity Economics has just been Smashed. By the IMF.
http://www.globalpolicyjournal.com/blog/26/01/2017/austerity-economics-has-just-been-smashed-imf

Sometimes an ideology is so brilliantly propagated that observers might not even notice it's an ideology. In the corridors of power and in mainstream discussion, it ceases to be questioned. Then it goes catastrophically wrong. And it begins to seen again for the ideology it is. It becomes questioned again. And, if they are smart, leaders hear this and start to self-correct. This is where we've got to with neoliberalism, austerity, and rising inequality. Except for the self-correct part. Right now, instead of self-correction, we're seeing many mainstream politicians unable to shift away from dead economics, and what seems in too many countries like the start of social breakdown. Change is well overdue. Who can prompt leaders to drop the old economic nostrums are causing so much harm?

Enter the IMF with a sledgehammer. Progressives duck in case in the sledgehammer is meant for them. But then the IMF demolishes the case for neoliberalism and austerity. It sounds extraordinary, and it is.

Today the IMF will launch a new report, "Macro-Structural Policies and Income Inequality in Low-Income Developing Countries", the latest in series that mark the intellectual journey the IMF research department has been travelling in recent years. Packed with detailed quantitative analysis it demonstrates that much of what elites have been advancing as unquestioned economics is demonstrably harmful both to economic growth and to public wellbeing.

Of course what makes this surprising, and what may make some progressives unenthusiastic about welcoming this, is also what makes it so powerful: an institution that has been, for far too long, a defender of the free market story and the Washington Consensus – the idea that liberalizing trade, privatizing everything possible and cutting down public spending was a one-size-fits-all solution to any government in trouble – has now refuted it.

This paper is not the first by the IMF to take a stand on inequality, but it is notable because it claims in no uncertain terms that public spending – i.e. the opposite of the budget cuts that it once advocated for – decreases income inequality. They even have a formula – a 1% increase in public spending, they report, leads to a 2.3 decrease in inequality after 5 years.

 

 

The paper also takes a strong stand against prioritizing indirect taxes, such as VAT, showing that they increase inequality.

 

 

The paper not only demolishes neoliberal economics but also helps build the evidence base around the kinds of policies that are necessary to reduce inequality. Those include some of the things that NGOs like ActionAid have been talking about: emphasizing direct taxes instead of indirect taxes, spending on social services (this paper focuses on infrastructure, but we would see that more broadly), support for cash transfer programmes, and the need to ensure that any programs that are likely to increase inequality are offset by measures to decrease inequality.

Lives and livelihoods are being lost because those who design policies are following a damaging model. And now, in countries around the world, the lack of action in inequality is leading to a resurgence of xenophobic nationalism and the far right. Broken economics is breaking society. But too many leaders still seem trapped in the belief that there is no alternative. So let them know that today the IMF – yes, the IMF – has comprehensively set out why that broken economics must be consigned to the dustbin of history.

 

 

Ben Phillips, currently based in Nairobi, is co-founder of the #FightInequality alliance, and Campaigns and Policy Director at ActionAid International. He has lived and worked in four continents and a dozen cities, and led programmes and campaigns teams in Oxfam, Save the Children, the Children's Society, the Global Call to Action Against Poverty and the Global Campaign for Education. He began his development work at the grassroots, as a teacher and ANC activist living in Mamelodi township, South Africa, in 1994, just after the end of apartheid. All his posts are personal reflections. He tweets at @benphillips76. This post first appeared on Global Dashboard.


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The Color of Law: A Forgotten History of How Our Government Segregated America [feedly]

The Color of Law: A Forgotten History of How Our Government Segregated America
http://www.epi.org/publication/the-color-of-law-a-forgotten-history-of-how-our-government-segregated-america/

In The Color of Law (to be published by Liveright in May 2017), Richard Rothstein argues with exacting precision and fascinating insight how segregation in America—the incessant kind that continues to dog our major cities and has contributed to so much recent social strife—is the byproduct of explicit government policies at the local, state, and federal levels.

To scholars and social critics, racism in our neighborhoods has long been viewed as a manifestation of unscrupulous real estate agents, unethical mortgage lenders, and exclusionary covenants working outside the law. This is what is commonly known as "de facto segregated," practices that were the outcome of private, not legal or public policy, means. Yet, as Rothstein breaks down in case after case, until the last quarter of the 20th century de facto paled in comparison with de jure (government-sponsored) segregation.

A former columnist for the New York Times and a research associate at the Economic Policy Institute, as well as a Fellow at the Thurgood Marshall Institute of the NAACP Legal Defense Fund, Rothstein has spent years documenting the evidence that government not merely ignored discriminatory practices in the residential sphere, but promoted them. The impact has been devastating for generations of African-Americans who were denied the right to live where they wanted to live, and raise and school their children where they thought best.

While the Fair Housing Act of 1968 provided modest enforcement to prevent future discrimination, it did nothing to reverse or undo a century's worth of state-sanctioned violations of the Bill of Rights, particularly the Thirteenth Amendment which banned treating former slaves as second-class citizens. So the structural conditions established by 20th century federal policy endure to this day.

At every step of the way, Rothstein demonstrates, the government and our courts upheld racist policies to maintain the separation of whites and blacks—leading to the powder keg that has defined Ferguson, Baltimore, Charleston, and Chicago. The Color of Law is not a tale of Red versus Blue states. It is sadly the story of America in all of its municipalities, large and small, liberal and reactionary.

As William Julius Wilson has stated: "The Color of Law is one of those rare books that will be discussed and debated for many decades."

Pre-order the book

You can pre-order the book on Amazon.com, Barnes & Noble, or from IndieBound.org, including your local bookseller.


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Lane Kenworthy: Why the surge in income inequality

    Income inequality is more severe in the United States than in any other affluent longstanding-democratic country, and it has increased sharply in the past generation. The rise in inequality is mainly a story of growing separation between households in the top 1 percent and those in the "bottom" 99 percent. Income inequality within the lower 99 percent increased in the 1980s and 1990s, but since then it hasn't changed much.

    A common measure of top-end income inequality is the share of income that goes to the top 1 percent of households. According to the World Wealth and Income Database (Alvaredo et al. 2016), the top 1 percent's share of pretax income increased from 18 percent in 1913, the first year of available data, to 24 percent in 1928. It then fell sharply during the Great Depression and World War II to 13 percent in 1945. Between 1945 and the end of the 1970s it continued to decrease, slowly but steadily, reaching 10 percent in 1979. By 2014 it had jumped to 21 percent. For the period since 1979, the Congressional Budget Office (2016) has compiled estimates of the top 1 percent's share of posttax income (that is, with tax payments subtracted from income), and the upward trend is similar.

    The United States isn't the only rich democratic nation to have experienced rising top-end income inequality since the late 1970s. The top 1 percent's income share has risen sharply in the United Kingdom, Canada, Ireland, and South Korea too, though not quite as rapidly as in the U.S. Many other nations have had more modest increases. Some, such as Denmark, France, Japan, the Netherlands, Spain, and Switzerland, have seen little or no increase.

    A significant part of our surge in top-end inequality owes to a subset of the top 1 percent. There are about 120 million households in the United States, so the top 1 percent are approximately 1.2 million. According to the World Wealth and Income Database, among the 600,000 or so that constitute the lower half of the top 1 percent, average pretax income roughly doubled between 1979 and 2014, from $275,000 to $500,000. Among the 12,000 households that make up the top 0.01 percent, average income quadrupled during those years, from $7 million to $29 million.

    Of income earners in the top 1 percent, about one in three are executives, managers, or supervisors, and one in ten are in financial professions. These two groups account for about half of the income share of the top 1 percent and nearly two-thirds of the increase in that share since the late 1970s (Bakija, Cole, and Heim 2012). Unlike in the 1920s, most of their income comes from compensation—salaries, bonuses, fees, stock options, stock awards, golden parachutes—rather than from assets they own (Saez 2015).

    The rise in the top 1 percent's income share is one of the most striking developments in the United States in the past generation. It raises obvious questions of justice, particularly in an era of economic insecurity and slow income growth for many ordinary Americans. In addition, according to Richard Wilkinson and Kate Pickett's The Spirit Level, Joseph Stiglitz's The Price of Inequality, and Göran Therborn's The Killing Fields of Inequality, high levels or sharp increases in income inequality may have harmful effects on other things we value, such as economic growth, health, happiness, and democracy.

    What has caused the surge in top-end income inequality? Is it a product of changes in the economy? Or, as Paul Krugman's The Conscience of a Liberal and Jacob Hacker and Paul Pierson's Winner-Take-All Politics contend, have the key shifts been in America's politics and policies?

    Explanations of rising income inequality often begin with education. In The Race between Education and Technology, Claudia Goldin and Lawrence Katz describe how educational attainment in the United States increased steadily from the late 1800s through the 1960s. But then the pace of advance slowed, and as it did, the "college pay premium"—the ratio of the earnings of persons with a four-year college degree to the earnings of those without—began to rise.

    Goldin and Katz aim to explain developments in income inequality within the bottom 99 percent, and patterns of educational attainment are surely helpful for that purpose. But they can't tell us much about why the top 1 percent's incomes have separated from everyone else in recent decades becauseAmericans in the top 1 percent aren't better educated than those just below them.

    That also holds for some other factors commonly invoked in explanations of rising income inequality. High earners more commonly couple with other high earners today than in former generations, but this doesn't distinguish the top 1 percent from the rest of the top 10 or 20 percent of households. Manufacturing employment has declined, the statutory minimum wage has been flat, and unskilled immigration has risen sharply, but these are more likely to have contributed to rising inequality between the middle and the bottom than between the top and everyone else.

    In the 1950s, the consumers for America's most popular sports team, the New York Yankees, were primarily people who lived in New York and purchased tickets to see the team play in person. Today, top teams in many sports can be watched by people all over the world via television. The TV contracts, along with sales of team jerseys, hats, and other paraphernalia, have massively increased those teams' revenues. The same is true for movies, pop music, and fiction books. This in turn has led to huge pay increases for recognizable sports and entertainment stars. People in Shanghai and Sao Paulo are more likely to watch a professional basketball game or a Hollywood movie if LeBron James or Tom Hanks is in it. Technological advance, globalization, and name recognition have produced large increases in revenues, and this translates into big payoffs for superstars.

    A related logic applies to the financial sector. Computerization and modern communications technology have enabled a big expansion in the volume of trades, as well as creation of new financial tools and instruments (leveraged buyouts, junk bonds, home equity loans, subprime mortgages, derivatives, collateralized debt obligations, credit default swaps). These in turn have increased the volume of fees earned by large financial firms, which has made it possible for these companies to handsomely reward their top creators, analysts, deal makers, and traders. At the summit, a superstar investor can set up a hedge fund, attract tens of billions of dollars of investment, and charge a yearly management fee of, say, 3 percent of the fund's asset value ($30 million for a fund with assets of $10 billion) in addition to pocketing a share of the returns.

    Yet beyond sports, entertainment, and finance, growth in product market size probably can't account for much of the rise in top-end income inequality. Technological improvements—large shipping containers, lighter and stronger packaging materials, computerized logistics management, the internet, and more—have helped to globalize markets, boosting their size significantly. But they've also brought heightened competition. American companies now face foreign competitors not only abroad but also here in the domestic market. Barriers to entry by new competitors have fallen too, as venture capital firms ease access to financing and the information and communications revolution enhances the ability of start-ups to join and utilize global supply chains. As Robert Reich notes in Supercapitalism, the rate at which firms disappeared from the Fortune 500 accelerated sharply in the 1970s and 1980s.

    Also problematic for the product market size explanation of rising top-end income inequality is the fact that many successful American companies enjoyed soaring revenues in the early post-World War II decades, before the technology-spurred globalization of product markets. At Coca-Cola, for instance, revenues rose from $2 billion in 1955 to $13 billion in 1979, then to $26 billion in 2005. The story is similar for General Motors, Procter and Gamble, and many others. Yet compensation increases for CEOs (chief executive officers) and other high-level executives were modest during the former period, then huge during the latter.

    In the mid-to-late 1970s, higher-ups in large American firms began to change their perceptions of the core mission of the firm, of whom its most valuable members are, and of how to compensate them. This shift had a number of elements.

    During the "golden age" of post-World War II capitalism, boards of directors of large publicly owned corporations saw the firm's mission as increasing market share, revenues, and profits. Profits were invested in research or equipment, passed on to employees in the form of wage increases and new hires, or distributed to shareholders as dividends. Beginning in the late 1970s, this orientation was replaced by the notion that the principal aim should be to maximize "shareholder value" by increasing the firm's stock price. The shift was spurred by Michael Jensen and William Meckling's "Theory of the Firm" article, published in 1976 and widely embraced in business schools, and by the growing importance of large institutional investors such as pension funds and mutual funds.

    Wanting to maximize gains for shareholders doesn't automatically entail offering large compensation to high-level executives, but it just so happened that around the same time corporate boards began to view top executives, and in particular the CEO, as the key to lifting the firm's share price. There were a number of reasons for this.

    Globalization increased the number of competitors large American companies faced, making the firm's environment seem more precarious and unstable. Competition also rose significantly in industries with purely domestic firms. In retail sales, for instance, Sears, JC Penney, and countless small "mom and pop" stores around the country were now confronted by Walmart, a hyperefficient and rapidly expanding behemoth.

    Firms also faced a new and growing threat of external takeover. As Reich points out in Saving Capitalism, whereas in the 1970s there were just a dozen hostile takeovers of American firms valued at more than $1 billion, in the 1980s there were 150. Corporate executives now had to worry not only about running the company effectively, battling competitors, and boosting revenues and market share. They also had to fend off takeover attempts. This is no simple task, and board members, many of whom are themselves high-level executives, tend to be sympathetic to the challenge. The takeover threat eased a bit in the 1990s but then took off again in the 2000s as private equity firms, hedge funds, and shareholder activists initiated a new round of buyouts and mergers.

    The 1980s also ushered in a new appreciation of the influence of leaders. Lee Iacocca, the former Ford executive, was CEO of Chrysler as it emerged from bankruptcy in the late 1970s to become profitable and competitive in the 1980s. Though this may have owed largely to the fact that Chrysler had stumbled onto what was to become a hugely popular new type of car, the minivan, the company's success accentuated the emerging cult of the superstar CEO. Other successful CEOs—Bill Gates at Microsoft, Steve Jobs at Apple, Lou Gerstner at IBM—seemed further proof that the key to driving up the firm's share price is having the right person at the helm.

    Prior to the 1980s it was common for large American firms to hire for top executive positions mainly from within. This meant budding executives had a financial incentive to stay put, and it meant they had limited ability to decamp if they wished to. In the 1980s that norm evaporated, probably pushed along by a similar development in sports (baseball free agency began in 1976) and entertainment. The ability of top executives to move among firms increased their leverage in negotiating salaries, bonuses, and stock options.

    As firms increasingly hired CEOs and other high-level executives from a pool that included outsiders, and as large compensation packages became the norm, boards of directors turned to compensation consultants for information about whom to hire and how much to pay them. This has created a benchmarking and leapfrogging process whereby newly hired executives insist on compensation slightly above most of their peers, some are granted this demand, and the norm shifts steadily upward (DiPrete, Eirich, and Pittinsky 2010).

    An additional piece of the corporate governance story is the coziness between top executives and the boards of directors who decide on their compensation packages. Many members of these boards are in effect handpicked by the CEO and then approved by shareholders who have little information and limited interest in the details of a company's governance. Some board members are executives within the firm itself, and others are top executives at other publicly owned companies. They thus have a direct interest in seeing executive compensation levels rise. In addition, some know each other personally and hence are more likely to vote for a generous pay package.

    In 1993, the Clinton administration and Congress ruled that a publicly traded corporation can deduct executive compensation from its taxable income only if that compensation is tied to the firm's performance. As a result, more and more of executive compensation began to come in the form of stock options—shares in the firm that can be sold after a specified number of years. As the stock market soared, the payoff from stock options turned out to be enormous (Murphy 2013).

    Executives also discovered a way to help temporarily boost their company's stock price when it came time to cash in their stock options: stock buybacks. Purchasing shares of the firm's own stock drives up the price of the stock. It also increases the firm's earnings per share (by reducing the denominator), a metric investment analysts use in judging a firm's performance. Between 2003 and 2012, firms listed on the Standard & Poor's (S&P) 500 index used, on average, 54 percent of their earnings to buy back their own stock (Lazonick 2014).

    Because the corporate governance explanation has a number of components, it is difficult to quantify in a way that allows statistical testing. The explanation works well in terms of timing in the U.S. case; most of its components are coincident with the rise in executive compensation and in the top 1 percent's income share. It also seemingly works well in helping us understand country differences. In other rich nations, the shareholder value revolution, CEO free agency, and compensation via stock options either didn't occur at all or happened later than inthe United States. And a number of European countries have institutions—strong unions and employee election of some members of the board of directors—that are likely to obstruct sentiment among corporate boards in favor of huge executive compensation packages.

    On the other hand, compensation at thetop has risen sharply in a number of occupations—not just among executives in publicly traded firms but also among their counterparts in privately owned companies and among financial professionals, partners in large law firms, and top physicians, athletes, and entertainers (Kaplan and Rauh 2013). So corporate governance shifts can take us only part of the way in explaining the rising income share of America's top 1 percent.

    Two recent books—Joseph Stiglitz's Rewriting the Rules of the American Economy and Robert Reich's Saving Capitalism—argue that the market power of large firms accounts for a significant share of the growth in top-end income inequality in the United States. Firms with a dominant position in their product market can deter potential entrants, weaken existing competitors, and extract more revenue from customers. They then pass on the resulting above-market profits, or "rents," to their top executives.

    In Stiglitz's telling, this process began with government deregulation of key industries such as airlines and railroads in the 1970s, eventually extending to telecommunications, finance, and other industries. Economists and policy-makers embraced the notion that ensuring competition via government oversight and regulation was unnecessary, even counterproductive. Markets, according to the new perspective, would ensure ample competition if left alone, particularly in an age of rapid technological advance and globalization.

    Instead, in industry after industry, we've gotten the opposite—weaker competition, more firms with a monopoly or quasi-monopoly position, less pressure for productivity improvement, more rent-seeking. Patent and copyright protections give pharmaceutical firms and software developers exclusive access to revenues from a new innovation. Tech titans benefit when their service or platform becomes an industry standard—think Microsoft, Apple, Google, Facebook, and Amazon. According to Reich, America's large banks and other Wall Street firms have colluded to enlarge their profits by driving down the price of corporate takeover targets, influencing the setting of interest rates, engaging in insider trading, and more. Large firms also use their resources to lobby for regulations that further advantage them vis-à-vis competitors, with cable providers securing local monopoly rights being only the most visible example.

    Yet while market dominance matters for some firms, this explanation can take us only so far. We observe sharp increases in the compensation of CEOs and other high-level executives across a wide range of industries. In how many of them is the power of the largest firms greater now than in the 1950s and 1960s, when there was less domestic competition and little globalization? Neither Stiglitz nor Reich addresses this question. Interestingly, the emphasis on large firm market power and monopoly position is contrary to what Reich himself described in his 2007 book, Supercapitalism, which emphasized the increase in competitive pressure faced by American firms.

    Over the past century, the financial sector's share of America's GDP has correlated fairly strongly with the top 1 percent's share of income; it was high in the 1920s, then lower for about 50 years, then high again since the late 1970s. Financial firms' revenues have grown in recent decades, and the salaries and bonuses of top financial managers, traders, and analysts have risen sharply. The amounts for some, particularly hedge fund managers, are staggering. Moreover, many large nonfinancial companies have added financial operations such as loans and credit cards on top of their core business.

    The expansion of finance has multiple causes. Globalization, the emergence of large institutional investors, advances in computing and telecommunications, the creation of new financial instruments, and reductions in regulatory constraints have allowed financial companies to draw on larger pools of funds and to channel those funds into a wider array of investments. The growing size of large financial firms has allowed them to seek more risky investments. This has been accentuated by the expectation of a government bailout should too many of those bets go sour, on the grounds that a bankruptcy by one or more such firms would create toomuch uncertainty in global financial markets. Nonfinancial companies, struggling in a more competitive global economy and facing investor demands for strong short-term profit performance, have turned to financial operations to shore up revenues and profits.

    Finance clearly has contributed to America's top-heavy increase in income inequality (Philippon and Reshef 2013Tomaskovic-Devey and Lin 2013Flaherty 2015). It too, however, is only part of the story. Financial professionals get one-seventh of the top 1 percent's income, and they account for about one-quarter of the rise in its income share (Bakija et al. 2012). The financial sector's share of income actually has been rising since the 1950s, whereas the top 1 percent's income share only began to increase around 1980. And if we look across countries, we find a number of anomalies. For instance, the Netherlands and Japan look similar to the United States in over-time trends in financial regulation, in finance's share of income or value-added, and in financial-sector wages relative to wages in nonfinancial sectors, yet they are among the rich countries in which the top 1 percent's share of income has risen the least over the past generation.

    An important but little-commented-upon part of the story of rising top-end income inequality in the United States is the rise in stock prices. The S&P 500 is a common measure of stock-market values. Over the six decades since the mid-1950s, the correlation between the inflation-adjusted value of the S&P 500 and the top 1 percent's income share is +0.92. Both were flat through the late 1970s and then shot up.

    As I noted earlier, most of the income gains for America's top 1 percent have come fromincreases in compensation rather than in capital income. Yet a lot of the movement in compensation over time is tied to the stock market. A large portion of the mammoth compensation increases for high-level executives in big firms has come in the form of stock options, which hinge on increases in the share price of the executive's firm. A key part of the rise in pay for financial professionals is linked to trading in stocks and related financial instruments, which tends to increase when stocks' values rise.

    The growth of incomes among the top 1 percent also fuels rising stock values. The rich tend to save and invest a larger portion of their income than do middle-class and poor households, so as the incomes of those at the top soar, more money will go toward purchase of stocks, increasing the demand for them and hence their price.

    When we turn to other rich nations, stock values aren't always helpful in accounting for changes in top-end income inequality. In a handful of countries, the over-time correlation is as strong as in the United States. In others, though, it is weak or nonexistent.

    Where unions exist and are sufficiently strong, they can force firms to distribute more of the profits to ordinary workers and less to top executives. Computers, robots, the ability to move to another state or country, immigration, high unemployment rates, and other developments have increased employers' leverage vis-à-vis workers, and in this context union strength is likely to be especially critical. Unions also can affect income inequality via a political channel, by pressuring policy-makers and influencing election outcomes.

    The unionization rate in the United States has declined sharply during the period of rising top-end income inequality, falling from 23 percent in 1979 to 10 percent in 2014. Then again, the drop in unionization began in the 1950s, and the decrease in the 1950s, 1960s, and 1970s was comparable to what has happened since.

    Cross-county comparison suggests that union strength has mattered for income inequality. The contrast between the United States and Canada is illustrative. Canada's unionization rate has remained fairly constant over the past generation, and the top 1 percent's income share in Canada has risen only half as much as in the U.S. Several recent quantitative studies that examine developments over the past generation in the United States alone or in the U.S. along with other affluent democracies have found unionization to be one of the best predictors of variation in top-end income inequality (Volscho and Kelley 2013Jaumotte and Buitron 2015Huber, Huo, and Stephens 2015).

    In this instance, however, the best predictor isn't an especially good predictor. The only one of these studies that provides information needed to gauge the magnitude of unions' impact has it predicting a rise in the top 1 percent's income share in the United States of 0.5 percentage points. The actual rise was 10 percentage points.

    Analyses of the impact of taxes on income inequality typically focus on how a progressive tax system reduces the share of income that goes to the rich, and accounts of the rise of top-end inequality in the United States often point to the Reagan and (George W.) Bush tax cuts as key contributors. However, the best estimates we have of the top 1 percent's posttax income share, from the Congressional Budget Office, suggest that those tax cuts didn't in fact do much to change the picture. And tax changes during the Obama presidency have brought the effective federal tax rate (taxes paid as a share of pretax income) on the top 1 percent back up to the level it was at in 1979.

    Taxes may have a larger influence on the pretax distribution of income. Two recent books—Thomas Piketty's Capital in the Twenty-First Century and Kenneth Scheve and David Stasavage's Taxing the Rich—suggest that when top statutory income tax rates are lower, people and households at the top have greater incentive to try to maximize their income. They may do so by working harder or smarter, or perhaps by grabbing more "rent."

    In the United States, the top statutory federal income tax rate and the top 1 percent's share of pretax income have indeed tended to move in opposite directions over time. In the 1920s the top tax rate decreased and the top 1 percent's income share shot up. The top tax rate rose sharply between 1929 and 1945, and the top 1 percent's income share fell sharply. From 1979 to 2007, the top tax rate decreased a good bit and the top 1 percent's income share jumped.

    However, there are notable exceptions. The 1963 Kennedy tax reform reduced the top statutory tax rate from 90 to 70 percent, yet the top 1 percent's pretax income share continued its slow, steady post-World War II decline. In the early 1990s the (first) Bush administration and the Clinton administration increased the top tax rate from 28 to 40 percent, yet the top 1 percent's income share continued its sharp post-1979 rise. Carola Frydman and Raven Molloy (2011) have looked closely at whether compensation for top executives in large U.S. firms changes in response to shifts in top statutory tax rates. Drawing on data going back to the 1940s, they find no noteworthy correlation between top tax rates and executive compensation.

    What does the experience of other countries suggest? Data are available for most of the rich longstanding democracies since the mid-1970s. In some of them—Australia, Canada, Ireland, New Zealand, Norway, Portugal, and the United Kingdom, along with the United States—we observe the predicted increase in the top 1 percent's income share when the top statutory tax rate decreases. But in others—Denmark, France, Italy, Japan, the Netherlands, Spain, and Sweden—we don't.

    All of these countries reduced top income tax rates during this period, but they differed significantly in the degree of reduction. Didthe nations with larger decreases in top tax rates experience larger increases in their top 1 percent's income share? Yes, butthe correlation isn't especially strong (Kenworthy 2016b). Particularly noteworthy is that four English-speaking countries—the United States, the United Kingdom, Canada, and Australia—are among those with the largest increase in the top 1 percent's income share even though only one of them, theUnited States, enacted very large tax-rate reductions.

    Why isn't the association stronger? Part of the reason is that hiding behind statutory tax rates are an assortment of loopholes, deductions, and "tax expenditures." These reduce the effective tax rate on persons or households with high incomes by shielding some, potentially much, of their pretax income from taxation. Warren Buffett's famous discovery that he pays a lower effective federal income tax rate than his office staff illustrates the point. Moreover, different parts of high incomes—salary, business income, capital gains—may be taxed at different rates.

    Researchers tend to search for a dominant cause. We want to identify the most important determinant, partly because finding one reduces complexity and partly because it implies a straightforward solution to the problem. Much of the research on the rise of top-end income inequality has proceeded in this vein, with analysts focusing on one or another hypothesized cause and frequently concluding that it is indeed the key contributor. I don't think any such conclusion is justified. The rise in the top 1 percent's income share since the late 1970s is a product of multiple developments—growth in product market size, shifts in corporate governance, increases in the market power of some large firms, financialization, soaring stock values, union decline, and reductions in top tax rates—no one or two or even three of which look to have been dominant or decisive.

    To some degree it's pure historical coincidence that these developments occurred around the same time. But they also reinforced and accentuated one another.

    Is the origin of these developments mostly economic or mostly political? Are they, in other words, a product of markets or a product of policy? My answer is: both. Deregulation, tax cuts at the top, the 1993 cap on deductibility of non-performance-related executive compensation, lack of support for labor unions, and other policy actions and inactions have played an important role. But so too have technological advances, the expansion of markets, changes in corporate culture, and other economic developments. And even where policy has mattered, it hasn't necessarily been decisive. Deregulation of finance is a prominent culprit in many accounts of rising income inequality, yet nearly all affluent nations had deregulated their financial sectors as much as the United States by the early 1990s, with many experiencing nothing like our surge in top-end income inequality. And unions have weakened not only here in the Unites States, but in many other affluent countries, some of which have a much less hostile legal climate.

    Just as there is no single dominant cause of the rise in top-end income inequality, there is unlikely to be a silver bullet when it comes to solutions. Here Anthony Atkinson's Inequality: What Can Be Done? is helpful, offering a menu of reasonable and practical proposals for policy steps, from higher tax rates on top incomes to guaranteed employment to more generous government benefits and much more. If fully implemented, Atkinson's slate of recommendations might well take us a significant part of the way toward reversing the past generation's shift in favor of the top 1 percent.

    How vital is it to achieve that? While hypotheses about income inequality's harmful effects on other social, economic, and political outcomes abound, supportive evidence is sparse (Kenworthy 2016a). For some of these outcomes, perhaps many, policy changes that aim to improve outcomes directly, rather than indirectly via income inequality reduction, may be a better approach. There is, arguably, a strong case for attempting to reduce top-end income inequality on fairness grounds alone. But even this is subject to caveat, for a variety of policy reforms that would enhance societal fairness, from early education to fully universal health insurance to affordable housing and college, could be achieved with little or no shift in the distribution of income. Income inequality ought to be on the list of problems in need of attention from American policy-makers, but it isn't clear that it should be at the top of the list.

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    John Case
    Harpers Ferry, WV

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