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Wednesday, December 30, 2020

Mike Roberts: The Brexit deal [feedly]

The Brexit deal
https://thenextrecession.wordpress.com/2020/12/29/the-brexit-deal/

The UK finally leaves the European Union on 31 December, after 48 years of membership.  The initial decision to leave, made in the special referendum back in June 2016, has taken over four tortuous years to implement.  So what does the deal mean for British capital and labour?

For British manufacturers, the tariff-free regime of the EU's internal market has been maintained.  But the British government will have to renegotiate new bilateral treaties with governments across the world, whereas previously they were included within EU deals.  People will no longer be able to work freely in both economies by right, all goods will require significant additional paperwork to cross borders and some will be checked extensively to verify they comply with local regulatory standards.  Frictionless trade is over; indeed, that's even between Northern Ireland and mainland Britain with a new customs border across the Irish Sea.

And that's just goods trade, where the EU is the destination of 57% of British industrial goods.  The British government fought tooth and nail to protect the fishing industry (and failed), but it contributes only 0.04% of UK GDP, while the services sector contributes over 70%.  Of course, most of this is not exported, but still services exports contribute 30% to UK GDP.  And 40% of that services trade is with the EU directly.

Indeed, while the UK runs a huge goods trade deficit with the EU, that is in part compensated by running a surplus in services trade with the EU.  This surplus is in mainly financial and professional services where the City of London leads.  Exports of UK financial services are worth £60 billion annually compared to imports of £15 billion. And 43% of financial services exports go to the EU.

The Brexit deal with the EU has done nothing for this sector. Professional services providers will lose their ability automatically to work in the EU after the Brexit deal failed to obtain pan-EU mutual recognition of professional qualifications. This means that professions from doctors and vets to engineers and architects must have their qualifications recognised in each EU member state where they want to work.

And the deal does not cover financial services access to EU markets, which is still to be determined by a separate process under which the EU will either unilaterally grant "equivalence" to the UK and its regulated companies or leave firms to seek permissions from individual member states.  Over the next year, there may well be bit by bit agreements on trade in these areas.  But the UK service sector is bound to end up worse off for its exports than was the case within the EU.

And that's serious because the UK is a 'rentier' economy that depends heavily on its financial and business services sector.  Financial services contribute 7% of UK GDP, some 40% higher a contribution than in Germany, France or Japan.

The UK is a country of bankers, lawyers, accountants and media people, rather than engineers, builders and manufacturers.  The UK has a huge top-heavy banking sector, but a small manufacturing sector compared to other G7 economies.

What about the impact on working people?  On leaving the EU, what little British labour has gained from EU regulations will be in jeopardy within a country which is already the most deregulated in the OECD.  The EU rules included a 48-hour week maximum (riddled with exemptions); health and safety regulations; regional and social subsidies; science funding; environmental checks; and of course, above all, free movement of labour.  All that is going or being minimised.

Around 3.7% of the total EU workforce – 3 million people – now work in a member state other than their own. Since 1987, over 3.3 million students and 470,000 teaching staff have taken part in the EU's Erasmus programme.  That programme will exclude Britons from now on.  Immigration into the UK from EU countries has been significant; but it also works the other way; with many Brits working and living in continental Europe. With the UK out of the EU, Britons will be subject to work visas and other costs that will be greater than the total money per person saved from contributions to the EU.

On balance, EU immigrants (indeed all immigrants) have contributed more to the UK economy in taxes (income and VAT), in filling low-paid jobs (hospitals, hotels, restaurants, farming, transport) than they have taken up (in extra cost of schools, public services etc).  That's because most are young (often single) and help pay pension contributions for those Brits who are retired.  The Brexit referendum has already brought about a sharp drop in net immigration into the UK from the EU, down 50-100,000 and still falling.  That can only add to the loss of national income and tax revenues down the road.

Most sober estimates of the impact of leaving the EU suggest that the UK economy will grow more slowly in real terms than it would have done if it had remained a member.  Mainstream economic institutes, including the Bank of England, reckon that there would be a cumulative loss in real GDP for the UK over the next ten to 15 years of between 4-10% of GDP from leaving the EU; or about 0.4% points off annual GDP growth. That's a cumulative 3% of GDP loss per person, equivalent to about £1000 per person per year.

The UK's Office for Budget Responsibility reckons that one third of this relative loss has already taken place because of the reduction in the pace of business investment since the referendum as domestic businesses stopped investing much, due to uncertainty about the Brexit deal along with a sharp drop in foreign inward investment.

And then of course, the COVID pandemic has decimated business activity.  In 2020., the UK will suffer the largest fall in GDP among major economies apart from Spain and recover more slowly than others in 2021.

British capitalism was already slipping badly before the pandemic hit.  Its trade deficit with the rest of the world had widened to around 6% of GDP; and real GDP growth had slid back from over 2% a year to below 1.5%, with industrial production crawling along at 1%.  The UK economy already had weak investment and productivity growth compared with the 1990s and with other OECD countries.

Investment in technology and R&D has been poor, more than one-third less than the OECD average.

And the reason for this is clear. The average profitability of British capital has been falling.  Even before the pandemic hit in 2020, average profitability (according to official statistics) was 30% below the level of the late 1990s and, excluding the Great Recession, was at an all-time low.

Since the referendum of 2016, UK profitability has fallen by nearly 9%, compared to small rises in the Eurozone and the US.  And the Eurozone AMECO forecast for profitability will leave the UK 18% below 2015 levels by 2022!

As a result, investment by British capital is set to plunge and is forecast to be down a staggering 60% by 2022 compared to the referendum year of 2016.

But maybe the UK can confound these dismal forecasts, as the government claims, because UK industry and the City of London can now expand across the world 'free from the shackles' of EU regulation.  And it is increasingly clear how it thinks it can do this – by turning Britain into a tax and regulation-free base for foreign multinationals.  The government is planning 'free ports' or zones; areas with little to no tax in order to encourage economic activity. While located geographically within a country, they essentially exist outside its borders for tax purposes.  Companies operating within free ports can benefit from deferring the payment of taxes until their products are moved elsewhere or can avoid them altogether if they bring in goods to store or manufacture on site before exporting them again.

Unfortunately, for the government, studies show that free ports might simply defer the point when taxes are paid, as imports would still need to reach final customers across the country. And the incentives may also promote the relocation of activity that would have taken place anyway, from one part of the UK to another. Moreover, tax breaks could mean a loss of revenue for the Treasury. And free ports risk facilitating money laundering and tax evasion, as goods are usually not subject to checks that are standard elsewhere.  A deregulated Britain will not restore economic growth, let alone good, well-paid jobs for an educated and skilled workforce.  It will only boost the profits of multi-nationals, using cheap, unskilled labour.

In sum, the Brexit deal is another obstacle to sustained economic growth for Britain. But the COVID pandemic slump and the underlying weakness of British capital are much more damaging to the UK's economic future than Brexit. Brexit is just an extra burden for British capital to face; as it also will be for British households.


 -- via my feedly newsfeed

End of the Year Thoughts on Inequality and Its Remedies [feedly]

Lots to discuss here -- Dean's year end reflections would be a great topic for educationals on real political economy in the coming period. Certainly more useful and productive than the phrasemongering, feet planted in mid-air rants, that at times masquerade as political economy on the Left. I do not concur with parts of  his analysis, but it has two great virtues: 1) It is concrete in its analysis of the US inequality -- it deals in real, not dogmatic or categorical choices in policy; 2) He affirms that among the several approaches one may take toward inequality, you cannot run away from its class character. You cannot raise the incomes of middle and lower working class people, unless you take it from the rich. 


If you are having dinner with a billionaire, or a CEO, it is not going to be a win win situation

Dean Baker: End of the Year Thoughts on Inequality and Its Remedies

http://feedproxy.google.com/~r/beat_the_press/~3/KwG6EY98SRE/

The approach of the end of the year seems a good time to sum up thoughts. My comments here will not be news to regular readers, but may be to others. Also, this exercise is helpful for me to keep my thoughts clear. (I also expect to take next week off, so you won't be hearing from me for a while.)

Most of my work for the last several years has been focused on ways to reduce before tax inequality by reducing the amount of before-tax income that goes to those at the top of the income distribution. For better or worse, there don't seem to be a lot of progressives that share this beat. There are a few points that are worth making.

First, my focus on reducing income at the top doesn't mean for a second that I don't see efforts at raising income for those at the bottom (and middle) as being important. I have long been involved with or worked alongside people trying to raise minimum wages, protect or increase Social Security benefits, and increase unionization rates.

These are very important efforts, but at the end of the day, our ability to raise incomes at the middle and bottom will depend on reducing incomes at the top. This gets to the old pie-cutting story. If we want those at the middle and bottom to have much bigger slices of the pie, the folks at the top will have to get by with smaller slices.

To see how skewed the pie eating has gotten, if the federal minimum wage had kept pace with productivity growth since 1968, as it did from its establishment in 1938 until 1968, it would be $24 an hour today. That means a single full-time minimum wage earner would have an income of $48,000 a year. A two-earner couple getting the minimum wage would have an income of $96,000 a year.

This is a striking counter-factual, but we can't just go from here to there. In order for the economy to allow for this sort income and consumption by those at the middle and bottom, we have to reduce income and consumption at the top.

We can talk about expanding the pie, but I don't think that I, or anyone else, has a magical formula to hugely expand the size of the pie.  There are areas where better policy can lead to a more productive economy, but we are more likely talking about one to two percent rather than ten to twenty percent, and even these gains are likely to be a long-term story, not gains we can see in two or three years.

It is also worth focusing on what pie-eating among the top means. There are many progressives who have made a sport of highlighting the enormous wealth that Jeff Bezos, Mark Zuckerberg, and other super-rich types have accrued from recent stock market gains. While the wealth of the super-rich is obscene, reducing these fortunes will actually not free up much room for more income lower down the ladder.

As a practical matter, Jeff Bezos and Mark Zuckerberg probably don't consume much more in a given year than your average single-digit billionaire. This means that if we took away $100 billion from each of them, it would not free up much consumption for those at the bottom. If we want to create the economic space to substantially expand incomes at the middle and the bottom, we will have to substantially reduce the consumption of not just some tiny segment of super-rich people, but also the rest of the top one percent and even the top five percent. (That gets us a cutoff in household income of around $300,000.) We might even have to knock down the income a bit of the next five percent (cutoff of household income around $200,000).   

There is the political issue of the enormous influence that the super-rich can buy with their wealth. This is a huge problem, but it is best addressed in the near-term by increasing the opportunities for ordinary people to have a voice.

I know many on the left want to use taxes to reduce the income, and therefore consumption, of those at the top. While we can and should make our tax system more progressive, there are real limits on how far we can push progressive taxation. Rich people don't like to pay taxes. They can and do find ways to avoid and evade taxes. Insofar as they are successful in these efforts, we fail to reduce their income in the way intended, we create a huge tax-gaming industry, which is a source of economic waste and itself a generator of inequality, and we undermine faith in the system.

It is far better if we change economic structures in ways that don't allow people to get so rich in the first place. As a political matter, it is hard to defend an institutional structure that is both inefficient and a large generator inequality. As a practical matter, it is much easier to design systems that don't give rich people billions of dollars in the first place, than to try to impose taxes that pull most of their billions back after the fact.

This is the basis of my thinking in much of my work. I lay out the case most completely in Rigged (it's free), but I am constantly looking for new areas where altering rules can lead to less inequality, without jeopardizing efficiency.   

 

 

Patent and Copyright Monopolies

I like to begin with patent and copyright monopolies both because this is the clearest case, and also because the most money is at stake. The basic point is painfully simple: patent and copyright monopolies are not intrinsic to the market, they are government policies designed to promote innovation and creative work.

As policies, they can be altered as we choose. They can be shorter or longer, stronger or weaker. We also can use other mechanisms to promote innovation and creative work.

These policies transfer an enormous amount of income from the bulk of the population to those in a position to benefit from patent and copyright monopolies. I calculated that these policies may transfer over $1 trillion a year from the rest of us to the beneficiaries of patent and copyright monopolies. This is an amount that is larger than the military budget, it is close to half of all before-tax corporate profits. In other words, it is real money.

Prescription drugs are the largest single chunk of this sum. Drugs are important, not only because of the money involved, but also because people's lives and health are at stake. The drugs that sell for tens, or even hundreds, of thousands of dollars would almost invariably be cheap in a world without patent monopolies and related protections. While any price is expensive for the poor, for most people, paying for drugs would not be a big problem if they sold for ten or fifteen dollars per prescription. Doctors could freely prescribe what they view as the best drug for their patients, without regard to price. (We need to make sure that government programs pick up the tab for the poor.)

There is also the issue of the perverse incentives created by patent monopolies. Drug companies routinely misrepresent the safety and effectiveness of their drugs to maximize their sales and therefore the benefit of monopoly pricing. The most extreme case (which no one ever talks about) is the opioid crisis, which was worsened as a result of drug companies widely pushing drugs that they knew to be more addictive than claimed.

The inequality story is also straightforward. Dishwashers and custodians don't benefit from patent monopolies. A very limited group of workers are in a position to get big gains from these policies. Bill Gates would likely still be working for a living if not for the patent and copyright monopolies on Microsoft software. When economists say that "technology" has increased the returns to education and inequality, they actually mean that patent and copyright monopolies have increased the returns to education and inequality, but it sounds much better to blame inequality on an abstract force than government policy.

 

The Corruption of Corporate Governance

There is a simple point here that seems to largely escape people on the left. CEOs are not worth their $20 million paychecks. That is not a moral assessment of the value of their work, that is a dollar and cents calculation about their value to the companies that employ them.

At this point there is a considerable body of research that shows the pay of CEOs is not closely related to the returns they provide to shareholders. Bebchek and Fried have a somewhat dated collection of research on the topic. I reference some more recent material in chapter 6 of Rigged. A couple of years ago, Jessica Schieder and I also contributed a piece to this literature.

The fact that CEOs are not worth their pay matters because it means that they are effectively ripping off the companies for which they work. There is a widely held view, that in recent decades, companies have been run to maximize returns to shareholders. However, if CEOs have been earning huge paychecks at the expense of the companies they work for, then it is not the case that companies are being run to maximize returns to shareholders.

The fact that returns to shareholders have not been high by historical standards over the last two decades supports the view that CEOs are not maximizing returns to shareholders. It is also worth noting that the shift of income from labor to capital only explains about 10 percent of the upward redistribution of the last four decades.

The fact that CEOs might be gaining at the expense of shareholders is not just a question of which group of rich people get the money. At the most basic level, there is reason to prefer the marginal dollar goes to shareholders, since even with the enormous skewing stock ownership, a substantial portion of shares are owned by middle class people in their 401(k)s and pension funds. By contrast, every dollar going to a CEO is going to someone in the top 0.001 percent of the income distribution.

But more importantly, the bloated pay of CEOs has a huge impact on pays scales throughout the economy. If the CEO is getting $20 million then it is likely the chief financial officer and other top tier executives are getting close to $10 million. And the third tier can be getting $2 or $3 million. By contrast, if we had the pay scales of forty years ago, the CEO would be getting $2 to $3 million. The second tier would be correspondingly lower, and the third tier may not even crack $1 million. The excess pay at the top in the corporate sector also leads to bloated pay for top executives in universities and private charities. And, with all this money going to the top, there is less for everyone else.  

Anyhow, it should be apparent both that lowering the pay for CEOs will be a huge step in reducing income inequality, and that shareholders should be allies in this battle. Changing the rules of corporate governance (these are set by the government) to give shareholders more control over CEO pay can lead to lower pay at the top and therefore less inequality.

 

Globalization is a Policy, not an Exogenous Event

A popular story among elite types is that we can't have good-paying factory jobs that can support a family because of globalization. The deal is that workers earning $30 an hour, plus benefits, can't compete with workers in places like Mexico and China, who can do the same work for less than one-tenth as much. 

This is true. But the fact that our factory workers were put in direct competition with low paid workers in the developing world was not just something that happened, it was the result of deliberate policy. Our trade deals were designed to make it as easy as possible for U.S. corporations to outsource work to developing countries and bring manufactured goods back into the United States. The massive loss of manufacturing jobs in the years from 2000 to 2007 (pre-Great Recession) was not an accident, that was the point of our trade deals.

We could have constructed our trade deals differently. Instead of putting manufacturing workers in competition with their counterparts in the developing world, we could have designed our trade deals to put doctors, dentists and other highly paid professionals in direct competition with their counterparts in the developing world. This would have meant standardizing licensing requirements in ways that ensured safety standards, while making it as easy as possible for foreign professionals to train to meet these standards and then practice freely in the United States.

While doctors are not among the super-rich, their average pay is close to $280,000a year, putting them in the top two percent of wage earners.  They also earn roughly $100,000 more annually than their counterparts in other wealthy countries. If we got doctors' pay down to the levels in Germany or France, it would save us close to $100 billion a year. That comes to $700 per year per household.

When I have raised this issue with other progressives, many first dispute the idea that we could get foreign doctors that meet our standards. When I convince them of the absurdity of this position (there are plenty of very smart people in places like Mexico and India who would be happy to train to our standards for the opportunity to practice medicine here), they often respond with comments like people like their doctors or that they personally like their doctor.

I get that, but there is some serious logic missing. I like the person who cuts my hair; she doesn't earn $280,000 a year. Essentially, these progressive types are expressing class solidarity with very highly paid professionals. They are welcome to do so, although it is an odd position for people who consider themselves progressive, but there is a more fundamental and simple point at stake.

The fact that autoworkers have to compete with low-paid workers in the developing world, and doctors don't, is a political choice. This was not the result of an exorable process of globalization, it was the result of how policy types chose to structure globalization. No one should be surprised if manufacturing workers, and workers without college degrees more generally, who have been hurt by the loss of good-paying manufacturing jobs, are resentful of this decision. 

 

The Financial Sector: Economic Bloat and the Bloated

The financial sector is the source of many of the country's great fortunes, it is also a source of enormous waste. Finance is an intermediate good, like trucking. It is very important to the economy; we need an industry that allocates capital and makes payments. But just as we want as few resources as possible involved in shipping our goods from Point A to Point B, we also want as few resources as possible tied up in the financial sector. 

In fact, the financial sector has exploded in size relative to the rest of the economy over the last five decades. We have seen a massive increase in financial transactions, as new financial assets are being constantly created and the existing ones are being traded more frequently. It is difficult to see much gain to the real economy from this explosion in the size and complexity of the financial sector, even if it has meant big fortunes for many people in the sector.

My favorite remedy is a financial transactions tax, which can be thought of as equivalent to the sales tax we impose on most of the goods we buy. A modest tax could easily raise $100 billion a year (0.5 percent of GDP), which would come almost entirely at the expense of the industry.

I find that many people have difficulty understanding how the tax would come at the expense of the industry and not investors. They insist that that banks and brokerage houses will just pass on the tax to investors. This is largely true but it misses the point.

There is considerable research showing that the volume of trading falls roughly in proportion to the increase in the cost of trading. This means that if the cost of trading rises by 40 percent, then the number of shares bought and sold will fall by roughly 40 percent. This means that, for a typical investor, the increase in the cost per trade due to the tax will be offset by the reduction in the number of trades they or their fund manager make.

This means that the total amount that they spend on trading will be little changed, but money they used to pay to the industry for carrying through trades will instead be paid to the government in taxes. Since trades are on net a wash (every trade has a winner and loser, this averages out for all but the most astute investors), investors will not be hurt by a reduction in trading volume.

This one often leaves people baffled, since if they aren't gaining from trading now, they could reduce their volume of trading and save money. That view is correct, they could save money with fewer trades, but nonetheless many people choose to bet that they, or a fund manager will be able to beat the market.

Anyhow, the point here is that if we just applied similar tax treatment to the financial sector as we apply to most goods and services we buy, we would have a radically downsized sector and many fewer great fortunes being earned there.

The other simple quick fix would be to crack down on private equity funds, which are a source of great fortunes for fund partners. My colleague Eileen Appelbaum, along with Rose Batt, has documented many of the abuses the industry has developed to maximize their returns.

In addition to cracking down on abuses, which can get complicated, a simpler issue is that private equity is no longer giving above market returns. In the 1980s and 1990s private equity companies were able to find many underpriced companies, turn them around and make large profits reselling them when they took the company public. This no longer seems to be the case as their returns have largely followed the market since 2006. This means that there is no reason for pension funds, the major source of private equity funding, to be tying up their assets with them.

Even though pension funds may not be gaining by investing with private equity, many of their managers are convinced that they do. There is an easy remedy here. Just require the terms of all contracts of public pension funds with investment managers, including private equity, be posted on the fund's website, showing in clear terms what the managers get paid and the return on the investment. It is likely that the mediocre returns on private equity funds, coupled with the large payments to the private equity managers, would soon discourage pensions from continuing to turn over large amounts of money to these funds.

There are other areas where we can both make the economy more efficient and reduce the opportunities for large fortunes in the financial sector. The most obvious is cleaning up the room for abusive credit practices that the Consumer Financial Protection Bureau was designed to target. There is no economic reason to give clever lawyers and accountants incentives to design ways to rip-off their customers. If these practices are blocked, by regulation or law, it a pure gain for the economy.

As a general rule when it comes to the financial sector, we want it small and we want it simple. If we see lots of resources being devoted to the sector, it is clear indication we have a problem.

 

Fixing Facebook and Social Media: Treat Them Like Other Media

The battle over Section 230 of the 1996 Communications Decency Act has taken a bizarre turn in recent months because Donald Trump seems to have been convinced that repealing it would mean that Twitter and Facebook couldn't comment on or take down his posts. Actually, the opposite is true. In their current form, without Section 230 protection, Twitter and Facebook would probably be more likely to remove material posted by Donald Trump because it could be libelous and make them subject to legal actions.

But ignoring the Trump confusion, the issue with Section 230 protection is why should Internet outlets be protected from damages, when the exact same material in a traditional print or broadcast outlet could lead to a lawsuit costing millions? Just to be clear, the issue is not directly posted material. If Facebook itself were to post libelous material it would face the same legal liability as the New York Times or CNN. The issue is third party content, where social media companies are completely protected.

If we applied the same rules to Facebook, Twitter, and other social media companies as we do to traditional news outlets (I describe how this could be done in more detail here), we would likely see a radically downsized Facebook and Twitter. There would still be considerable opportunities to make money in this sector, but likely much less than Mark Zuckerberg has made to date.

Even more important than downsizing Mark Zuckerberg's fortune is the issue of democratic control. In both the 2016 and 2020 elections, the public was in the position of begging Mark Zuckerberg to be responsible in the material he was allowing to be spread across his network. We should never be in the position of hoping some billionaire media mogul acts responsibly, with enormous consequences for democracy if they don't. This is a very good argument for breaking up Facebook, so that Mr. Zuckerberg's decisions do not have so much impact on our political process, but repealing Section 230 may get us to the same place through a much simpler mechanism.

 

Wishing You a Happy and More Egalitarian New Year

 

Well, that's the list for now. I have other schemes, as my regular readers know, but these are the big ones. The point is that we should never take market outcomes as simple givens. We can structure the market in an infinite number of different ways. Any political strategy that doesn't acknowledge this basic point is doomed to failure.

The post End of the Year Thoughts on Inequality and Its Remedies appeared first on Center for Economic and Policy Research.


 -- via my feedly newsfeed

Tuesday, December 29, 2020

PK: 2020 Was the Year Reaganism Died [feedly]

2020 Was the Year Reaganism Died
https://www.nytimes.com/2020/12/28/opinion/reagan-economy-covid.html

text only versino

Maybe it was the visuals that did it. It's hard to know what aspects of reality make it into Donald Trump's ever-shrinking bubble — and I'm happy to say that after Jan. 20 we won't have to care about what goes on in his not-at-all beautiful mind — but it's possible that he became aware of how he looked, playing golf as millions of desperate families lost their unemployment benefits.

Whatever the reason, on Sunday he finally signed an economic relief bill that will, among other things, extend those benefits for a few months. And it wasn't just the unemployed who breathed a sigh of relief. Stock market futures — which are not a measure of economic success, but still — rose. Goldman Sachs marked up its forecast of economic growth in 2021.

So this year is closing out with a second demonstration of the lesson we should have learned in the spring: In times of crisis, government aid to people in distress is a good thing, not just for those getting help, but for the nation as a whole. Or to put it a bit differently, 2020 was the year Reaganism died.

What I mean by Reaganism goes beyond voodoo economics, the claim that tax cuts have magical power and can solve all problems. After all, nobody believes in that claim aside from a handful of charlatans and cranks, plus the entire Republican Party.

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No, I mean something broader — the belief that aid to those in need always backfires, that the only way to improve ordinary people's lives is to make the rich richer and wait for the benefits to trickle down. This belief was encapsulated in Ronald Reagan's famous dictum that the most terrifying words in English are "I'm from the government, and I'm here to help."

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Well, in 2020 the government was there to help — and help it did.

True, there were some people who advocated trickle-down policies even in the face of a pandemic. Trump repeatedly pushed for payroll tax cuts, which by definition would do nothing to directly help the jobless, even attempting (unsuccessfully) to slash tax collections through executive action.

Oh, and the new recovery package does include a multi-billion-dollar tax break for business meals, as if three-martini lunches were the answer to a pandemic depression.

Reagan-style hostility to helping people in need also persisted. There were some politicians and economists who kept insisting, in the teeth of the evidence, that aid to unemployed workers was actually causing unemployment, by making workers unwilling to accept job offers.

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Over all, however — and somewhat shockingly — U.S. economic policy actually responded fairly well to the real needs of a nation forced into lockdown by a deadly virus. Aid to the unemployed and business loans that were forgiven if they were used to maintain payrolls limited the suffering. Direct checks sent to most adults weren't the best targeted policy ever, but they boosted personal incomes.

The Coronavirus Outbreak ›

Latest Updates

Updated Dec. 29, 2020, 5:11 a.m. ET2 hours ago2 hours ago

Hospital and case numbers in England surpass the first peak, despite lockdowns.
Remote schooling brings bigger losses for children still learning to speak English.
Employers are struggling to manage unused vacation days.

All this big-government intervention worked. Despite a lockdown that temporarily eliminated 22 million jobs, poverty actually fell while the assistance lasted.

And there was no visible downside. As I've already suggested, there was no indication that helping the unemployed deterred workers from taking jobs when they became available. Most notably, the employment surge from April to July, in which nine million Americans went back to work, took place while enhanced benefits were still in effect.

Nor did huge government borrowing have the dire consequences deficit scolds always predict. Interest rates stayed low, while inflation remained quiescent.

The Second Stimulus

Answers to Your Questions About the Stimulus Bill

Updated Dec 28, 2020

The economic relief package will issue payments of $600 and distribute a federal unemployment benefit of $300 for at least 10 weeks. Find more about the measure and what's in it for you. For details on how to get assistance, check out our Hub for Help.

Will I receive another stimulus payment? Individual adults with adjusted gross income on their 2019 tax returns of up to $75,000 a year would receive a $600 payment, and heads of households making up to $112,500 and a couple (or someone whose spouse died in 2020) earning up to $150,000 a year would get twice that amount. If they have dependent children, they would also get $600 for each child. People with incomes just above these levels would receive a partial payment that declines by $5 for every $100 in income.
When might my payment arrive? Treasury Secretary Steven Mnuchin told CNBC that he expected the first payments to go out before the end of the year. But it will be a while before all eligible people receive their money.
Does the agreement affect unemployment insurance? Lawmakers agreed to extend the amount of time that people can collect unemployment benefits and restart an extra federal benefit that is provided on top of the usual state benefit. But instead of $600 a week, it would be $300. That would last through March 14.
I am behind on my rent or expect to be soon. Will I receive any relief? The agreement would provide $25 billion to be distributed through state and local governments to help renters who have fallen behind. To receive assistance, households would have to meet several conditions: Household income (for 2020) cannot exceed more than 80 percent of the area median income; at least one household member must be at risk of homelessness or housing instability; and individuals must qualify for unemployment benefits or have experienced financial hardship — directly or indirectly — because of the pandemic. The agreement said assistance would be prioritized for families with lower incomes and that have been unemployed for three months or more.

So the government was there to help, and it really did. The only problem was that it cut off help too soon. Extraordinary aid should have continued as long as the coronavirus was still rampant — a fact implicitly acknowledged by bipartisan willingness to enact a second rescue package, and Trump's grudging eventual willingness to sign that legislation.

Indeed, some of the aid we provided in 2020 should continue even after we have widespread vaccination. What we should have learned last spring is that adequately funded government programs can greatly reduce poverty. Why forget that lesson as soon as the pandemic is over?

Now, when I say that Reaganism died in 2020 I don't mean that the usual suspects will stop making the usual arguments. Voodoo economics is too deeply embedded in the modern G.O.P. — and too useful to billionaire donors seeking tax cuts — to be banished by inconvenient facts.


 -- via my feedly newsfeed

America Can't Compete With Chinese Tech By Walling Itself Off [feedly]

I receive a blessing of optimism from pieces like this in bloomberg, and other biz press. It illustrates that the most decisive factors in the "the debates" on transitions from capitalism to more socialist societies will be driven by straight out science, income and productivity more than ideology. 

Noah Smith: America Can't Compete With Chinese Tech By Walling Itself Off
https://www.bloomberg.com/opinion/articles/2020-12-27/america-can-t-beat-chinese-tech-with-a-new-iron-curtain

The election of Joe Biden will not end the U.S.-China trade war. Biden has already vowed to keep outgoing President Donald Trump's tariffs as leverage for negotiations. That signals the dawn of a permanent new era of economic competition between the two superpowers. But beyond the flashy, headline-grabbing issue of tariffs and trade deals, there's another, more important economic struggle being waged -- the battle to control technology industries. And the U.S. is deploying some very risky weapons to win it.

As China approaches technological parity with the U.S. in a variety of high-value industries, the U.S. has acted to maintain supremacy. Under Trump, the Committee on Foreign Investment in the U.S. (CFIUS) dramatically stepped up its blockage of Chinese acquisitions of U.S. companies -- a major way that China appropriates advanced technology. Though natural security is the official justification for this, retaining U.S. commercial dominance is undoubtedly an additional goal.

CFIUS's tougher approach will probably continue under Biden. This is probably a smart move, as Chinese acquirers have little to offer the U.S. tech industry except capital, and it's already awash in that, thanks to low interest rates and continued inflows of foreign and domestic money. But what's less obviously smart is Trump's other big weapon against the Chinese tech industry: export controls.

Export controls prevent U.S. companies from selling technology to Chinese companies. Although China is getting more advanced, its flagship companies still depend on various specialized hardware and software products that are only produced by one or two highly specialized companies in the U.S. or other developed nations -- for example, equipment used to make semiconductors. Blocking the flow of these products can severely hamper a Chinese company's business. This weapon was first wielded against Huawei Technologies Co., China's premier telecom equipment maker and the leading contender in the race to supply 5G technology. For a while it looked as if Trump had relented, but this fall he cracked down even harder.

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The controls have succeeded in hurting Huawei's business substantially, at least in the short term. That has apparently encouraged Trump to double down on the tactic. His administration recently extended export controls to more than 60 Chinese companies, including flagship semiconductor maker SMIC and world-beating drone maker DJI. The official justification is these companies' involvement with the Chinese military. But the latest round of controls also seem aimed at preventing China from gaining dominance in any high-value, high-tech industry.

This is a very dangerous game. Stopping trade secrets from leaking from the U.S. to China is one thing. But trying to smash the Chinese tech industry is a far taller order, and it seems unlikely to succeed.

Countries specialize when they trade with each other. The U.S. is great at software, Japan at car manufacturing, Taiwan at making semiconductors, and so on. For China to be integrated with the world economy while not specializing in any internationally competitive high-tech products at all would be extremely strange. China is no longer the low-cost assembly platform it was in the 2000s, slapping together iPhones with components made in Korea and Japan; its tech talent and accumulated knowledge are now world-class. Someone, somewhere, will want to buy Chinese tech products, and the U.S. won't be able to stop them.

Opinion. Data. More Data.
Get the most important Bloomberg Opinion pieces in one email.
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And in the meantime, export controls are hurting U.S. companies. If China can't buy high-tech equipment, semiconductors, and software from the U.S., then it will go buy them from Japan or Europe or elsewhere. Or if the U.S. manages to block that too, then China will simply learn how to make the products itself. The main enduring result will be a loss of revenue for American manufacturers, who will now be permanently shut out of the Chinese market.

Thus export controls could easily end up hurting the U.S. more than China. The Peterson Institute for International Economics reports that as of July, China accounted for a quarter of U.S. semiconductor manufacturers' revenues, but China only got 5% of its semiconductors from the U.S. So American suppliers can be replaced more easily than the Chinese market can.

The PIIE report also notes U.S. equipment makers will lose business elsewhere too, because other countries are afraid the U.S. will try to stop them from selling products to China made with American equipment. And export controls deter foreign manufacturers from investing in the U.S., as then they might not be able to sell to China.

In other words, export controls are an attempt to force the global tech industry to divide neatly into two spheres — one Chinese and one American. But because the Chinese market is so huge, America could easily find its own sphere far smaller and more pitiful than the Chinese one. By sealing itself behind an economic Iron Curtain, the U.S. risks repeating the mistakes made by its vanquished Cold War rival, the Soviet Union.

Export controls are simply too dangerous a tool for economic competition. There are other ways to limit the reach of Chinese military technology, such as the increasingly successful effort to nudge the world away from Huawei's 5G tech. The U.S. should stick to tools like that, while upgrading its own technology industry and spending more on research.

The election of Joe Biden will not end the U.S.-China trade war. Biden has already vowed to keep outgoing President Donald Trump's tariffs as leverage for negotiations. That signals the dawn of a permanent new era of economic competition between the two superpowers. But beyond the flashy, headline-grabbing issue of tariffs and trade deals, there's another, more important economic struggle being waged -- the battle to control technology industries. And the U.S. is deploying some very risky weapons to win it.

As China approaches technological parity with the U.S. in a variety of high-value industries, the U.S. has acted to maintain supremacy. Under Trump, the Committee on Foreign Investment in the U.S. (CFIUS) dramatically stepped up its blockage of Chinese acquisitions of U.S. companies -- a major way that China appropriates advanced technology. Though natural security is the official justification for this, retaining U.S. commercial dominance is undoubtedly an additional goal.

CFIUS's tougher approach will probably continue under Biden. This is probably a smart move, as Chinese acquirers have little to offer the U.S. tech industry except capital, and it's already awash in that, thanks to low interest rates and continued inflows of foreign and domestic money. But what's less obviously smart is Trump's other big weapon against the Chinese tech industry: export controls.

Export controls prevent U.S. companies from selling technology to Chinese companies. Although China is getting more advanced, its flagship companies still depend on various specialized hardware and software products that are only produced by one or two highly specialized companies in the U.S. or other developed nations -- for example, equipment used to make semiconductors. Blocking the flow of these products can severely hamper a Chinese company's business. This weapon was first wielded against Huawei Technologies Co., China's premier telecom equipment maker and the leading contender in the race to supply 5G technology. For a while it looked as if Trump had relented, but this fall he cracked down even harder.

More from

The controls have succeeded in hurting Huawei's business substantially, at least in the short term. That has apparently encouraged Trump to double down on the tactic. His administration recently extended export controls to more than 60 Chinese companies, including flagship semiconductor maker SMIC and world-beating drone maker DJI. The official justification is these companies' involvement with the Chinese military. But the latest round of controls also seem aimed at preventing China from gaining dominance in any high-value, high-tech industry.

This is a very dangerous game. Stopping trade secrets from leaking from the U.S. to China is one thing. But trying to smash the Chinese tech industry is a far taller order, and it seems unlikely to succeed.

Countries specialize when they trade with each other. The U.S. is great at software, Japan at car manufacturing, Taiwan at making semiconductors, and so on. For China to be integrated with the world economy while not specializing in any internationally competitive high-tech products at all would be extremely strange. China is no longer the low-cost assembly platform it was in the 2000s, slapping together iPhones with components made in Korea and Japan; its tech talent and accumulated knowledge are now world-class. Someone, somewhere, will want to buy Chinese tech products, and the U.S. won't be able to stop them.

Opinion. Data. More Data.
Get the most important Bloomberg Opinion pieces in one email.
By submitting my information, I agree to the Privacy Policy and Terms of Service and to receive offers and promotions from Bloomberg.

And in the meantime, export controls are hurting U.S. companies. If China can't buy high-tech equipment, semiconductors, and software from the U.S., then it will go buy them from Japan or Europe or elsewhere. Or if the U.S. manages to block that too, then China will simply learn how to make the products itself. The main enduring result will be a loss of revenue for American manufacturers, who will now be permanently shut out of the Chinese market.

Thus export controls could easily end up hurting the U.S. more than China. The Peterson Institute for International Economics reports that as of July, China accounted for a quarter of U.S. semiconductor manufacturers' revenues, but China only got 5% of its semiconductors from the U.S. So American suppliers can be replaced more easily than the Chinese market can.

The PIIE report also notes U.S. equipment makers will lose business elsewhere too, because other countries are afraid the U.S. will try to stop them from selling products to China made with American equipment. And export controls deter foreign manufacturers from investing in the U.S., as then they might not be able to sell to China.

In other words, export controls are an attempt to force the global tech industry to divide neatly into two spheres — one Chinese and one American. But because the Chinese market is so huge, America could easily find its own sphere far smaller and more pitiful than the Chinese one. By sealing itself behind an economic Iron Curtain, the U.S. risks repeating the mistakes made by its vanquished Cold War rival, the Soviet Union.

Export controls are simply too dangerous a tool for economic competition. There are other ways to limit the reach of Chinese military technology, such as the increasingly successful effort to nudge the world away from Huawei's 5G tech. The U.S. should stick to tools like that, while upgrading its own technology industry and spending more on research.


 -- via my feedly newsfeed