Friday, January 31, 2020

What if Bernie Wins? [feedly]

What if Bernie Wins?

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After creating a massive movement of younger Americans in the 2016 Democratic primaries, Bernie Sanders can no longer be ignored. The democratic socialist US senator from Vermont has offered a comprehensive economic-policy program that has already expanded the public's notion of the possible.

AUSTIN – US Senator Bernie Sanders has emerged as a plausible Democratic nominee for president in 2020. This has been clear for some time to those paying attention to his organization and fundraising, and to the sequence of the early primaries, where small states (New Hampshire) favor him by geography and large ones (California) favor him by name recognition. The New York Times, Politico, and quotable Democratic Party insiders all now admit that Sanders may well be the party's nominee to face President Donald Trump in November.

Can Sanders Do it?


Long a marginal presence in Washington, DC, Bernie Sanders has in the past decade emerged as the leading figure of the progressive left in America – and now as the candidate most likely to beat President Donald Trump in November. But does his ambitious vision make economic sense?

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If nominated, Sanders has a fighting chance of being elected. In fact, his chances may be better than any of the other primary contenders, considering the states and voters that he would need to tip back into the Democratic column. According to the RealClearPolitics compilation of national polls, Sanders has held a consistent lead for nearly a year, with only a brief interruption in December 2019, when Trump benefited from a transient backlash against his impeachment. His nine-point lead over Trump in a hypothetical matchup is the largest among the remaining Democratic candidates. More important, Sanders is well positioned to take back a sufficient number of working-class voters in the critical states of Wisconsin, Michigan, and Pennsylvania.

Is Sanders a plausible president? Leave aside the fact that Trump himself is the least plausible president the United States has ever had. Sanders would bring to the job 40 years of experience as an elected official and intimate direct knowledge of Capitol Hill and the workings of the federal government; his legislative experience is rivaled only by that of former US Senator Joe Biden, and it is more recent. But Sanders is also an idealist, capable of embracing positions well to the left of the prevailing political mainstream. That is very much to his advantage in the Democratic primary, and it might not even hurt him in the peculiarly polarized circumstances of this year's election.

The big question is whether Sanders's program can form the basis of an effective economic and social strategy for a first presidential term and beyond. Do Sanders's proposed policies make sense in economic terms? I can offer an extended answer to that question from the perspective of a distant adviser to Sanders's campaign.


By any standard, Sanders's proposals are more ambitious than anything seen since President Franklin D. Roosevelt's New Deal in the 1930s-1940s and President Lyndon B. Johnson's Great Society in the 1960s. The New Deal was a vast and aggressive program of experiments, particularly in scaling up programs pioneered at the state level, notably by the Progressives in Wisconsin and by Roosevelt himself as governor of New York. The Great Society was developed in the era framed by John F. Kennedy's New Economics – an American version of Keynesianism – and came at a time of broad prosperity, international monetary obligations (under Bretton Woods), and incipient inflation, all of which dictated a measure of policy restraint.

The lingering difficulties of that era gave rise, in turn, to ideological counterrevolutions: monetarism and supply-side economics. These mutually inconsistent doctrines rationalized the high interest rates and tax cuts of the early Reagan years, which produced first a deep recession and then a timely recovery. The broad historical lesson is that any ambitious economic program needs to be considered in light of the circumstances within which it is applied.


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Among the circumstances likely to face a Sanders administration in 2021 are those left over from the 2008 financial crisis, which gave way to a decade of slow but steady growth, accompanied by a broad reduction of unemployment. The decline in the unemployment rate partly reflects an aging workforce and decreased immigration, but mainly a large increase in new service-sector jobs paying mediocre wages. As a result, an ever-growing number of US households have come to rely on multiple earners to make ends meet.

Meanwhile, neglect of public investment has accelerated physical decay in many parts of the country. Mitigating and adapting to climate change demands major investments, and a large share of the available physical resources will need to be committed to carrying out a successful transition to a clean-energy economy. Obviously, this has not happened under Trump.

On the bright side, America's human resources are plentiful; energy costs are low for now; and technological possibilities have been expanding. The country's financial position – low long-term interest rates, low inflation, and the high value of stocks and the dollar – remains remarkably strong.

The question, then, is whether the Sanders program falls within the capacity constraints facing the country as a whole. Will his plans break the national bank, or risk running up the trade deficit, weakening the dollar, and triggering inflation? Much would depend on how the various elements of Sanders's plan work together when they are implemented in concert. Each piece has a role to play in shifting resources, energy, and manpower toward addressing critical problems.


The "Core Sanders" program is highly progressive, and oriented toward the young Americans who gave Sanders his initial, unexpected boost to the national stage during the 2016 Democratic primary. Many of its central components have since been adopted by other candidates, notably US Senator Elizabeth Warren, and thus will feature prominently in the 2020 Democratic platform and beyond, regardless of whether Sanders is the nominee. More important, these components are actually not expansionary with respect to their likely effect on economic activity and employment. On balance, the Core Sanders program would in fact be likely to reduce overall economic activity.

Of the main policies, possibly the most expansionary is a proposal to raise the federal minimum wage to $15 per hour, though this would have little if any effect on federal spending or taxation. A minimum-wage hike amounts to a transfer from profits to wages, and from high-saving to low-saving individuals and families. It is likely to bring about higher consumption spending on the part of working Americans, of whom about 30% would receive a raise. But this effect would not be very large, partly because the pay increases for this group would be fairly small, and partly because there might be an offsetting loss in spending out of profits.

In any case, the major benefits of a higher minimum wage are social: it would reduce inequalities, improve the quality of services for low-income consumers, and reduce demand for low-wage undocumented immigrants (because documented workers would be more readily available for certain jobs at the new minimum wage).

The other mildly expansionary element of Sanders's core agenda would eliminate tuition in public colleges and universities, presumably substituting a federal payment to cover most of the costs. The obvious benefit here is to students (and their parents) who would otherwise be saddled with tuition fees. Many of these families would increase their other spending. But there would be an offsetting effect on the spending of public colleges and universities, which would be more dependent on federal and state funding than they were before, and therefore more vulnerable to legislative squeezes on their budgets.

At the same time, Sanders's proposal to raise marginal income-tax rates would have a dampening effect on economic activity, because it would curtail the high-end luxury spending (known as "plutonomy") that makes up a growing share of total household spending in our radically unequal world. More progressive taxation and curtailment of billionaires' Gilded Age extravagance should be welcomed. But without clear offsets in the form of increased federal spending or lower taxes for lower-income families, the net effect on employment and total output would be negative.

Sanders's proposal to break up large banks and reduce the claims of Wall Street on the economy also would reduce overall economic activity in the short run – even though a strong case can be made that much of the economic activity associated with Big Finance is worthless or detrimental anyway. Starting around 1980, the rhythms of the national economy have been governed largely by the ebb and flow of bank credit, from the NASDAQ boom of the late 1990s and bust in 2000, to the mortgage boom of the mid-2000s and the financial crisis of 2007-2009.

Since then, the economy has been driven forward largely by household and personal debt – auto loans, credit cards, and student debt – all of which generate profits for banks. Breaking up the banks into smaller units, regionalizing the resulting institutions, and regulating them more strictly could reduce the sector's overhead, as well as its outsize political influence. Compared to the present environment of dangerously easy credit, this new dispensation would reduce, rather than expand, overall activity.

And then there is "Medicare for All," the major benefit of which would be to place the entire population into a single insurance pool, eliminating the need for most private health insurance. Again, this would be a good thing that nonetheless reduces economic activity. The savings in reduced health-insurance costs from Medicare for All would amount to several percentage points of the 18% of GDP that America currently spends on health care. If US health-care costs (beyond insurance costs) were reduced to French, Italian, or even British levels (though Sanders does not claim that his plan would do this), a major decline in total output and a reduction in health-related jobs would follow.

It is therefore a misunderstanding, constantly repeated in the media, to speak of how the "cost" of Medicare for All would be met, as though shifting the function of insurance from the private to the public sector and reducing the scale of health care would entail an increase in the real cost of health care. The reality is the opposite: Medicare for All is a cost-saving program. By changing the basic health-care funding model, it would eliminate unnecessary expenditures and waste – not least the profits of insurance companies – while rationalizing the delivery of services.

Finally, in 2016, Sanders promoted a substantial program of new spending on infrastructure and the environment, which could in principle have offset some of these aforementioned effects. That commitment, as we shall see, has since taken a new form.


As of 2019-2020, the Core Sanders has been supplemented by an "Expanded Sanders" program comprising the Green New Deal (GND), a federal job guarantee, a wealth tax, and a plan to abolish and forgive student-loan and medical debts. Of these four policies, the first two would be expansionary or stabilizing in their economic effects. The third is, in my view, impractical, and the fourth is perhaps more far-reaching than is generally appreciated.

The GND has become a global rallying cry. In spirit, it evokes Roosevelt's New Deal, which featured comprehensive social and economic reforms, an expansion of worker rights and minimum wages, the creation of the welfare state, the introduction of effective financial regulation, and large-scale federal spending on infrastructure, conservation, and the environment. In its new incarnation, the key proposals largely target the energy sector, covering both production and consumption of fossil fuels and renewable alternatives, especially solar and wind. There are also proposals to rebuild the electrical grid, weatherize houses and office buildings, move toward all-electric ground transportation, ban hydraulic fracturing ("fracking") for natural gas and oil, and more.

Whether these implied technological changes are even possible is a vital question, and it remains to be seen if they would accord with globally agreed targets for reducing fossil-fuel emissions. As with any major initiative, success is not guaranteed. But the same was true of the New Deal and of the mobilization to win World War II. The GND, then, is best considered in the spirit of a presidential campaign. It represents an earnest commitment to meet the climate crisis: $16.3 trillion in new spending over ten years, and the creation of 20 million new jobs. Obviously, what matters for the climate are the results; but, either way, the effort will count as economic activity.

In a $21 trillion economy, $1.6 trillion per year would amount to just under 8% of additional activity, not counting "multiplier effects." After applying the "balanced-budget-multiplier theorem" – according to which a $1 increase in federal spending, offset by a $1 tax increase, boosts GDP by exactly $1 – the additional overall activity from Sanders's proposed GND would come to roughly 9-10% of GDP. By itself, the GND would have a strong expansionary effect, sufficient to absorb the deflationary effects of reducing the role of the financial and health-insurance sectors.

The GND would also support employment. Although the jobs created would be quite different from those lost, and in many cases different people would get them, GND-related projects could be sited in such a way as to revive decaying industrial regions, thereby restoring some geographic balance to the national economy. As with all economic change, some disruption would be inherent in the transition.


It is important to recognize, however, that the GND is a program for investment spending; it would not create new consumption goods to go along with the increased income and new jobs. Most of the effort would go toward improving the environmental consequences of existing output. The GND is thus a way to trade cheap but non-renewable and unacceptably destructive carbon-based energy for energy that is (broadly) costlier but also more sustainable.

By boosting incomes without creating new consumption goods, the GND is similar to an industrial mobilization for war. The increase in income from GND-related activities will be partly offset by a decrease in wasteful finance, private health insurance, and excessive medical provision (somehow defined), as well as reductions in military spending consistent with ending America's forever wars.

On balance, there would probably be a net increase in personal incomes relative to consumption. One consequence, then, would be rising imports, a channel that would have to be monitored closely, and curtailed if necessary to protect the position of the dollar. The other risk is price inflation, which would have to be the target of specific measures as it arises.

An economy where rising incomes outrun the supply of new consumption goods is a manageable problem, as John Maynard Keynes showed in his 1940 pamphlet, How to Pay for the War. The wartime US managed this problem with a combination of long-term bonds issued directly to households, long-term interest rates managed and kept stable by the Federal Reserve, and comprehensive price and wage controls, under the Office of Price Administration (directed by my father, John Kenneth Galbraith).

These measures were firm, if not drastic. But the fact is that in an emergency and for a finite period – namely, the time it takes to shift to a new energy and resource system – the problem can be managed. Better yet, one long-term consequence of addressing the problem correctly is that US households would emerge with sound balance sheets and the capacity to take advantage of the new infrastructure in ways that enhance their quality of life, while reducing their dependence on Big Finance. That is what happened after WWII.


In this context, Sanders's proposed job guarantee would act as a stabilization measure. It is designed to provide jobs at a relatively modest living wage to those who want them, when they want them, and not otherwise. In the context of a broadly strong economy with high employment (bolstered by the GND), the demand placed on the job guarantee would be small. Most people, even those released from prisons, would already be working in better jobs with higher wages and better career prospects. Only when the private economy falters – when the credit boom gives way to a credit crunch – would the alternative of a public job become attractive to more people.

In terms of the "costs," it is important to remember that spending on the job guarantee would replace unemployment compensation, welfare, and some disability insurance as the safety net of choice for people who are able to work, because having a job is the best indicator of future employment prospects. So, in general and under normal conditions, the job guarantee's expansionary effect on economic activity would be positive but modest. The virtue of the program is not so much in its effect on total activity, but that it creates a reserve capacity for dealing quickly with the human consequences of crises.

This brings us to the wealth tax, which occupies a somewhat anomalous position in the Sanders policy mix. It did not originate in close consultation with the progressive economists most closely associated with his campaign. Rather, it was picked up from Warren, who herself got it from economists like Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley, and Thomas Piketty of the Paris School of Economics. The resulting proposal would require annual appraisals of capital wealth for families above some specified threshold, and the conversion of some part of that wealth to cash for tax purposes. In cases where wealth is concentrated in corporate equities, provision would be made to transfer stock, presumably at the market price, in lieu of cash.

The most serious problem with the proposal is not that such a policy would weaken economic activity, but that it would be impractical. To enforce it, the US would need to create a new tax administration aimed entirely at assessing and valuing all forms of wealth as of a certain date each year. Because many forms of wealth are illiquid and not easy to appraise – while others are volatile and also difficult to appraise precisely on a certain date – the policy would be an enormous boon to the tax-preparation industry. For everyone else, including the federal government, it would be a huge headache. As such, one can disregard this plank of the platform; it is a political gesture at best.

But how, then, would the GND be funded? True "financing" is a matter of real resources, not scrounging for tax revenue. As noted above, those real resources would come from cutting back on finance, health insurance, unnecessary medical provision, and the military, and by mobilizing residual unemployed and underemployed workers toward more useful and necessary activities. Tax revenue would then come from these workers' earnings, and from more effective levies on the profits of the companies that employ them.

That said, tax measures to curtail oligarchy are certainly needed. On this issue, Sanders's original instinct was to strengthen the existing estate and gift taxes. This approach, which remains a part of his program, is sound. Estate and gift taxes target dynastic wealth, and have the advantage of providing a strong incentive for philanthropic donations, giving life to universities, museums, hospitals, churches, and other socially useful institutions. It also requires only one appraisal, which comes at a time when the disruption to ongoing activities is minimal and the assets can be frozen until they are appraised.


Finally, we come to student-loan and medical-debt forgiveness. Specifically, Sanders advocates canceling student debts owed to the government and repaying debts owed to private institutions. The former move is clearly expansionary, since the cash flows otherwise used to pay down the debts would be directed to other spending, which itself would fuel new economic activity and job creation. The effect of debt repayment isn't as clear, because paying off the capital value of a loan early deprives the lender of interest income.

In any case, the more pressing question is what impact these measures would have on the provision of additional credit in the future. With so many customers newly liberated from debt burdens, would lenders be willing to extend new loans for other purposes? Or would lenders expect further debt forgiveness, and perhaps a rolling write-down of existing debts, including those owed to them? Many might assume – not unreasonably – that if student loans and medical debts should be written down, so, too, should some other categories of debt.

Here, the social dynamics of revolutionary economic development begin to come into play. In the grand scheme of things, a wide-ranging program of debt relief for American families and households would be a very big deal. Private debt has acted as an effective instrument for social control and discipline at least since the financial deregulation that began in the 1970s, which launched the era of credit cards, installment buying, and increasingly unstable and speculative mortgages. Most Americans are affected by this system of debt peonage, yet few think to question it, let alone recognize it as a form of social oppression.

The underlying radicalism of Sanders's outlook is manifested in his embrace of bold proposals, which are already expanding the public's notion of the possible. As the far-reaching potential of a Sanders presidency seeps into the public consciousness, the vast segment of the electorate that currently feels disenfranchised and demoralized will begin to think differently about the future. Debt is a weapon of the oligarchy. It is not entirely unreasonable to see in debt cancellation the mobilizing trigger for a broader social movement in favor of still deeper social-democratic and socialist reforms.


Whether an economic program as a whole succeeds or fails largely depends on how its various components add up. Based on a general evaluation of Sanders's agenda, it appears that a reasonable answer to the question of whether he can do it if given the chance is: Yes, he can. The Sanders movement is growing, and the candidate's program is popular. Equally important, the Sanders agenda is largely coherent as a matter of basic economics, broadly balanced between elements that boost economic growth and those that free up resources, and largely consistent with the broader conditions, domestic and international, that the next US president is likely to face.

Featuring newly-minted Nobel laureates Esther Duflo and Abhijit Banerjee, Moon Jae-in, Shoshana Zuboff, Francis Fukuyama, Lawrence Summers, and other leading thinkers, The Year Ahead, 2020: (De)Reconstruction closely examines the economic and political challenges facing the world. The Year Ahead magazine is included in the Project Syndicate annual subscription. To receive (De)Reconstruction, and gain unfettered access to On Point, The Big Picture, and the PS archive, subscribe today for less than $2 a week.

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James K. Galbraith is Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, University of Texas at Austin. His most recent books are Inequality: What Everyone Needs to Know and Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe.

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James Galbraith: What if Bernie Wins? [feedly]

From Bernie's 'chief economist.'...

What if Bernie Wins?

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Larry Summers: If business leaders are serious about doing good, they can start by paying their taxes [feedly]

I very much like Summers recent focus on tax evasion --it is in the TRILLIONS, and the "Public good" service that is incorporated in every corporate charter, but that has been reduced to simply "serve stockholder wealth".  It points toward a needed reform of corporate charters, especially where the public and employee stakeholders interests are also "at stake". I suspect, in the long run, that corporate charter reform will be more important than anti-trust mechanisms in the era where ability to scale is as vital to abundance, as competition is alleged to be for innovation.

If business leaders are serious about doing good, they can start by paying their taxes

By Natasha Sarin and Lawrence H. Summers

Over the past year, the concept that corporations owe a responsibility to the broader society beyond their responsibility to their shareholders has flourished. The Business Roundtable renounced its earlier view that companies exist to serve stockholders and endorsed stakeholder capitalism last summer. BlackRock chief executive Larry Fink, whose firm controls $7 trillion in investable funds, expects a "fundamental reshaping of finance" and has vowed to vote against corporate directors insufficiently committed to serving interests beyond those of stockholders.

This year's Davos meeting was centered on business's responsibility to protect the environment. And there has been much celebration of recent corporate commitments, such as Microsoft's promise to invest $1 billion to end or offset all of its greenhouse-gas emissions, present and past.

The most important stakeholder of U.S. corporations is the United States itself. Before any obligation to voluntarily reduce emissions, start charter schools or pay above-market wages should come an obligation to pay a reasonable share of income in taxes. Many of our most successful corporations have used accounting tricks, especially those involving sales of intellectual property to low tax jurisdictions, to avoid paying federal taxes.

A stunning story recently published jointly by Fortune and ProPublica credibly alleges that Microsoft avoided tens of billions in corporate tax liability by locating its profits in Puerto Rico on the advice of KPMG, and then waged all-out war against IRS efforts to hire strong counsel and gather information from key witnesses. (In a comment for the story, Microsoft said that it "follows the law and has always fully paid the taxes it owes"; the IRS's audit efforts are ongoing.) Facebook is being investigated for its profit-shifting behavior, and in a number of years Amazon has paid no taxes. Companies such as Google, Netflix, Delta and General Motors pay a much lower share of their taxes in profits than the vast majority of successful small businesses.

As is so often the case, there is a major question here of whether the scandal is illegal things companies do, or the things that are legal. No doubt that much of the problem involves badly written tax laws that permit large-scale reduction in taxes below common-sense levels. But this goes only so far as a defense for companies that have lobbied and used campaign contributions to shape tax law. And apart from shaping the law, corporations that wish to be seen as good corporate citizens should refrain from pushing the envelope as they file their returns.

The issue here goes beyond corporate hypocrisy and even the significant revenue that could be collected from better tax laws and enforcement. With confidence in government and big business at a nadir, and global cooperation seen as harming ordinary Americans, a serious effort at restoring taxation would represent a substantial, economically rational response to populist and nationalist pressures. It is a legitimate source of outrage that a former senior Treasury official can assert — without apparent criticism from the corporate, tax bar or accounting communities — that the S in IRS stands for the "service" that the IRS should first and foremost provide to business taxpayers.

What should be done?

First, the tax code needs to be reformed. The United States should enthusiastically join the European-led effort to ensure that digital companies are taxed at reasonable rates, as long as the effort is expanded to cover other sectors where corporations from other countries dominate. And current approaches to the allocation of income across jurisdictions should be reviewed. For instance, ways to support Puerto Rico can be found without tax breaks for multinationals that exacerbate the federal deficit and do more for highly profitable but lightly taxed major corporations than they do for Puerto Rico.

Second, tax enforcement should be beefed up. It is a scandal that the share of large corporations that face corporate audits has fallen by half in the past decade. And the audits that remain are less aggressive, with the IRS almost 90 percent less likely to challenge companies' tax liabilities than they were a decade ago.

Third, as in antitrust, Congress should make clear that it expects the IRS to hire and fully compensate top-flight legal and financial experts when bringing actions in tax matters. It is indefensible that star private litigators are only rarely used in tax matters and that it appears Microsoft was able to successfully challenge private counsel's right to question their employees. Similarly, to improve effectiveness in enforcement, statutes of limitation should be extended and disclosure requirements increased.

Fourth, no matter how much enforcement is enhanced and the tax code reformed, there will still be efforts to play the audit lottery and take unreasonable positions. Strong actions including treble damages, removal of privileges for attorneys and accountants to practice before the IRS and direct financial penalties on executives should be considered as means to discourage efforts to push the envelope. The case for taxpayer privacy is far less compelling with respect to public corporations than it is for individuals. Some sunlight on how companies allocate income across jurisdictions could also be an effective disinfectant.

Fifth, anyone who is concerned with business being seen as constructive — such as the Roundtable, large institutional investors or presidents and their treasury secretaries — should work to change the law to eliminate the most egregious shelters and make clear that they are prepared to name and shame companies that don't meet their obligations.

Justice Oliver Wendell Holmes famously said, "Taxes are what we pay for a civilized society." Any company that wishes to be thought of as a good citizen needs to join the effort to combat corporate tax avoidance. No issue is more important to restoring the legitimacy of our economic system.

Lawrence H. Summers is a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama from 2009 through 2010.

Natasha Sarin is an assistant professor of law at the University of Pennsylvania Law School and an assistant professor of finance at the Wharton School.

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Thursday, January 30, 2020

Inequality and Economic Growth [feedly]

via Simon Johnson

Inequality and Economic Growth

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Jan 30, 2020 SIMON JOHNSON

Economic policymakers can no longer afford to view inequality as an issue separate from boosting employment and incomes. Addressing it through a wealth tax, combined with more effective antitrust policies and enforcement, has become essential to sustaining economic growth, including by encouraging the creation and growth of new business.

WASHINGTON, DC – In previous eras, top economic decision-makers considered inequality to be distinct from the main concerns of macroeconomic policy. Since the Industrial Revolution, the general view has been that, on average, people want higher incomes and a larger number of good jobs – and that the best way to achieve these goals is through faster economic growth. Not surprisingly, therefore, much thought has been devoted to the question of how to design and run monetary and fiscal policies that can sustain higher aggregate growth rates.

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Compared to the threats posed by climate change and China's hostility to liberal democracy, the consequences of Brexit may seem far less significant. But the United Kingdom has chosen an odd and dangerous time to decide to go it alone.

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Inequality was regarded as a separate issue, which could be addressed at the margin through making net taxes more or less progressive. Rich people would contribute a higher share of their total incomes to the public finances than would the middle class.

It is increasingly apparent that there are three main problems with this view of the world, at least as it applies to the modern United States. All three are made fully apparent in Heather Boushey's brilliant new book, Unbound: How Inequality Constricts Our Economy and What We Can Do About It.

First, the tax system has ceased to be progressive. Warren Buffett famously remarked in 2011 that his tax rate is lower than his assistant's – and this is not an isolated occurrence. Since the 1970s, effective taxes on income from capital (for Buffett) have fallen dramatically, while taxes have remained much steadier for wage earners such as assistants (including to billionaires, it turns out).

If we include health-care costs – insurance premiums, deductibles, and out-of-pocket expenses – then median take-home pay (available to spend on everything other than health care) has barely budged in recent decades. There is nowhere near as much redistribution as there was in the post-World War II decades. (In my book with Jon Gruber, Jump-Starting America, we examine the statistics and history in more detail.)

Second, the extent of inequality has increased, owing partly to barriers to market entry, which also undermine economic growth. It is easy to understand why Buffett likes investing in companies with "moats" – for example, in insurance, railways, and other sectors. Owning firms that are difficult for others to challenge is undoubtedly good for his profits. But economic policymakers' goal should not be to maximize profits for one sector, let alone one group of investors. Across the entire economy, more entrepreneurship and more market entry tend to erode incumbents' profits and thus mitigate inequality, because the entry of new firms into an industry will likely create more jobs, boost incomes, and lead to new products, better services, or both.


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Third, inequality has become a driver of worsening outcomes in a broader political-economy sense. When rich people spend their money to influence political decisions, they do not typically seek to ensure freer entry for others into the sectors that generate their wealth, precisely because that would likely mean less for them. On the contrary, powerful incumbents want more protection from domestic and foreign competition. They also want more subsidies, whether through the tax code or otherwise. And their most cherished goal is to become too important to fail, so that they are likely to be bailed out in times of trouble.

Boushey connects these dots in a remarkable and refreshing manner. Even for people who have studied the issue, the links and specific policy issues she identifies are illuminating. This is not an argument against markets or against private enterprise, but it is an important cautionary tale: we get the inequality that we choose, regardless of whether we are aware that we are making a choice.

Unbound is not an explicitly partisan book, but it is easy to draw inferences for the current political season.

For starters, if the existing system is broken, the easiest and fairest way to fix it would be with a modest wealth tax. The specifics can be debated, but a tax on wealth over $50 million would impact only the richest 0.1% of all Americans.

Moreover, if barriers to market entry are becoming a problem, then we should change the focus of antitrust activity to reduce those barriers in a reasonable and timely manner. If traditional criteria, developed in and for the pre-Internet era, prove cumbersome or ineffective, then we should update them.

And if wealthy people are buying political access, with the result that the economy is becoming more distorted and less fair, then we should change the campaign-finance and lobbying rules. In the US, a higher rate of tax on wealth over $1 billion (or a similar very high level) would affect only about 600 people, but it would send a powerful signal that their outsize influence will be addressed.

Inequality at modern levels is not an accident. It is the result of policy choices that were influenced or swayed by relatively rich people (again, Unbound has the details). The pendulum can – and should – swing back in the other direction.

Economic policymakers can no longer afford to view inequality as an issue separate from boosting employment and incomes. Addressing it through a wealth tax, combined with more effective antitrust policies and enforcement, has become essential to sustaining economic growth, including by encouraging the creation and growth of new business.

Featuring newly-minted Nobel laureates Esther Duflo and Abhijit Banerjee, Moon Jae-in, Shoshana Zuboff, Francis Fukuyama, Lawrence Summers, and other leading thinkers, The Year Ahead, 2020: (De)Reconstruction closely examines the economic and political challenges facing the world. The Year Ahead magazine is included in the Project Syndicate annual subscription. To receive (De)Reconstruction, and gain unfettered access to On Point, The Big Picture, and the PS archive, subscribe today for less than $2 a week.

The continued support of our readers helps to sustain a crucial public good: a truly open world of ideas.



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Jan 23, 2020 GEORGE SOROS

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Writing for PS since 2007
123 Commentaries


Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan and an informal adviser to US Senator Elizabeth Warren's presidential campaign. He is the co-author, with Jonathan Gruber, of Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream.

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Wednesday, January 29, 2020

Joel Wendland-Liu: Predictive analytics: How capitalism’s “knowledge economy” profiles us all [feedly]

From my friend and former colleague, Joel Wendland-Liu, a good, but dreadful summary of negative possibilities in the mass knowledge industries, especially unde "communicative capitalism", a phrase I will have to research before judging. However, the technology potential will exist (in China already does exist and growing) for state accumulation of "private" information as well. So what is the game? Back to the 19th century, and start over?

I suspect privacy itself, including property, and commodities, will ultimately lose their value in the services and intangible domains under both capitalism and "socialism". I have no idea the destiny of humanity, except this: I predict its SOCIAL, as opposed to private, nature will advance at the expense, and perhaps, we can hope, the burdens of 'privacy'.

Predictive analytics: How capitalism's "knowledge economy" profiles us all

"Communicative capitalism," writes the communist philosopher Jodi Dean, refers to a phase of knowledge- and technology-based commodity production in which information on a massive scale is produced, gathered, and sold for profit. What we now call the "information society" or "knowledge economy" sees the large-scale proletarianization of often highly-educated people in low-paying (often low-skilled) jobs, precariously scraping by to pay student loans, cover health insurance, and living paycheck to paycheck, wondering what happened to the "American Dream."

Another more insidious feature of communicative capitalism is the role of technology companies in exploiting the participatory features of the knowledge economy (especially social media, digitized personal information archives, search engines, and online shopping) to harvest, store, organize, and sell consumer information to other companies. We all know something happens to the information we share on Facebook, input into Amazon or Google when we search, and are rarely surprised anymore when we see ads in our feeds and email for commodities that are similar to what we've searched for.

Dean characterizes this aspect of the knowledge economy as free labor producing commoditized data for technological capital. Whenever we participate by watching the latest hit on Netflix, buy something from our favorite online store, or add information to our LinkedIn account, we are producing bits and pieces of our lives and interests that are transformed into products by technology companies. We do it for free and spend hours and hours on it.

Books by Jodi Dean:

The Communist Horizon

Crowds and Party

Blog Theory

Technology companies are able to construct significant digital images and profiles of consumers, their needs and desires, their work and habits, their movements, alignments, and affiliations. I know it sounds like a scary science fiction movie, but it is true. The "knowledge economy" is most effective at using our desire for connection, for collectivity to promote the commodities that we help to build back onto us in ways that promise, but fail, to make up for the lack we experience under alienating capitalism.

It successfully tweaks our desires and needs to negate our yearning for collectivity and convince us that our individuality is most important for a healthy life. It uses this false belief to divide us one from another and to absorb our dissent or criticisms or desire for political actions into its commodity-building software.

One dimension of this commodity-producing information behemoth is higher education. Once the domain of elites who transmitted the culture and civilization of the wealthy, higher education, by the mid-twentieth century had become a domain of working-class struggle and class mobility. The G.I. Bill after World War II, Pell Grants during the war on poverty, taxpayer-funded land grant universities, and low-cost tuition made access to higher education affordable and in many places free. In-state undergraduates in the University of California system paid an annual "fee" of $150 in the 1970s. As late as the early 1990s, I paid less than $2,500 for annual full-time tuition at a highly ranked state school. Today, the average in-state undergraduate student in Michigan today pays close to $15,000 annually for tuition.

In addition to skyrocketing costs, employers now demand college degrees and certifications for almost any job that pays a living wage and necessary benefits. No wonder Americans owe $1.6 trillion in student debt and can expect to be forced to work, often doing things they never imagined, just to keep on top of that debt. In the 19th century, critics of this form of economic activity called it debt peonage.

Part of what makes this transition to higher education debt trap possible is that the neoliberal stage of capitalism constitutes a systematic dispossession of the public sphere, from healthcare to education to utility and transportation systems, to prisons and law enforcement, to military and natural resources.

Public higher education is steadily losing its "public" character. The resources, workforce, cultural capital, and prestige of U.S. universities are being pressed into the service of profit. After decades of neoliberal policies, universities have been starved of needed resources. Dozens of Republican Party-authored-tax cuts in the state of Michigan since the 1990s, for example, paired with stringent restrictions on how resources are spent and who gets them, mean that Michigan students have been positioned so precariously.

Into this fiscal crisis step for-profit education companies offering a mixture of devious dispossession, futuristic technology, and high-pressure sales pitches—none of which will save the modern public American university from its crisis.

High-tech education companies sell a software package they claim is a magic bullet. Those companies have convinced hundreds of universities and colleges facing the crisis of vanishing resources and steep competition for students that technology will help them cheaply recruit students.

According to recent research by the non-profit think tank New America, the software uses "predictive analytics." One of the first known uses of predictive analytics in a networked system was a database created by the U.S. Department of Defense during its war on Vietnam. Contracting with a private company, CIA and Defense Department technicians designed a database and data collection system. U.S. military advisors populated the database with information collected from more than 11,000 hamlets of South Vietnam, according to recently published research by international relations scholar Oliver Belcher.

That data was regularly uploaded to IBM computers, creating time- and location-specific dynamic maps of resources, pockets of anti-American resistance, and levels of economic and social development. Military technicians could then make recommendations about which people needed to be killed, hamlets destroyed, occupied, or resources shifted to or from.

The project further dehumanized millions of people regarded as worthy of slaughter and manipulation for the imperialist goals of the U.S. government.

Today, the technology isn't always connected to war and carnage. Still, it does result in the dehumanization and manipulation of everyday people. And this time the purpose is profits for billionaires. It is being used in "predictive policing" to control poor or African-American, Latinx, or other racialized communities and in health care to predict costs of care to manipulate profits for insurance companies and healthcare providers.

Here is how it works in higher education. Universities want to recruit students who will apply and enroll, and then attend and succeed. Access to public resources depends on both enrollments and on rates of retention and graduation. Further, private donations for new buildings and big sports arenas are tied to a university's ranking as a school that successfully graduates students. This cycle of rewards and punishments creates a market-dependent "incentive system," according to New America researchers, that requires public universities to play by market rules.

To compete, universities contract with companies like EAB or Civitas Learning to help them identify potential students. Predictive analytics uses data about a potential student's race, gender, geographical location, and ability to pay as critical parts of a scoring system that ranks those students based on the likelihood of applying, enrolling, and succeeding. Once the potentially most successful students are identified, public universities can spend rare resources on recruiting the highest-ranked students.

None of the people involved here will admit they believe a person's race or social class or gender determines their future success. Still, predictive analytics can only rely on data that mirrors existing structural inequalities in the U.S., like racism, sexism, or classism. Students who come from white, affluent families and places will have a decided advantage. Recruiters will target students with more resources. Poor or working class, Black or Latinx, or rural students will continue to face structural hurdles to higher education.

Colleen Webster, of Renton, Wash., holds a sign opposing U.S. Education Secretary Betsy DeVos, Oct. 13, 2017, outside the hotel where DeVos was speaking. | Ted S. Warren / AP

Inequality is a persistent feature of U.S. society, despite its ideological myths about social mobility and success. The new twist is that private companies get to profit from inequality in public education.

The current incentive system will foster more deep-rooted inequalities and divisions in U.S society. "While colleges can be encouraged to focus on social mobility and help end institutional racism," the New America researchers argued, "until the types of incentives change, it will be hard to make these changes systemic." As long as the current incentive system rewards for-profit companies for manipulating an exclusionary university admissions system, powerful actors will work hard to preserve it.

One of those powerful actors is billionaire Secretary of Education Betsey DeVos. When Donald Trump appointed her to head the Department of Education, ethics requirements forced DeVos to report her financial holdings publicly. A massive private network of shell companies, trusts, and secret holdings brought to light in that report, according to the Wall Street Journal, but many of her family's shady financial networks remain secret.

One of the companies that her family held a financial interest in at the time of the report was a software company called Vista Equity Partners. Vista owns EAB, which specializes in predictive analytics for higher education. Ethics documents showed that DeVos also held stakes in numerous private education companies that have profited by disrupting public education. This nexus of profit, power, and policy led education scholar Steven J. Courtney, to characterize DeVos as "a major actor in facilitating and enabling corporate interests to flourish at the expense of the public good."

Resisting this insidious trend in higher education by electing national presidential candidates that will fight for student loan debt forgiveness, affordable tuition costs, and higher rates of unionization among education workers would be a brilliant start to reversing this trend. But, even that would only be the start of a big, collective fight.

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The Coronavirus: State Capacity and Crisis Response in China [feedly]

The Coronavirus: State Capacity and Crisis Response in China

Mega-quarantines, large hospitals built within a week, and sharing information with the global scientific community! The outbreak of the coronavirus (nCov2019) in China that has infected thousands of people and killed over 100, provides an illustrative example of the challenges facing the powerful Chinese state as it strives to contain the epidemic within its borders while limiting the effects of "stagflation" and further damage to its reputation abroad.

Crisis response

Over the past few weeks, China has been widely praised for the unprecedented accomplishment of its scientists in identifying the coronavirus in record-time (one week!) and sharing its DNA sequence with the rest of the world. Indeed, the country has not only developed a diagnostic test but also provided considerable clinical information about the disease, thus allowing it to demonstrate its growing scientific prowess. The strength and power of the Chinese state has been in full display on the world stage. While China has impressed large parts of the world in recent decades with its impressive ability to undertake major infrastructure projects, the current crisis has provided ample evidence of its extraordinary logistical capacity to undertake major projects within its own territory. Social media sites have been inundated with video clips that provide daily updates of round-the-clock activity in constructing a large (1000-bed) makeshift hospital in Wuhan within a week. And a second new hospital is also expected to be ready soon.

Similarly, images of deserted streets, effective roadblocks and the widespread deployment of the police and military personnel illustrate high state capacity to enforce the largest quarantine in history. The city of Wuhan, with its 11 million inhabitants, is in complete lockdown mode while restrictions have been imposed on neighboring cities in the region. State media reports show that food is abundantly available in grocery stores and that social order is being maintained. From a state capacity perspective, this is impressive by all accounts. Which other country in the world could mount such an extraordinary response? There is already a growing amount of concern on the ability of China's neighbors such as India, to respond to a crisis of such magnitude not to mention many countries in Sub-Saharan Africa with poorly funded health systems, inadequate infrastructure and weak state capacity.

China's response to the epidemic is not only a reaction to a mounting health crisis, but also a projection of the strength of its regime and its preferred approaches to development and governance. The censorship of public debate and social media, for instance, can be viewed in some quarters as an effective tool for limiting the spread of rumors and prevent widespread panic.

Crisis declaration

Unlike the SARS epidemic in 2003 – when China was widely criticized for withholding early warning information and thereby delaying efforts to mount an effective response at a crucial early stage – the current crisis, by most available accounts, has been handled much better by the central authorities. There is, however, growing evidence to indicate that the local authorities in Wuhan could have reacted much earlier. By delaying the declaration of a "crisis", and perhaps by withholding information from Beijing on the sheer scale of the growing epidemic, there has been growing criticism of the delay caused by local political and administrative inaction in Wuhan city and Hubei province.

There are already a growing number of news reports and analyses that highlight the siloed and hierarchical political structure in China that appear ill-suited to deal with emerging crises. Local officials may risk jeopardizing their careers if they make higher-ups aware of unpleasant news and complex problems that have not already been dealt with effectively. There is growing evidence to indicate that the strategy adopted by the authorities in Wuhan was to initially tone down the seriousness of the problem, thereby allowing the crisis to escalate beyond control.

But even when such information is available, central authorities may not find it convenient to declare a national emergency. Based on our previous work on famines, we find that by declaring a crisis, leaders risk attracting criticism from domestic and international actors. A crisis is also often understood by leaders to be tantamount to admitting to an administrative failure on their part. All of this negatively impacts the image of the country and may undermine the legitimacy of the government. However, the use of the term "crisis" may also have its benefits. One can give the impression that things happen without a reason, i.e. no one can be blamed and no specific decision can be traced back to have started the numerous components of a "process" that leads up to the crisis "event".

The Chinese response viewed through the global health security prism

China has been a prominent beneficiary and advocate of globalization. The mindboggling ambition of the Belt and Road Initiative (BRI) – launched in 2013 and estimated to cost over $5 trillion – has been variously interpreted by countries and organizations as visionary leadership for global development based on international solidarity, Communist party propaganda, quest for world recognition of China's might, attempt to boost world trade and a platform for win-win global cooperation. The growth of BRI activities has facilitated the increased circulation of goods and people by connecting China with the rest of the world. This in turn has increased the risk of the international spread of the nCov2019 epidemic, particularly in Sub-Saharan Africa which hosts millions of Chinese workers building much-needed infrastructure projects, but where most health systems are ill-equipped to handle a major epidemic.

The global system that fosters cooperation against dangerous epidemics – spearheaded by the World Health Organization (WHO) – aims to rapidly identify and stop the 'bad' circulation of viruses and pathogens. In other words, the system is geared towards reaping the benefits of globalization while making circulation flows safer. The coronavirus epidemic, however, exposes the shortcomings between the ideals of a well-functioning global cooperation mechanism and China's capacity to comply with such a system. Indeed, unlike global mechanisms that emphasizes early detection of, and response to, emerging health threats, the current Chinese model appears better suited to responding to outbreaks that have already turned into a crisis rather than threats that are emerging. Moreover, the WHO's response has been hindered in the absence of independent and non-official sources of information in China – an important bottom-up dimension that the global disease surveillance system relies on. Another factor that is complicating the coronavirus response is China's opposition to Taiwan's membership of the WHO.

Although there are good reasons to be impressed by the Chinese response thus far, there is a risk that the authorities, under colossal domestic and international pressure, may be tempted to politicize their response in order to project strength and safeguard China's reputation – a politicization that may occur at the expense of the efficiency and fairness of the response. While social distancing measures – including the cancellation of festivities and inter-regional transportation measures in connection with the Lunar New Year – have been praised by public health experts, other extraordinary measures such as mega-quarantines are criticized. For example, some argue that not only do quarantines have an uncertain impact for disease containment, they also often tend to negatively impact the most vulnerable social groups in the quarantined zones (e.g. migrants).



Antoine de Bengy Puyvallée is PhD fellow at the University of Oslo's Centre for Development and the Environment, exploring the role of non-state actors during health crises.

Dan Banik, PhD, is Professor of political science at the University of Oslo's Centre for Development and the Environment and is Director of the Oslo SDG initiative.

Image: 葉 正道 Ben(busy via Flickr (CC0 1.0)

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Wisconsin Imposing Nation’s Harshest Medicaid Premiums on People in Poverty [feedly]

Wisconsin Imposing Nation's Harshest Medicaid Premiums on People in Poverty

In a move that will likely have deeply harmful effects, Wisconsin next week will become the first state to implement a policy to take Medicaid away from people in poverty who don't pay premiums — and the latest to impose harmful barriers on health coverage for those in or near poverty.

Federal law requires that a state waiver of Medicaid law, like the one Wisconsin obtained, "promote the objectives of the Medicaid program." But evidence shows that Wisconsin's policy will almost certainly do the opposite by taking coverage away from eligible low-income individuals and sowing confusing among beneficiaries and providers. Wisconsin should follow the lead of other states that are reconsidering harmful Medicaid changes and repeal the state law requiring the policy along with other harmful restrictions.

Under the Wisconsin policy, individuals who aren't taking care of children and have incomes above 50 percent of the poverty line (about $500 per month) — and who don't pay $8 monthly premiums — will lose Medicaid and can't re-enroll for six months unless they pay all past-due premiums. Beneficiaries will also owe $8 copayments for non-emergency use of the emergency room, which will likely lead some low-income people to avoid the hospital even in an emergency. We estimate that about half of adult Medicaid enrollees without dependents, or about 80,000 people, will face the new premium and cost-sharing requirements.

Even relatively small dollar requirements can create insurmountable barriers for people with incomes that often don't cover basic needs like food and housing. Moreover, beneficiaries and providers often don't fully understand policies like premiums and cost sharing, and that confusion can cause a loss of coverage or inability to access care.

That's why studies consistently find that premiums and cost sharing significantly reduce Medicaid participation. "Premiums serve as a barrier to obtaining and maintaining Medicaid and [Children's Health Insurance Program] coverage among low-income individuals," concluded a Kaiser Family Foundation review of 65 papers on the effects of premiums and cost sharing. "Even relatively small levels of cost sharing in the range of $1 to $5 are associated with reduced use of care, including necessary services."

Evidence from Wisconsin supports these findings. After the state imposed premiums on adults with family incomes between 150 percent and 200 percent of poverty in 2008, adults with incomes just above 150 percent of poverty were 12 percentage points less likely to stay enrolled for a full year than those with incomes just below 150 percent of poverty, research found. Wisconsin's new premiums apply to adults with far lower incomes, so they'll likely prove even more harmful.

While premiums' damaging effects are well documented, they have no demonstrated benefits. Wisconsin's Medicaid waiver proposal claims that "establishing premiums will encourage [beneficiaries] to place increased value on their health care and utilize it more effectively" but offers no evidence. Indeed, there's no evidence that premiums improve beneficiaries' health behaviors.

Premiums and cost sharing also can be complex to administer, with implementation costs that can exceed the revenue they collect from beneficiaries. For example, in the 18 months after Arkansas began requiring beneficiaries to make monthly contributions to "independence accounts," the state paid over $9 million in contracts to manage the accounts but beneficiaries contributed only about $426,000.

While Wisconsin's affected enrollees must pay premiums beginning this month, the state won't end their Medicaid coverage until the next time they must renew it, so the coverage losses won't begin until 2021. In the meantime, Wisconsin and independent groups should carefully monitor how many beneficiaries don't pay monthly premiums and thus risk losing coverage at renewal. And even those data may understate the impact of the policy, which will likely cause significant confusion that could deter eligible people from signing up for Medicaid in the first place.

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Monday, January 27, 2020

G.M. Making Detroit Plant a Hub of Electric and A.V. Efforts [feedly]

G.M. Making Detroit Plant a Hub of Electric and A.V. Efforts

General Motors said Monday that it was investing $2.2 billion in a Detroit plant where it will produce all-electric trucks and sport utility vehicles, fulfilling a key promise made during last year's union negotiations.

The investment will fund upgrades like new machines and tools at the Detroit-Hamtramck assembly plant's paint shop, body shop and general assembly area. The plant had been scheduled to close this month, but was spared in the October deal that ended the longest G.M. strike in half a century.

As part of that agreement, G.M. vowed to commit $3 billion to the plant's overhaul. The company says that promise is met by the investment in upgrades and an additional $800 million for supplier tooling and related projects.

Once in full operation, the plant will employ more than 2,200 people, the company said. Production is scheduled to begin in late 2021 on an all-electric pickup truck, followed by the Cruise Origin, a six-passenger vehicle that was unveiled last week and is intended for use as a self-driving taxi.


Continue reading the main story

Legacy automakers are in a race with one another and a slew of start-ups and technology companies to capture growing demand for electric vehicles while also preparing for the advent of autonomous vehicles. G.M.'s Cruise Origin, for example, faces competition from Uber and Waymo, which is a subsidiary of Google's parent company, Alphabet.

At the same time, that fight over an electric future has helped to reinvigorate the American automotive industry.

In 2018, Ford Motor announced that it had bought Michigan Central Station in Detroit, and would convert the abandoned office tower and train station — a symbol of the city's decline — into an urban campus focused on developing businesses that use self-driving cars.

Last year, Fiat Chrysler said it planned to spend $4.5 billion to update several Detroit plants, an investment that it said would create 6,500 jobs and allow the company to start making electric versions of its Jeep models if customer demand increased.

As part of an existing joint venture, G.M. and South Korea's LG Chem have invested $2.3 billion in a separate plant near Lordstown, Ohio, which will make the battery cells that will power the electric vehicles made at the Detroit-Hamtramck plant, the company said. Executives have said that the venture, in the same area where G.M. shut down a plant last year, would create more than 1,100 jobs, with a groundbreaking expected later this year.

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Continue reading the main story

In a statement, a G.M. spokesman said the investments announced on Monday were made possible by a state tax credit from the Michigan Economic Growth Authority.

"Over the past decade, the Michigan MEGA has helped enable G.M. to invest more than $10 billion in its Michigan facilities," the spokesman, Dan Flores, said.

Last week, the Michigan Strategic Fund, an economic development organization, approved changes to that tax credit, which it said had a remaining value of $2.27 billion. The revisions require G.M. to invest at least $3.5 billion in the state over the next decade, including at the Detroit-Hamtramck plant.

G.M. has built more than four million vehicles at Detroit-Hamtramck since it opened in 1985, the company said. The Cadillac CT6 and the Chevrolet Impala are produced at the factory, which will be idled at the end of February for several months for renovations.

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The Inflation Puzzle: Why Has it Move So Little for 25 Years? [feedly]

Essence of the puzzle, via Sherlock Holmes:

Inspector Gregory asks Holmes, "Is there any point to which you would wish to draw my attention?"
"To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time."
"That was the curious incident," remarked Sherlock Holmes.

The Inflation Puzzle: Why Has it Move So Little for 25 Years?

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Saturday, January 25, 2020

The Trump administration’s new housing rules will worsen segregation [feedly]

The Trump administration's new housing rules will worsen segregation

In "The Neighborhoods We Will Not Share," an article published online at The New York Times, I describe how the Trump administration has proposed a rule that will make it virtually impossible to challenge many policies that reinforce residential racial segregation.

This is no small matter. Segregation underlies many of our most serious social problems. Educators can't seem to make significant progress in their efforts to close the racial gap in academic achievement that persists in large part because we enroll the most socially and economically disadvantaged children in poorly resourced schools, located in poorly resourced neighborhoods. Health disparities by race stem, in part, from so many African Americans consigned to areas where they have less access to healthy air and healthy foods, and are more subject to stressful conditions. Black men's high and unjustifiable rates of incarceration depend significantly on their concentration in segregated neighborhoods without good employment opportunities in the formal economy or the transportation to access good jobs. And segregation prevents us from overcoming our very dangerous and frightening political polarization, highly correlated with race. How can we ever develop the common national identity essential to the preservation of our democracy if so many African Americans and whites live so far from each other that we have no ability to understand and empathize with each other's life experiences?

In my book The Color of Law, I described how 20th century federal, state, and local policies—explicitly racial—created, reinforced, and sustained racial boundaries in every metropolitan area in the United States. These unconstitutional government activities still predict today's segregated landscape. For example, the explicit exclusion of black working class families from single-family homes, for which white working class family purchases were subsidized, bears substantial responsibility for the black-white wealth gap—while black family incomes are about about 60% of white family incomes, the median black household wealth is less than 10%of white household wealth, an enormous disparity that was propelled by the equity appreciation of white property while African Americans were consigned to neighborhoods where no similar appreciation occurred. The wealth gap predicts much of our contemporary racial inequality.

The Fair Housing Act of 1968 prohibited ongoing racial discrimination in housing but did little to explicitly prohibit policies that reinforce segregation where the racial intent is either masked, unconscious, or even absent. But federal courts, up to the Supreme Court have found that residential policies with a "disparate impact" on African Americans (and other protected groups) violate the Fair Housing Act if there is a reasonable nondiscriminatory alternative to accomplish a legitimate public purpose.

It is this court-sanctioned policy that the administration is now proposing to undermine. The rule has been through a required public comment period, and when finally released will effectively reduce the Fair Housing Act to legislation that only prohibits racial discrimination where policy proponents openly admit that bigotry is their intent.

The process of creating this rule has largely escaped public notice because it accomplishes its purpose in highly technical ways, not easily explained. For example, it changes the order in which complainants or defendants are required to submit different kinds of evidence in a Fair Housing Act proceeding at the Department of Housing and Urban Development. It will not be obvious to anyone but an experienced lawyer why such a change is fatal to the Fair Housing Act's purpose.

In the article I published on Monday, I attempt to explain why this matters by describing two situations in which it should be obvious to everyone that a Fair Housing Act violation occurred, but where this would be virtually impossible to prove under the new rule. One of these involves homeowners in Syracuse's low-income and predominantly African American neighborhoods who have been paying property taxes at an effectively higher rate than residents of wealthier and predominantly white neighborhoods. The other concerns policies enacted by a predominantly white New Orleans suburb, St. Bernard Parish, to prevent black families from returning to the community after Hurricane Katrina.

Recently, the Trump administration has announced two additional rule revisions that further entrench segregation. One effectively relieves suburban communities of an affirmative obligation to remove policies and practices that create or perpetuate segregation. The other relieves retail banks that take deposits from residents of low-income neighborhoods of an obligation to extend mortgage and other credit to residents of those neighborhoods.

The Trump administration's hostility to justice for racial minorities continues unabated.

Suggested further reading:

Poor black children are much more likely to attend high-poverty schools than poor white children
Toxic stress and children's outcomes
Mass incarceration and children's outcomes
The Color of Law
Historical Income Tables: Households
The racial wealth gap
FR-6111-P-02 HUD's Implementation of the Fair Housing Act's Disparate Impact Standard


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