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Tuesday, March 30, 2021

Barkley Rosser: The Iran-China Deal [feedly]

The Iran-China Deal
http://feedproxy.google.com/~r/espeak/~3/AoOsKXy2Y2A/the-iran-china-deal.html

Yes, this 25-year deal is a big deal, just recently signed and not getting much attention in the US media.  Juan Cole has called it the most important deal involving China and the Middle East since the days of the Mongol Empire in the 1200s, when both what was then Persia and China were actually under the same ruler.  This $400 billion deal was signed on the 50th anniversary of the opening of diplomatic relations between Iran (then under the rule of the Shah) and the Peoples' Republic of China (then under the rule of Mao Zedong). Cole identifies this deal as a "slap in the face" to the United States, or at least a clear sign of the limits of US power in the Middle East, with China stepping forward as a strong long haul rival.

I note only two points here.  One is that on the one hand this is certainly a repudiation of US policy regarding Iran in recent years.  It may be that its signing at this moment is a response to the failure so far by the new Biden administration to follow through on his campaign promise to rejoin the JCPOA nuclear deal with Iran. That really should not have been all that hard, but it increasingly seems that this simple matter has gotten bogged down in extraneous demands by neocons in the Biden administration, with both the US and Iran now having gotten themselves into a "face" conflict regarding "who will move first."  I continue to hope that cooler heads are engaging in some unpublicized diplomacy, but all the noises so far have been that they are not.  Both sides are posturing, but the US should have just moved. If this continues, it will be the most serious mistake of the Biden administration, and this move by Iran towards China seems to be part of this signaling.

On the other hand, I think that this deal, or something like it, was probably going to happen eventually anyway, even if Biden had done what he should and just rejoined the JCPOA and removed economic sanctions without any fuss. The signing might have happened later and the deal might have been smaller and more limited in certain ways, but Iran's position makes it a clear gainer from participating at least some extent in the Belt and Road Initiative (BRI) being carried out by China.  Indeed, I think it is clear that Iran would be economically best off dealing with both the US and China and maintaining a balance between the two.  As it is, this delay in getting back into the JCPOA by Biden may prove to have put Iran into a situation it prefers less, and certainly with the very stiff economic sanctions Trump put in place still in place, Iran needs some help now from any quarter, and China is willing to step in and has.

Barkley Rosser


 -- via my feedly newsfeed

Monday, March 29, 2021

Time to put the spotlight on corporate taxes [feedly]

Martin Hart-Landsberg  is Professor Emeritus of Economics at Lewis and Clark College, Portland, Oregon and Adjunct Researcher at the Institute for Social Sciences, Gyeongsang National University, South Korea.  

Time to put the spotlight on corporate taxes

https://economicfront.wordpress.com/2021/03/27/time-to-put-the-spotlight-on-corporate-taxes/

A battle is slowly brewing in Washington DC over whether to raise corporate taxes to help finance new infrastructure investments.  While higher corporate taxes cannot generate all the funds needed, the coming debate over whether to raise them gives us an opportunity to challenge the still strong popular identification of corporate profitability with the health of the economy and, by extension, worker wellbeing.

According to the media, President Biden's advisers are hard at work on two major proposals with a combined $3 trillion price tag.  The first aims to modernize the country's physical infrastructure and is said to include funds for the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and affordable and energy efficient housing as well as rural broadband, improvements to the electric grid, and worker training programs.  The second targets social infrastructure and would provide funds for free community college education, universal prekindergarten, and a national paid leave program. 

To pay for these proposals, Biden has been talking up the need to raise corporate taxes, at least to offset some of the costs of modernizing the country's physical infrastructure.  Not surprisingly, Republican leaders in Congress have voiced their opposition to corporate tax increases.  And corporate leaders have drawn their own line in the sand.  As the New York Times reports:

Business groups have warned that corporate tax increases would scuttle their support for an infrastructure plan. "That's the kind of thing that can just wreck the competitiveness in a country," Aric Newhouse, the senior vice president for policy and government relations at the National Association of Manufacturers, said last month [February 2021].

Regardless of whether Biden decides to pursue his broad policy agenda, this appears to be a favorable moment for activists to take advantage of media coverage surrounding the proposals and their funding to contest these kinds of corporate claims and demonstrate the anti-working-class consequences of corporate profit-maximizing behavior.  

What do corporations have to complain about?

To hear corporate leaders talk, one would think that they have been subjected to decades of tax increases.  In fact, quite the opposite is true.  The figure below shows the movement in the top corporate tax rate.  As we can see, it peaked in the early 1950s and has been falling ever since, with a big drop in 1986, and another in 2017, thanks to Congressionally approved tax changes.

One consequence of this corporate friendly tax policy is, as the following figure shows, a steady decline in federal corporate tax payments as a share of GDP.  These payments fell from 5.6 percent of GDP in 1953 to 1.5 percent in 1982, and a still lower 1.0 percent in 2020.  By contrast there has been very little change in individual income tax payments as a share of GDP; they were 7.7 percent of GDP in 2020.

Congressional tax policy has certainly been good for the corporate bottom line.  As the next figure illustrates, both pre-tax and after-tax corporate profits have risen as a share of GDP since the early 1980s.  But the rise in after-tax profits has been the most dramatic, soaring from 5.2 percent of GDP in 1980 to 9.1 percent in 2019, before dipping slightly to 8.8 percent in 2020.   To put recent after-tax profit gains in perspective, the 2020 after-tax profit share is greater than the profit share in every year from 1930 to 2005.

What do corporations do with their profits?

Corporations claim that higher taxes would hurt U.S. competitiveness, implying that they need their profits to invest and keep the economy strong.  Yet, despite ever higher after-tax rates of profit, private investment in plant and equipment has been on the decline.

As the figure below shows, gross private domestic nonresidential fixed investment as a share of GDP has been trending down since the early 1980s.  It fell from 14.8 percent in 1981 to 13.4 percent in 2020.

Rather than investing in new plant and equipment, corporations have been using their profits to fund an aggressive program of stock repurchases and dividend payouts.  The figure below highlights the rise in corporate stock buybacks, which have helped drive up stock prices, enriching CEOs and other top wealth holders. In fact, between 2008 and 2017, companies spent some 53 percent of their profits on stock buybacks and another 30 percent on dividend payments.

It should therefore come as no surprise that CEO compensation is also exploding, with CEO-to-worker compensation growing from 21-to-1 in 1965, to 61-to-1 in 1989, 293-to-1 in 2018, and 320-to-1 in 2019.  As we see in the next figure, the growth in CEO compensation has actually been outpacing the rise in the S&P 500.

In sum, the system is not broken.  It continues to work as it is supposed to work, generating large profits for leading corporations that then find ways to generously reward their top managers and stockholders.  Unfortunately, investing in plant and equipment, creating decent jobs, or supporting public investment are all low on the corporate profit-maximizing agenda.  

Thus, if we are going to rebuild and revitalize our economy in ways that meaningfully serve the public interest, working people will have to actively promote policies that will enable them to gain control over the wealth their labor produces.  One example: new labor laws that strengthen the ability of workers to unionize and engage in collective and solidaristic actions.  Another is the expansion of publicly funded and provided social programs, including for health care, housing, education, energy, and transportation. 

And then there are corporate taxes.  Raising them is one of the easiest ways we have to claw back funds from the private sector to help finance some of the investment we need.  Perhaps more importantly, the fight over corporate tax increases provides us with an important opportunity to make the case that the public interest is not well served by reliance on corporate profitability.


 -- via my feedly newsfeed

Bloomberg: It's Not Infrastructure; It's Reimagining the U.S. Economy - Bloomberg

The  always provocative Noah Smith from Bloomberg

It's Not Infrastructure; It's Reimagining the U.S. Economy


by Noah Smith

<p>Biden is aiming for transformation with his next legislative push that tackles social ills and climate change to fit the needs of the future</p>

https://www.bloomberg.com/opinion/articles/2021-03-29/it-s-not-infrastructure-it-s-reimagining-the-u-s-economy?sref=woWS9Szx

President Joe Biden's next major legislative initiative is called an "infrastructure" bill, but it's actually something bigger. It's about transforming the nation to better fit the needs of our future economy — in other words, industrial policy.

Usually when we think of infrastructure bills, we're talking about repairing all the old stuff: roads and bridges. This bill will definitely include that, but it will also build lots of new infrastructure : a modernized electrical grid, electric vehicle charging stations and public transit.

In addition, Biden wants to build lots of things not normally counted as infrastructure — housing to relieve the nationwide housing shortage, schools and other education facilities, various resources for Native American tribes, and so on. And he wants to retrofit many existing buildings and transportation systems to be more energy-efficient and to run on renewable energy.

And on top of all that, the bill is expected to contain provisions to alter the shape of the U.S. economy. That includes a big boost in research spending, free community college tuition, and massively increased spending on child care. The idea is to upgrade both the high-tech competitive parts of the economy while also boosting the labor-intensive industries that provide mass employment.

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In other words, Biden's second legislative effort will be far more transformative than his first. It amounts to a serious and sweeping redirection of the entire U.S. economy. There are many reasons Biden is choosing, rightly, to do this now, when his Democratic predecessors were so much more cautious and incremental. The competitive and military threat from China, the nation's demand for a burst of growth after the disaster of Covid-19, and the increasingly dire threat from climate change all figure into it. But the biggest reason is that the nation has come to a collective realization that the old industrial policy, fashioned in the late 1970s and 1980s, is no longer working.

The Giant Ship Blocking the Suez Canal Is Finally Freed - Bloomberg

The Giant Ship Blocking the Suez Canal Is Finally Freed

by Jack Wittels and Ann Koh

The giant vessel that's blocked the Suez Canal for almost a week was pulled free from the bank, a major step toward getting ships moving again along one of the world's most important trade arteries.

https://www.bloomberg.com/news/articles/2021-03-29/the-giant-ship-blocking-the-suez-canal-is-finally-freed?sref=woWS9Szx

Tugboats tow the Ever Given along the Suez Canal on March 29.
Tugboats tow the Ever Given along the Suez Canal on March 29. Source: Suez Canal Authority

LISTEN TO ARTICLE

3:04

The giant vessel that's blocked the Suez Canal for almost a week was pulled free from the bank, a major step toward getting ships moving again along one of the world's most important trade arteries.

The stoppage caused a tailback of hundreds of vessels, snarled supply chains already under pressure due to the coronavirus pandemic and provided a stark reminder of the fragility of the global trade infrastructure.

Horns sounded in celebration as the Ever Given -- a boat longer than the Eiffel Tower -- made her way up the canal after a frantic rescue operation involving teams of tugs and dredgers working day and night.

The container ship was moved from the canal wall around 3 p.m. Egypt time on Monday. It then traveled north from the narrow southern end of the canal, where it ran aground on Tuesday, toward the Great Bitter Lake.

Read more: When a Desert Wind Blew $10 Billion of Global Trade Off Course

The Suez Canal Authority said navigation would resume as normal, though it didn't specify when. There will be enough space for other ships to pass the Ever Given once it gets to the lake.

It could take around a week to clear the queue of ships waiting around the canal, according to the SCA.

Salvage teams had struggled to free the vessel, 400 meters long and carrying almost $1 billion of cargo. They tried to use high tides and a full moon to pull it from the sandy bank it smashed into during high winds, in an operation that also involved shoveling 30,000 cubic meters of sand and removing part of the canal wall.

Egyptian authorities were desperate to get traffic flowing again through the waterway that's a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal's longest closure since it was shut for eight years following the 1967 Six Day War.

Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe and Asia.

Dominoes Have Toppled

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The long-term impact of the canal's $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year. Yet so many ships being thrown off schedule will ensure cargo delays for weeks, if not months. The dozen or so container carriers that control most of the world's ocean freight are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

"The dominoes have been toppled," Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen, wrote on social media over the weekend. "The delays and re-routing which have already happened will cause ripple effects" which will be felt for several months.

Companies from Ikea to Caterpillar Inc. have been affected and tens of thousands of live animals -- many of them sheep -- are stuck on ships in the area. Consumer goods, industrial inputs, and commodities from oil to coffee are caught up in the jam, with Asian exporters and European importers affected most directly.

The blockage held up about $400 million an hour, based on rough calculations from Lloyd's List that suggested westbound traffic to Europe is worth around $5.1 billion a day and eastbound traffic is approximately $4.5 billion.

— With assistance by Brendan Murray, Alex Longley, Abdel Latif Wahba, and Dan Murtaugh

Tugboats tow the Ever Given along the Suez Canal on March 29.
Tugboats tow the Ever Given along the Suez Canal on March 29. Source: Suez Canal Authority

LISTEN TO ARTICLE

3:04

The giant vessel that's blocked the Suez Canal for almost a week was pulled free from the bank, a major step toward getting ships moving again along one of the world's most important trade arteries.

The stoppage caused a tailback of hundreds of vessels, snarled supply chains already under pressure due to the coronavirus pandemic and provided a stark reminder of the fragility of the global trade infrastructure.

Horns sounded in celebration as the Ever Given -- a boat longer than the Eiffel Tower -- made her way up the canal after a frantic rescue operation involving teams of tugs and dredgers working day and night.

The container ship was moved from the canal wall around 3 p.m. Egypt time on Monday. It then traveled north from the narrow southern end of the canal, where it ran aground on Tuesday, toward the Great Bitter Lake.

Read more: When a Desert Wind Blew $10 Billion of Global Trade Off Course

The Suez Canal Authority said navigation would resume as normal, though it didn't specify when. There will be enough space for other ships to pass the Ever Given once it gets to the lake.

It could take around a week to clear the queue of ships waiting around the canal, according to the SCA.

Salvage teams had struggled to free the vessel, 400 meters long and carrying almost $1 billion of cargo. They tried to use high tides and a full moon to pull it from the sandy bank it smashed into during high winds, in an operation that also involved shoveling 30,000 cubic meters of sand and removing part of the canal wall.

Egyptian authorities were desperate to get traffic flowing again through the waterway that's a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal's longest closure since it was shut for eight years following the 1967 Six Day War.

Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe and Asia.

Dominoes Have Toppled

The day's biggest stories
Get caught up with the Evening Briefing.
By submitting my information, I agree to the Privacy Policy and Terms of Service and to receive offers and promotions from Bloomberg.

The long-term impact of the canal's $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year. Yet so many ships being thrown off schedule will ensure cargo delays for weeks, if not months. The dozen or so container carriers that control most of the world's ocean freight are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

"The dominoes have been toppled," Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen, wrote on social media over the weekend. "The delays and re-routing which have already happened will cause ripple effects" which will be felt for several months.

Companies from Ikea to Caterpillar Inc. have been affected and tens of thousands of live animals -- many of them sheep -- are stuck on ships in the area. Consumer goods, industrial inputs, and commodities from oil to coffee are caught up in the jam, with Asian exporters and European importers affected most directly.

The blockage held up about $400 million an hour, based on rough calculations from Lloyd's List that suggested westbound traffic to Europe is worth around $5.1 billion a day and eastbound traffic is approximately $4.5 billion.

— With assistance by Brendan Murray, Alex Longley, Abdel Latif Wahba, and Dan Murtaugh