Tuesday, September 5, 2017

Monopoly Rents and Corporate Taxation [feedly]

Monopoly Rents and Corporate Taxation
http://economistsview.typepad.com/economistsview/2017/08/monopoly-rents-and-corporate-taxation.html

Paul Krugman:

Monopoly Rents and Corporate Taxation (Wonkish): At one level it's hard to take the Trump administration's tax "reform" push seriously. A guy gets elected as a populist and his first two big proposals are (a) taking away health insurance from millions (b) cutting corporate taxes. Wow.
Furthermore, Trump is invincibly ignorant on taxes (and everything else) — he keeps declaring that America is the highest taxed nation in the world, which is nearly the opposite of the truth among advanced countries. And his allies in Congress aren't ignorant, but they're liars: Paul Ryan is the master of mystery meat, of promising to raise and save trillions in unspecified ways.
But there is an actual interesting question here, even if we shouldn't give any credence to Republican answers. Who does, in fact, pay the corporate profit tax? Does it fall on corporations, and hence eventually on their shareholders? Or is the ultimate incidence mainly on wages, as the administration claims?

Skipping forward to the punchline:

...much corporate taxation probably doesn't fall on returns to physical capital, but rather on monopoly rents. ... As long as the local source of profit is some kind of monopoly rent, corporate tax incidence is going to fall on shareholders, not workers. ...
And there's a lot of reason to believe that market power is an increasingly big deal. ...
This changes the narrative, doesn't it? Instead of focusing on rising capital mobility as a reason profits taxes might fall on workers, maybe we should focus on rising market power as a reason why profits taxes fall on capitalists.
The point for now is that when someone tells you that changes in the world have made old-style corporate taxes obsolete, be skeptical. Some changes in the world may have made profit taxation a better idea than ever.

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Job Growth Slows in August [feedly]

Job Growth Slows in August
http://economistsview.typepad.com/economistsview/2017/09/job-growth-slows-in-august.html

Dean Baker:

Job Growth Slows in AugustWeakness in wage growth and drop in prime-age EPOPs shows slack in labor market.

The Bureau of Labor Statistics reported that the economy added 156,000 jobs in August, somewhat less than most economists had expected. This figure, combined with downward revisions of 41,000 to the prior two months data, brought the average over the last three months to 185,000. The household survey also showed some evidence of weakness with the unemployment rate edging up to 4.4 percent and the employment-to-population ratio (EPOP) falling back 0.1 percentage point to 60.1 percent.

Perhaps more noteworthy was a drop of 0.3 percentage points in the EPOP of prime-age (ages 25 to 54) workers to 78.4 percent. The EPOP for both prime-age men and women dropped by 0.3 percentage points. ...

Other data in the household survey were mostly positive. The number of people involuntarily working part-time fell by 27,000, it is now only slightly larger as a share of the workforce than before the recession. The number of people choosing to work part-time increased by 187,000, reaching a new high. This number has increased by more than 2.6 million since the end of the 2013 when the Affordable Care Act took effect. It indicates that many people are taking advantage of the opportunity to get insurance outside of employment and therefore opting to work part-time.
The percentage of people who are unemployed because they quit their jobs increased to 11.3 percent, but this is still 1.2 percentage points below the peak for the recovery reached last November. One peculiar item in the August report was a big drop in the number of people who are multiple job holders, especially among women. This number, which is not seasonally adjusted, is down 0.4 percentage points from its year-ago level for women and now stands at 4.8 percent of employed women. (It is 4.3 percent for employed men.) This could mean that fewer women feel they need to work more than one job, or it could just be an anomaly that will be reversed in future months.

Wage growth continues to be moderate, with the average hourly wage up 2.5 percent over the last year. The annual rate of increase in the average hourly wage, comparing the last three months with the prior three months, is also 2.5 percent. As a result of the weak growth in the hourly wage and a modest decline in the length of the average workweek, average weekly earnings actually fell slightly in the month. ...

On the whole, this is a mixed report. The rate of job growth is respectable but certainly should not raise concerns about being too rapid, especially given continued weakness in wage growth. And the drop in prime-age EPOPs indicates the labor market still has considerable slack.

See also: Calculated RiskJared Bernstein.


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New thinking about causal mechanisms



Anyone interested in the topic of causal mechanisms will be interested in the appearance of Stuart Glennan and Phyllis Illari's 
The Routledge Handbook of Mechanisms and Mechanical Philosophy. Both Glennan and Illari have been significant contributors to the past fifteen years of discussion about the role of mechanisms in scientific explanation, and the Handbook is a highly interesting contribution to the state of the debate.

The book provides discussion of the role of mechanisms thinking in a wide range of scientific disciplines, from physics to biology to social science to engineering and cognitive science. It consists of four large sections: "Historical perspectives on mechanisms", "The nature of mechanisms", "Mechanisms and the philosophy of science", and "Disciplinary perspectives on mechanisms." Each section consists of contributions by talented experts on genuinely interesting topics.

A good introduction to the general topic of mechanisms is the introduction to the volume by Glennan and Illari, and more especially their article, "Varieties of mechanisms." They directly confront one of the large issues in the field, the wide dispersion of definitions and applications of the idea of a causal mechanism. They correctly observe that the concept of mechanism is used fairly differently in various areas of science and philosophy, but they argue that there is a common core of elements that underlie most or all of these usages. The variety that exists is the result of differences in the nature of the phenomena across different areas of scientific investigation, and differences in methodology in use in various sciences. They provide a rather general definition of a mechanism:
A mechanism for a phenomenon consists of entities (or parts) whose activities and interactions are organized so as to be responsible for the phenomenon. (92)
They then attempt to provide a basis for classifying different kinds of mechanisms according to several different criteria. The dimensions of variation they identify include the kind of phenomenon produced, the kind of entities and activities constituting the mechanism, the way in which entities and activities are organized, and the etiology of the mechanism.

Also interesting is Petri Ylikoski's contribution, "Social mechanisms." Ylikoski structures his exposition of the theory of social mechanisms around the Coleman boat diagram (link). To provide a mechanism for a social phenomenon is to provide an account at the level of the actors of how a macro-level event or entity causally brings about another macro-level event or entity. Ylikoski insists that this is a matter of explanatory adequacy rather than reductive analysis, and is therefore not ontologically reductionist. But it does fundamentally imply that social mechanisms occur at the level of interactions among actors. In prior posts I have argued against this presupposition (link). I argue that it is perfectly intelligible to suggest that there are meso-level causal mechanisms. Ylikoski also underlines the affinity that exists between social mechanisms and agent-based modeling: a good ABM demonstrates the process through which a set of conditions at the micro-level aggregate to a certain kind of macro-level outcome. See this earlier post for a small amount of doubt about the adequacy of ABM models to perform this kind of social aggregation for realistic social scenarios; link. (Several of these points are developed in my New Directions in the Philosophy of Social Science.)

Povich and Craver address the topic of the relationship that exists between mechanisms, levels, emergence, and reduction in their contribution, "Mechanistic levels, reduction, and emergence". This is a key question within the philosophy of social science. And the idea of  mechanism seems to have great relevance to the idea of various levels of phenomena. At the level of the organization we see, perhaps, chronic inefficiency in the use of certain kinds of resources. In searching for the mechanisms that cause this inefficiency we may choose to drop down a level and examine the incentives and constraints that guide the behavior of individuals within the organization. And we arrive at a theory of the individual-level mechanism that produces the meso-level outcome. This is a mechanism that falls along strut 3 of Coleman's boat; it is an aggregative mechanism. But not all social mechanisms have this nature. If we want to know why rebellious segments of an agrarian society locate themselves in remote, mountainous areas, it is enough to know a few meso-level facts about the functioning of traditional military forces and the meso-level fact that mountainous terrain gives a tactical advantage to rebel commanders. This appears to be a meso-level mechanism from start to finish.

A particularly intriguing and original contribution is Abrahamsen, Sheredos, and Bechtel's "Explaining visually using mechanism diagrams." We tend to think of scientific explanations as mathematical demonstrations or text-based derivations of outcomes. Abrahamsen, Sheredos, and Bechtel point out that visual diagrams play a crucial role in the presentation of many scientific results; and these diagrams are not merely heuristic or illustrative. A visual presentation serves to designate how the hypothesized mechanism works: what its parts are, how the parts influence each other, and how the functioning of the mechanism over time produces the outcome in question. The authors make an admirable attempt to provide a philosophy-of-science analysis of the components and logic of a visual diagram as an expository device for presenting a causal mechanism or process. They highlight the logical problems of representing entities, spatial location, and temporal duration within a diagram in a way that permits the viewer to gain an accurate understanding of the hypothesized mechanism or process. And they note that it is a conceptually simple step to introduce computational modeling into the graphical representation described here, so the processes in question can step through their interactions on-screen.

Taken together, the essays collected here constitute a valuable contribution to the literature on mechanisms and explanation. The handbook also gives the reader a concrete experience of how deeply varied the mechanisms literature is, leading to very interesting questions about cross-disciplinary communication. It appears to be genuinely challenging to formulate an abstract analysis of the idea of a causal mechanism that will mean approximately the same thing to researchers trained within significantly different research traditions. Unlike many handbooks, this collection warrants reading cover to cover. Researchers who believe that the mechanisms approach provides a valid way of understanding the metaphysics of causal inquiry and explanation will find every article stimulating and helpful.

(Here are a couple of prior posts on the challenge of providing a classification scheme for social mechanisms; linklink.)

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John Case
Harpers Ferry, WV

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Re: [socialist-econ] Raghuram Rajan: Populist Nationalism Is “the First Step Toward Crony Capitalism” [feedly]

This is an incredibly important point of view from not a usual suspect.  Late stage unfettered and global capitalism has destroyed the security AND FUTURES of millions of working families. Unless that reality is addressed, people will grasp for answers from right-wing demagogues. 

On Sep 5, 2017 7:44 AM, "John Case" <jcase4218@gmail.com> wrote:
Raghuram Rajan: Populist Nationalism Is "the First Step Toward Crony Capitalism"
http://economistsview.typepad.com/economistsview/2017/08/raghuram-rajan-populist-nationalism-is-the-first-step-toward-crony-capitalism.html

Asher Schechter at ProMarket discusses Raghuram Rajan's views on the rise of populist nationalism:

Raghuram Rajan: Populist Nationalism Is "the First Step Toward Crony Capitalism": The wave of populist nationalism that has been sweeping through Western democracies in the past two years is "a cry for help from communities who have seen growth bypass them."
So said Raghuram Rajan, the former governor of the Reserve Bank of India, during a keynote address he gave at the Stigler Center's conference on the political economy of finance that took place in June. 
Rajan, a professor of finance at the University of Chicago Booth School of Business, spoke about the "concentrated and devastating" impact of technology and trade on blue-collar communities in areas like the Midwest, the anger toward "totally discredited" elites following the 2008 financial crisis, and the subsequent rise of populist nationalism, seen as a way to restore a sense of community via exclusion.
In his talk, Rajan focused on three questions related to current populist discontent: 1. Why is anger focused on trade? 2. Why now? 3. Why do so many voters turn to far-right nationalist movements?
"Pointing fingers at these communities and telling them they don't understand is not the right answer," he warned. "In many ways, the kind of angst that we see in industrial countries today is similar to the bleak times [of] the 1920s and 1930s. Most people in industrial countries used to believe that their children would have a better future than their already pleasant present. Today this is no longer true." ...

There's quite a bit more. I don't agree with everything he (Raghuram) says, but thought it might provoke discussion.


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Raghuram Rajan: Populist Nationalism Is “the First Step Toward Crony Capitalism” [feedly]

Raghuram Rajan: Populist Nationalism Is "the First Step Toward Crony Capitalism"
http://economistsview.typepad.com/economistsview/2017/08/raghuram-rajan-populist-nationalism-is-the-first-step-toward-crony-capitalism.html

Asher Schechter at ProMarket discusses Raghuram Rajan's views on the rise of populist nationalism:

Raghuram Rajan: Populist Nationalism Is "the First Step Toward Crony Capitalism": The wave of populist nationalism that has been sweeping through Western democracies in the past two years is "a cry for help from communities who have seen growth bypass them."
So said Raghuram Rajan, the former governor of the Reserve Bank of India, during a keynote address he gave at the Stigler Center's conference on the political economy of finance that took place in June. 
Rajan, a professor of finance at the University of Chicago Booth School of Business, spoke about the "concentrated and devastating" impact of technology and trade on blue-collar communities in areas like the Midwest, the anger toward "totally discredited" elites following the 2008 financial crisis, and the subsequent rise of populist nationalism, seen as a way to restore a sense of community via exclusion.
In his talk, Rajan focused on three questions related to current populist discontent: 1. Why is anger focused on trade? 2. Why now? 3. Why do so many voters turn to far-right nationalist movements?
"Pointing fingers at these communities and telling them they don't understand is not the right answer," he warned. "In many ways, the kind of angst that we see in industrial countries today is similar to the bleak times [of] the 1920s and 1930s. Most people in industrial countries used to believe that their children would have a better future than their already pleasant present. Today this is no longer true." ...

There's quite a bit more. I don't agree with everything he (Raghuram) says, but thought it might provoke discussion.


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US private schools increasingly serve affluent families

Richard Murnane, Sean Reardon 31 August 2017

Family income inequality in the US has risen sharply in the last few decades (Stone et al. 2016). One of the consequences has been that affluent families increasingly live in different communities than lower-income families. Since most children attend a school close to their home, public schools are increasingly segregated by income (Owens 2016).

Rising inequality may also have led to increasing economic segregation between public and private schools. There is, however, surprisingly little information about whether this has happened. In recent research, we set out to learn whether this has occurred by examining trends in private school enrolments over the last 50 years (Murnane and Reardon 2017).

Over the last half century, the percentage of US elementary students who attend private schools has not changed much; it was 11% in 1970, and 9% in 2011. What has changed is the family income mix of private school students. In 1970, 17% of affluent students attended private schools and in 2011, 16% did so. But, among middle-class families, the enrolment rate dropped from 13% to 7%; among poor families, the rate has always been low. Figure 1 shows trends in private school enrolment rates for children from 20th, 50th, and 90th income percentile families.

Figure 1 Estimated private school enrolment rates by family income percentile

Source: US Census and Current Population Survey.

The role of Catholic elementary schools

The decline in Catholic school enrolments has contributed to the changing income mix of private school students. In 1970, 85% of elementary school students (those aged 5 to 11) in the US who were enrolled in a private school were attending a Catholic school. Low tuition fees and scholarships enabled these schools to serve a great many children from low- and middle-income families, as well as those from affluent families. Over the next 40 years, the number of Catholic elementary schools in the US declined 37%. By 2011, only 43% of private elementary school students attended Catholic schools.

Several factors contributed to this decline in Catholic school enrolments. Migration of middle-class families from cities to suburbs deprived urban Catholic schools of much of their historic clientele. Rising costs, spurred in part by the decline in religious vocations, resulted in large increases in Catholic school tuition fees, and a reduced ability to provide scholarships. Between 1970 and 2011, the average fee for tuition in Catholic elementary schools, expressed in 2015 dollars, increased from $873 to $5,858. This far outstripped the 23% increase in the median real income of families with school-aged children during this period. As a result, Catholic elementary schools increasingly serve students from relatively high-income families (see the left-hand panel of Figure 2).

Figure 2 Estimated elementary private school enrolment by family income percentile

Source: US Census, CPS, NHES, NELS88, ECLS.

Non-sectarian private schools

In contrast to the decline in Catholic school enrolments, the number of students attending non-sectarian private elementary schools has increased in recent decades, both in absolute terms and as a percentage of private school enrolments. In 2011, these schools served 17% of all children enrolled in private elementary schools, up from 10% in 1989. Measured in 2015 dollars, the average tuition in non-sectarian private elementary schools rose from $4,120 in 1979 to $22,611 in 2011. High and rising tuition fees help to explain why enrolment in non-sectarian elementary schools is increasingly concentrated among students from high-income families. This pattern is shown in the middle panel of Figure 2.

Non-Catholic religious schools

These schools have an increasing role in private school enrolments. In 2011, these schools enrolled 40% of students attending private elementary schools, up from 33% in 1989. As with other types of private schools, a higher percentage of children from affluent families attend non-Catholic religious elementary schools than do children from middle- or low-income families.

As the right-hand panel of Figure 2 shows, enrolment trends by family income in non-Catholic religious elementary schools are different. The percentages of children from low- and middle-income families attending non-Catholic religious elementary schools increased between 1987 and 2011, while the percentage from high-income families declined. These trends seem surprising, given that tuition fees in these schools have also increased rapidly, from an average of $3,896 in 1993 to $9,134 in 2011 (in 2015 dollars).

Regional differences help explain this surprising trend. These schools, especially the subset of them known as Conservative Christian schools, are disproportionately located in the South. In 2011, 40% of children enrolled in non-Catholic religious elementary schools, and 47% of those attending Conservative Christian schools, lived in the South. After Supreme Court decisions banning prayer in schools, many conservative Christians felt that public schools did not reflect their values (Cooper 1984). This led them to send their children to schools associated with their churches, despite the high financial cost of doing so.

Perceptions of quality

The perceived quality of the public schools with which private schools compete helps explain the patterns in private school enrolments. The increase in residential segregation by income, especially among families with school-aged children, is that urban public schools increasingly have low-income student populations (Owens 2016, Owens et al. 2016). Average mathematics and reading scores are much lower for students attending urban public schools than for those attending suburban public schools. Student discipline problems are more frequent. Throughout the 1980s and early 1990s (the only period for which we have consistently coded data), urban parents with children of school age rated their local public schools as lower quality than suburban parents did. For example, in 1992, 37% of urban parents gave their local schools a grade of A or B, while 50% of suburban parents did so (Phi Delta Kappa 1992).

This may explain why more than one-quarter of students from high-income families living in cities sent their children to private schools in 2013, about the same percentage as did so in 1968. In contrast, high-income families living in suburban communities were much more likely to send their children to public schools. In consequence, urban public schools and urban private schools have less socioeconomic diversity today than they had several decades ago (see Figure 3.)

Figure 3 Estimated elementary private school enrolment by family income percentile

Source: US Census and Current Population Survey.

The impact on economic mobility

In summary, the distribution of private elementary school enrolments in the US has changed markedly over the last 45 years. Non-Catholic religious elementary schools today serve more students whose family incomes are in the bottom half of the distribution than Catholic elementary schools do. There has been substantial increase in the percentage of students from high-income families who attend private non-sectarian private schools. Much less is known about these private schools than is known about Catholic schools, which historically were the dominant supplier of private school services in the US, and the subject of a great deal of research.

The trends we documented in this paper indicate an increasingly polarised pattern of school enrolment. US schools – both public and private – are increasingly segregated by income. High-income families increasingly live either in suburbs with expensive housing or enrol their children in private schools. The private schools their children attend are more likely to be expensive non-sectarian schools than was the case four decades ago. Meanwhile, low-income students remain disproportionately concentrated in high-poverty public schools, and even those low-income students in private schools are generally not in expensive, non-sectarian private schools.

Given how difficult it is to build and sustain high quality educational programs in schools serving high concentrations of children from low-income families (Duncan and Murnane 2014), the increasing income segregation of US schools is likely to strengthen the intergenerational transmission of economic inequality, and reduce the potential for upward economic mobility.

References

Cooper, B S (1984), "The changing demography of private schools: Trends and implications", Education and Urban Society 16(4): 429-442.

Duncan, G J and R J Murnane (2014), Restoring opportunity: The crisis of inequality and the challenge for American education, Cambridge, MA: Harvard Education Press and the Russell Sage Foundation.

Murnane, R J and S F Reardon (2017), "Long-term trends in private school enrollments by family income", NBER Working Paper No. 23571.

Owens, A (2016), "Inequality in children's contexts: Trends and correlations of economic segregation between school districts, 1990 to 2010", American Sociological Review 81(3): 549-574.

Owens, A, S F Reardon and C Jencks (2016), "Income segregation between schools and school districts", American Educational Research Journal 53(4): 1159-1197.

Phi Delta Kappa (1992), "Gallup/phi delta kappa poll # 1992-PDK92: 24th annual survey of the public's attitudes toward the public schools", Roper Center for Public Opinion Research, Cornell University.

Stone, C, D Trisi, A Sherman and E Horton (2016), A guide to statistics on historical trends in income inequality, Center on Budget and Policy Priorities.

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John Case
Harpers Ferry, WV

The Winners and Losers Radio Show
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Larry Summers: America needs its unions more than ever [feedly]

America needs its unions more than ever
http://larrysummers.com/2017/09/03/america-needs-its-unions-more-than-ever/

September 4, 2017

The central issue in American politics is the economic security of the middle class and their sense of opportunity for their children. A pervasive sense of vulnerability and missing opportunity leads to dissatisfaction, reduces faith in government and institutions, diminishes willingness to support the least fortunate, increases resentment towards members of other ethnic groups and fuels truculence towards other nations.

As long as a substantial majority of American adults believe that their children will not live as well as they did our politics will remain bitter and divisive. Middle class anxiety is surely also fed by the slow growth of wages even in the ninth year of economic recovery with unemployment at historic low levels. The Phillips curve – the view that tighter labour markets spur an acceleration of wage growth – appears to have broken down. The Bureau of Labor Statistics just reported that average hourly earnings last month rose by all of 3 cents or little more than 0.1 per cent. For the last year, they rose by only 2.5 per cent. In contrast profits of the S&P 500 are rising at a 16 per cent annual rate.

What is going on? Economists do not have complete answers. In part there are inevitable fluctuations. Profits have declined in recent years. The wages that are reflected by the BLS are earned in the US, whereas a little less than half of profits are earned abroad and have become more valuable as the dollar has declined. In part, wages have not risen more because a strengthening labour market has drawn more people into the workforce.

But I suspect the most important factor explaining what is happening is that the bargaining power of employers has increased and that of workers has decreased. Bargaining power depends on alternative options. Technology has given employers more scope for replacing Americans with foreign workers, or with technology, or by drawing on the gig economy. So their leverage to hold down wages has increased.

On the other hand various factors have decreased the leverage of workers. Employers increasingly offer gigs rather than jobs. For a variety of reasons, including reduced availability of mortgage credit and the loss of equity in existing homes, it is harder than it used to be to move to opportunity. Diminished saving in the wake of the crisis means that many families cannot afford even a very brief interruption in work. Consumers also appear more likely now to have to purchase from monopolies rather than from companies engaged in fierce price competition meaning that pay checks do not go as far.

On this Labor Day we would do well to remember that unions have long played a crucial role in the American economy in evening out the bargaining power between employers and employees. They win higher wages, better working conditions and more protection from unjust employer treatment for their members. More broadly they provide crucial support in the political process for broad measures such as Social Security and Medicare, which benefit members and non-members alike. Both were at their inception passionately opposed by major corporations.

The shrinking of the union movement to the point where today only 6.4 per cent of private sector workers – a decline of nearly two-thirds since the late 1970s – are in unions is one important contributor to the decline in the relative position of labour in general and those who work with their hands in particular. The decline in the unions is also a contributor to the pervasive sense that too often our political system is for sale to the highest bidder.

What can be done? This is surely not the moment for policy to tilt further to strengthening the hand of large employers. Sooner or later labour law reform that gives organisers a chance by seriously punishing employers who engage in illegal reprisals should be back on the agenda. Union efforts to organise non-traditional groups in non-traditional ways need to be encouraged. And policy support needs to be given to institutions where workers have a chance to share in profits and in corporate governance.

In an era when the most valuable companies are the Apples and the Amazons rather than the General Motors and the General Electrics, the role of unions cannot go back to being what it was. But on this Labor Day any leader concerned with the American middle class needs to consider that the basic function of unions – balancing the power of employers and employees – is as important to our economy as it has ever been.


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