Saturday, January 20, 2018
Friday, January 19, 2018
James Galbraith: What Trump’s Tax Cut Really Means for the US Economy [feedly]
What Trump's Tax Cut Really Means for the US Economy
Republicans and the Trump administration have promised that the tax legislation enacted in December will boost investment and the rate of GDP growth over the long term. But the new law is likely to do neither, because it is based on flawed assumptions and contains a raft of self-defeating provisions.
AUSTIN – The Trump administration's stated economic-policy objective is to increase growth in the United States from the post-financial-crisis rate of around 2% to at least 3%. In historical terms, achieving such growth is not out of the question. Real (inflation-adjusted) GDP growth exceeded 3% in 2005-2006 and 4% in the period from 1997 to 2000; and in each of the past two quarters, the economy has grown at an annualized rate above 3%. The question is whether that pace can be sustained.
Despite low headline unemployment – 4.1% as of December – the US economy is neither at full employment nor constrained by labor supply, as some have argued. The employment-to-population ratio has risen from its post-crisis low of around 58% to just over 60%, but it is still three percentage points below the 2007 level, and five points below its peak in 2000. While many workers retired during and after the post-crisis recession, some could be lured back to work for pay. And while net immigration has slowed, it would pick up, if more workers were needed.
Because infrastructure investment and serious trade protection have (apparently) been removed from the agenda, the growth strategy advocated by Trump and congressional Republicans now boils down to the tax law that they rushed to enact in December. Featuring a major cut in the corporate-tax rate and accelerated expensing for capital investments, the law could have two distinct effects: a fiscal-policy effect on aggregate demand and a "supply-side" effect on the economy's productive capacity.
In the first four years, when the law's net tax cuts will be equal to around 0.9% of GDP per year, the stimulative effect will depend on how much of the additional private income is spent in a given year, and on the fiscal multiplier applied to that spending. Assuming, generously, that 60% of the additional private income is spent each year, and that the fiscal multiplier is 1.5, the tax cut would initially add almost one percentage point to the rate of GDP growth. But that would be a one-time effect. Annual GDP would climb higher once, but the long-run growth rate would not be affected.
Moreover, if the lost revenue is offset by automatic cuts to Medicare or Social Security benefits, or by reductions in spending by state and local governments, the tax package will have even less of a net fiscal effect, because it will drive down public and private purchases of goods and services. Still, on the further generous (and problematic) assumption that the US Federal Reserve does not respond, the tax cut could keep the real growth rate above 3% through 2018, and perhaps also through 2019.
THE QUESTION OF GROWTH
To determine if the tax legislation will have any cumulative effect on the long-run growth rate, we should turn to a debate, published by Project Syndicate in December, between Robert J. Barro and his Harvard colleagues Jason Furman and Lawrence H. Summers. In the debate's first installment, Barro used a neoclassical growth model to calculate that the tax law will boost the growth rate by about 0.3% per year, implying a gain of 2.8% in per capita GDP over the next ten years.
In their response, Furman and Summers accepted Barro's growth model, but criticized his application of it. Their strategy was brilliant, insofar as it narrowed the killing ground. After making various corrections to Barro's underlying assumptions about the tax plan, they used his own model to show that his calculation is off by "an order of magnitude." A modest effect was thus rendered essentially negligible.
To understand why, we should first consider Barro's model, which he insists is in keeping with common practices in the economics profession. Accordingly, he equates the tax law's effect on the "user costs that businesses attach to investment" with the "marginal product of capital" in "economists' most popular model of economic growth." He then estimates an elasticity of 1.25 for the "capital/labor ratio to user cost,", in a "Cobb-Douglas production function (commonly used by economists)." Through it all, what he really seems to be saying is: Don't bother me with quibbles over theory.But Furman and Summers left Barro's core theoretical assumptions unchallenged. So, while they demolished his claim that the tax law will have a significant effect on long-term growth, they seemed to concede that a plan with even greater benefits for corporate profits and even more generous expensing provisions would have done more. To my mind, this inference is false, and could dangerously mislead policymakers in future debates over tax legislation.
Next come the numbers. Based on his assumptions about elasticity and other factors, Barro calculates a 25% increase in the long-term capital-labor ratio for non-residential corporate structures – bank buildings, shopping malls, and so forth – and a 17% increase for corporate equipment. Let's say the overall increase would be somewhere in the middle, around 20%. That means Barro expects the tax package to add another $10 trillion to the US capital stock, which is worth roughly $50 trillion today.
After making a modest downward adjustment, Barro concludes that this added capital stock would boost long-run GDP by 7%, or by about $1.2 trillion in 2009 dollars. That means he expects a net tax cut of $1.5 trillion over ten years – with just $644 billion of it going to businesses – eventually to generate a six-fold gain in capital stock, and 80 cents on the dollar in real annual output after about 14 years.
This would truly be a miracle of loaves and fishes. Obviously, Barro's numbers are preposterous, and Furman and Summers are right to dispute them. Nonetheless, they still describe Barro's underlying model as "sensible." Perhaps they are adhering to a Cambridge code of politesse that enjoins them from calling things by their right name.
NEOCLASSICAL FALLACIES
Barro's model assumes that corporate-tax cuts, by increasing the after-tax productivity of the capital stock, will induce businesses to create more capital until the marginal product of capital (units of output per unit of input) returns to its long-run equilibrium level, as determined by the discount and depreciation rates. If labor is fully employed, the increases in capital will boost total output. And, in the meantime, capital's share in total output will grow as the wage share declines, because the initial capital investment has to be paid for with wage cuts, higher taxes on labor, spending cuts to social programs, or by borrowing and incurring the costs of future interest and principal repayments. After all, in neoclassical economics, nothing comes from nothing.
The first problem with this model is that there is no good reason to assume that higher after-tax profits will generate investments in more capital-intensive modes of production. Barro is confusing the after-tax profitability of existing activity with the prospective profitability of new investment. Furman and Summers understand this, which is why they favor more expensing for new capital investment and a smaller reduction in the corporate-tax rate.
But Barro adds further confusion with his treatment of the expected profitability of new investment and the resulting capital-labor ratio. His model regards capital as homogeneous, and makes a distinction only between structures and equipment. But the fact is that firms base investment decisions not just on their view of future profits, but on the state of technology at the time.
Normally, new technologies determine the right mix of structures, equipment, and labor. And because digital technologies tend to save both capital and labor, a lower relative price for capital equipment does not necessarily lead to higher relative use of "capital." If the price of construction or equipment such as computers or touch screens falls while wages do not, the resulting business operation would actually appear to be more labor-intensive than it was before. In fact, this seems to describe many business situations today. The low share of investment in GDP in recent years reflects the relatively low cost of new electronic machinery, which has shifted more of the burden of sustaining growth onto consumption.
It is a neoclassical fallacy to think that businesses can simply swap in structures for labor as a way to boost the capital-labor ratio and achieve their output goal at the desired cost. The entire point of building a nonresidential structure – be it a hospital, a factory, or a big-box store – is to fill it with workers and machines. If businesses take advantage of more generous expensing provisions to build or acquire additional structures without the machines or workers, they won't be increasing their output or productivity; they'll just be taking up space.
Moreover, because new electronic machinery is physically compact and tends to displace office and administrative labor, business structures are less necessary today than during the golden ages of automotive manufacturing, insurance, or banking. And because so much new equipment is now imported, the multiplier on many investments will not be felt in the US, but rather in the countries producing the capital goods. No tax law will change these facts.
So, even when future investments do occur, they aren't likely to raise the capital-labor ratio or the real rate of growth. And even if Barro, Furman, and Summers were to argue that new capital equipment is "better" and thus amounts to "more," that doesn't change the fact that the actual cost of equipment and the share of investment in output (in dollar terms) may both be falling.
BACK TO REALITY
Clearly, Barro's model – and not just his particular use of it – is absurd. A better alternative would focus on the political economy and business behavior. Such an analysis yields claims that are less absolute in their certainty; and that is a good thing.
In the real world, businesses invest for two reasons: to expand production and to reduce costs. The first reason requires confidence in future sales growth. The new tax law could be expected to boost sales in the near term, owing to its one-time fiscal effect. And yet it seems to take direct aim at middle-class purchasing power, by capping deductions for mortgage-interest payments and state and local taxes (SALT). That, in turn, will result in less consumer demand and lower spending on public services. Rather than creating a climate favorable to private consumption and investment, the law's vast upward redistribution of income and wealth is bound to depress spending, regardless of whether businesses are allowed to retain a larger share of their cash flows.
Complicating matters further, the Fed's response to the tax law, and what effect monetary-policy adjustments will have on the economy, remains to be seen. Historically, there have been occasions when an interest-rate hike set the stage for a long-term business boom, such as in February 1994, when Fed policy prompted banks to move out of safe instruments and back into commercial and industrial loans. But at that time, the technology revolution was still looming, and banks needed a push to decrease their reliance on a steep yield curve. The same pattern is not likely to repeat itself today.
Today, if the Fed decides to increase interest rates more quickly, the value of the dollar will rise, and imported capital goods will become even more attractive relative to those produced domestically, thus hurting growth. Moreover, some analysts worry about an impending funding crisis in the rest of the world, which would trigger a flight toward safer assets such as Treasuries, further intensifying dollar appreciation. If that led to another financial crisis, the weak position of some of the world's largest banks would be exposed, and the period of growth would end. Barro's model has no place for financial risk. But the firms being encouraged to make new investments certainly do.
One area where the tax law could actually generate a boost is in commercial construction, if incumbent firms collectively decide to expand to protect their market share, an anticompetitive process the economist Joseph Schumpeter called "co-respective behavior." Likewise, the favorable tax treatment on structures might enable dominant firms to muscle in on the remaining market share of small retailers, restaurants, and other service providers. If so, we can expect to see a bubble, followed by a bust, in commercial structures.
The chances of this happening are not negligible. As the architects of the new tax package surely know, the last two economic expansions, in the late 1990s and in the mid-2000s, were the result of asset bubbles generated by co-respective behavior, first on the part of technology investors, and then on the part of speculators in corrupt mortgages. To be sure, a new bubble would generate some applause and political benefits in the short term. But the aftermath would not be pretty.
OLIGARCHS, REST ASSURED
Barring a construction bubble, there are two other possibilities for the months and years ahead. First, the law might produce a surge in after-tax corporate cash flows, which will be diverted ("stolen" may be too strong a word, though only barely) toward executive compensation, stock buy-backs, and real-estate holdings, especially if homes, having lost their privileged tax status, are sold off and converted into rental properties. In this scenario, America's oligarchy may become somewhat larger and more diverse, and its spending could even provide a modest short-term boost to real GDP growth; but a bust would inevitably follow.
The other possibility is that corporations, having secured more favorable tax treatment, will actually curtail their investments. Corporate executives will not be blind to the prospect of a general slowdown in consumption following the law's initial fiscal effect, especially as state and local governments are forced to retrench under pressure from middle-class constituents who can no longer deduct SALT expenses at the federal level.
In this second scenario, the Polish economist Michał Kalecki's adage that "capitalists get what they spend" will apply. After-tax profits might not rise by much, and America's oligarchs will remain fat and happy, while doing even less. The cost will be borne by middle-class Americans with mortgages and homes that they might now want to sell; and, as always, by the poor, who will suffer from higher sales taxes, social-spending cuts, and unemployment.
And why should anyone expect a different outcome? After all, this isn't just Trump's tax plan. It is what the Republican donor class has always wanted.
-- via my feedly newsfeed
James Galbraith
Republicans and the Trump administration have promised that the tax legislation enacted in December will boost investment and the rate of GDP growth over the long term. But the new law is likely to do neither, because it is based on flawed assumptions and contains a raft of self-defeating provisions.
AUSTIN – The Trump administration's stated economic-policy objective is to increase growth in the United States from the post-financial-crisis rate of around 2% to at least 3%. In historical terms, achieving such growth is not out of the question. Real (inflation-adjusted) GDP growth exceeded 3% in 2005-2006 and 4% in the period from 1997 to 2000; and in each of the past two quarters, the economy has grown at an annualized rate above 3%. The question is whether that pace can be sustained.
Despite low headline unemployment – 4.1% as of December – the US economy is neither at full employment nor constrained by labor supply, as some have argued. The employment-to-population ratio has risen from its post-crisis low of around 58% to just over 60%, but it is still three percentage points below the 2007 level, and five points below its peak in 2000. While many workers retired during and after the post-crisis recession, some could be lured back to work for pay. And while net immigration has slowed, it would pick up, if more workers were needed.
Because infrastructure investment and serious trade protection have (apparently) been removed from the agenda, the growth strategy advocated by Trump and congressional Republicans now boils down to the tax law that they rushed to enact in December. Featuring a major cut in the corporate-tax rate and accelerated expensing for capital investments, the law could have two distinct effects: a fiscal-policy effect on aggregate demand and a "supply-side" effect on the economy's productive capacity.
In the first four years, when the law's net tax cuts will be equal to around 0.9% of GDP per year, the stimulative effect will depend on how much of the additional private income is spent in a given year, and on the fiscal multiplier applied to that spending. Assuming, generously, that 60% of the additional private income is spent each year, and that the fiscal multiplier is 1.5, the tax cut would initially add almost one percentage point to the rate of GDP growth. But that would be a one-time effect. Annual GDP would climb higher once, but the long-run growth rate would not be affected.
Moreover, if the lost revenue is offset by automatic cuts to Medicare or Social Security benefits, or by reductions in spending by state and local governments, the tax package will have even less of a net fiscal effect, because it will drive down public and private purchases of goods and services. Still, on the further generous (and problematic) assumption that the US Federal Reserve does not respond, the tax cut could keep the real growth rate above 3% through 2018, and perhaps also through 2019.
THE QUESTION OF GROWTH
To determine if the tax legislation will have any cumulative effect on the long-run growth rate, we should turn to a debate, published by Project Syndicate in December, between Robert J. Barro and his Harvard colleagues Jason Furman and Lawrence H. Summers. In the debate's first installment, Barro used a neoclassical growth model to calculate that the tax law will boost the growth rate by about 0.3% per year, implying a gain of 2.8% in per capita GDP over the next ten years.
In their response, Furman and Summers accepted Barro's growth model, but criticized his application of it. Their strategy was brilliant, insofar as it narrowed the killing ground. After making various corrections to Barro's underlying assumptions about the tax plan, they used his own model to show that his calculation is off by "an order of magnitude." A modest effect was thus rendered essentially negligible.
To understand why, we should first consider Barro's model, which he insists is in keeping with common practices in the economics profession. Accordingly, he equates the tax law's effect on the "user costs that businesses attach to investment" with the "marginal product of capital" in "economists' most popular model of economic growth." He then estimates an elasticity of 1.25 for the "capital/labor ratio to user cost,", in a "Cobb-Douglas production function (commonly used by economists)." Through it all, what he really seems to be saying is: Don't bother me with quibbles over theory.But Furman and Summers left Barro's core theoretical assumptions unchallenged. So, while they demolished his claim that the tax law will have a significant effect on long-term growth, they seemed to concede that a plan with even greater benefits for corporate profits and even more generous expensing provisions would have done more. To my mind, this inference is false, and could dangerously mislead policymakers in future debates over tax legislation.
Next come the numbers. Based on his assumptions about elasticity and other factors, Barro calculates a 25% increase in the long-term capital-labor ratio for non-residential corporate structures – bank buildings, shopping malls, and so forth – and a 17% increase for corporate equipment. Let's say the overall increase would be somewhere in the middle, around 20%. That means Barro expects the tax package to add another $10 trillion to the US capital stock, which is worth roughly $50 trillion today.
After making a modest downward adjustment, Barro concludes that this added capital stock would boost long-run GDP by 7%, or by about $1.2 trillion in 2009 dollars. That means he expects a net tax cut of $1.5 trillion over ten years – with just $644 billion of it going to businesses – eventually to generate a six-fold gain in capital stock, and 80 cents on the dollar in real annual output after about 14 years.
This would truly be a miracle of loaves and fishes. Obviously, Barro's numbers are preposterous, and Furman and Summers are right to dispute them. Nonetheless, they still describe Barro's underlying model as "sensible." Perhaps they are adhering to a Cambridge code of politesse that enjoins them from calling things by their right name.
NEOCLASSICAL FALLACIES
Barro's model assumes that corporate-tax cuts, by increasing the after-tax productivity of the capital stock, will induce businesses to create more capital until the marginal product of capital (units of output per unit of input) returns to its long-run equilibrium level, as determined by the discount and depreciation rates. If labor is fully employed, the increases in capital will boost total output. And, in the meantime, capital's share in total output will grow as the wage share declines, because the initial capital investment has to be paid for with wage cuts, higher taxes on labor, spending cuts to social programs, or by borrowing and incurring the costs of future interest and principal repayments. After all, in neoclassical economics, nothing comes from nothing.
The first problem with this model is that there is no good reason to assume that higher after-tax profits will generate investments in more capital-intensive modes of production. Barro is confusing the after-tax profitability of existing activity with the prospective profitability of new investment. Furman and Summers understand this, which is why they favor more expensing for new capital investment and a smaller reduction in the corporate-tax rate.
But Barro adds further confusion with his treatment of the expected profitability of new investment and the resulting capital-labor ratio. His model regards capital as homogeneous, and makes a distinction only between structures and equipment. But the fact is that firms base investment decisions not just on their view of future profits, but on the state of technology at the time.
Normally, new technologies determine the right mix of structures, equipment, and labor. And because digital technologies tend to save both capital and labor, a lower relative price for capital equipment does not necessarily lead to higher relative use of "capital." If the price of construction or equipment such as computers or touch screens falls while wages do not, the resulting business operation would actually appear to be more labor-intensive than it was before. In fact, this seems to describe many business situations today. The low share of investment in GDP in recent years reflects the relatively low cost of new electronic machinery, which has shifted more of the burden of sustaining growth onto consumption.
It is a neoclassical fallacy to think that businesses can simply swap in structures for labor as a way to boost the capital-labor ratio and achieve their output goal at the desired cost. The entire point of building a nonresidential structure – be it a hospital, a factory, or a big-box store – is to fill it with workers and machines. If businesses take advantage of more generous expensing provisions to build or acquire additional structures without the machines or workers, they won't be increasing their output or productivity; they'll just be taking up space.
Moreover, because new electronic machinery is physically compact and tends to displace office and administrative labor, business structures are less necessary today than during the golden ages of automotive manufacturing, insurance, or banking. And because so much new equipment is now imported, the multiplier on many investments will not be felt in the US, but rather in the countries producing the capital goods. No tax law will change these facts.
So, even when future investments do occur, they aren't likely to raise the capital-labor ratio or the real rate of growth. And even if Barro, Furman, and Summers were to argue that new capital equipment is "better" and thus amounts to "more," that doesn't change the fact that the actual cost of equipment and the share of investment in output (in dollar terms) may both be falling.
BACK TO REALITY
Clearly, Barro's model – and not just his particular use of it – is absurd. A better alternative would focus on the political economy and business behavior. Such an analysis yields claims that are less absolute in their certainty; and that is a good thing.
In the real world, businesses invest for two reasons: to expand production and to reduce costs. The first reason requires confidence in future sales growth. The new tax law could be expected to boost sales in the near term, owing to its one-time fiscal effect. And yet it seems to take direct aim at middle-class purchasing power, by capping deductions for mortgage-interest payments and state and local taxes (SALT). That, in turn, will result in less consumer demand and lower spending on public services. Rather than creating a climate favorable to private consumption and investment, the law's vast upward redistribution of income and wealth is bound to depress spending, regardless of whether businesses are allowed to retain a larger share of their cash flows.
Complicating matters further, the Fed's response to the tax law, and what effect monetary-policy adjustments will have on the economy, remains to be seen. Historically, there have been occasions when an interest-rate hike set the stage for a long-term business boom, such as in February 1994, when Fed policy prompted banks to move out of safe instruments and back into commercial and industrial loans. But at that time, the technology revolution was still looming, and banks needed a push to decrease their reliance on a steep yield curve. The same pattern is not likely to repeat itself today.
Today, if the Fed decides to increase interest rates more quickly, the value of the dollar will rise, and imported capital goods will become even more attractive relative to those produced domestically, thus hurting growth. Moreover, some analysts worry about an impending funding crisis in the rest of the world, which would trigger a flight toward safer assets such as Treasuries, further intensifying dollar appreciation. If that led to another financial crisis, the weak position of some of the world's largest banks would be exposed, and the period of growth would end. Barro's model has no place for financial risk. But the firms being encouraged to make new investments certainly do.
One area where the tax law could actually generate a boost is in commercial construction, if incumbent firms collectively decide to expand to protect their market share, an anticompetitive process the economist Joseph Schumpeter called "co-respective behavior." Likewise, the favorable tax treatment on structures might enable dominant firms to muscle in on the remaining market share of small retailers, restaurants, and other service providers. If so, we can expect to see a bubble, followed by a bust, in commercial structures.
The chances of this happening are not negligible. As the architects of the new tax package surely know, the last two economic expansions, in the late 1990s and in the mid-2000s, were the result of asset bubbles generated by co-respective behavior, first on the part of technology investors, and then on the part of speculators in corrupt mortgages. To be sure, a new bubble would generate some applause and political benefits in the short term. But the aftermath would not be pretty.
OLIGARCHS, REST ASSURED
Barring a construction bubble, there are two other possibilities for the months and years ahead. First, the law might produce a surge in after-tax corporate cash flows, which will be diverted ("stolen" may be too strong a word, though only barely) toward executive compensation, stock buy-backs, and real-estate holdings, especially if homes, having lost their privileged tax status, are sold off and converted into rental properties. In this scenario, America's oligarchy may become somewhat larger and more diverse, and its spending could even provide a modest short-term boost to real GDP growth; but a bust would inevitably follow.
The other possibility is that corporations, having secured more favorable tax treatment, will actually curtail their investments. Corporate executives will not be blind to the prospect of a general slowdown in consumption following the law's initial fiscal effect, especially as state and local governments are forced to retrench under pressure from middle-class constituents who can no longer deduct SALT expenses at the federal level.
In this second scenario, the Polish economist Michał Kalecki's adage that "capitalists get what they spend" will apply. After-tax profits might not rise by much, and America's oligarchs will remain fat and happy, while doing even less. The cost will be borne by middle-class Americans with mortgages and homes that they might now want to sell; and, as always, by the poor, who will suffer from higher sales taxes, social-spending cuts, and unemployment.
And why should anyone expect a different outcome? After all, this isn't just Trump's tax plan. It is what the Republican donor class has always wanted.
-- via my feedly newsfeed
The Aloofness of Pax Sinica [feedly]
The Aloofness of Pax Sinica
http://www.globalpolicyjournal.com/blog/19/01/2018/aloofness-pax-sinica
-- via my feedly newsfeed
http://www.globalpolicyjournal.com/blog/19/01/2018/aloofness-pax-sinica
The Aloofness of Pax Sinica
Branko Milanovic - 19th January 2018Branko Milanovic how China's rise might affect the international political order?
"When China Rules the World" (no question mark or conditional tense) by Martin Jacques is a large, somewhat repetitive, volume of 700 pages that tries to answer a number of questions that many people in the world are asking themselves: Will China's growth continue? Will China become a multi-party democracy? And what might Pax Sinica look like?
On the first question, Jacques entertains no doubt: China will successfully move (actually, it is already moving; the edition of the book that I read was published In 2012) to high value-added and high tech production and growth will, for the foreseeable future, remain high.
On the second question, Jacques is more circumspect: China might become a multi-party democracy but it is likely, if Communist Party manages to control the process, to look like a cross between Singapore, a de facto single-party state, and Japan where factional struggles within Liberal Party often matter more than inter-party politics.
He is scathing of the view, often heard in the West, that higher education levels and higher incomes will, quasi-automatically, lead to demands for democracy. (Although he allows that in twenty years "and likely more" Chinese Communist Party will no longer be ruling.) Jacques believes that China, because of Confucian tradition of "virtuous" government that puts the emphasis on quality of governance and not on the way the rulers are selected, is different. Perhaps he is right…or perhaps not : nobody can tell. Here Jacques' book also illustrates the hazards of prediction. It was written when Bo Xilai was still a contender for supreme power and before Xi Jinping took office and began implementing his "turn of the screw". I have little doubt that today Jacques would be more sanguine about durability of CCP rule.
I would like to focus on the third question where I believe Jacques brings most interesting reflections. How would China's rise affect the international political order? Two long-term factors (discussed in chapters 7 and 8) play the most important role there, First, Jacques' argument that China is not a nation-state but a civilization-state that sees itself as a fulcrum of Asia (and by extension of the world). It is at ease with "tributary relations" that leave to the dominated party full freedom in domestic affairs and considerable freedom in foreign policy. The second important element is a deeply ingrained racism or inability to comprehend "the other" which (as I will argue below) may be linked or might underlie the rather benevolent approach to international relations.
The "tributary" approach is contrasted with the current Western-based theory of international relations that is built on the concept of the nation-state. This difference between the West and China is, in Jacques' opinion, a lens through which we should look at the type of the international system that China might build. But the difference may be less than it seems. The two recent global hegemons, UK and the United States, also had a somewhat similar approach to international relations. UK ruled half of the world using a very flexible system spanning everything, from almost fully independent nations like Australia and Canada, to protectorates and colonies. Many US allies were (and are) similar to protectorates. Italy or South Korea could more or less do whatever they wanted in domestic policy (short of bringing Communists to power) but very little in foreign policy. So under the recent hegemons, countries were neither fully equal as the theory would have it, nor were the allies of the hegemon obliged to blindly align all their policies. It then becomes less clear where Chinese concept of flexible or "tributary rule" differs from the one used by the Western powers in the past 150 years.
However, perhaps because of China's lack of interest in "others" and its complex of superiority, Pax Sinica may be more peaceful. This is indeed a possibility (one of the four Jacques considers in Chapter 11). If we look at it empirically, in the past half-century China has been involved in only one foreign military adventure (a war against Vietnam) and several very limited border skirmishes. Other hegemons, USSR and USA were much more belligerent: USSR has invaded Czechoslovakia and Afghanistan while US has invaded or attacked Vietnam, Dominican Republic, Panama, Lebanon, Afghanistan, Serbia, Iraq and Libya, in addition to overthrowing a number of unfriendly governments. So China has, up to now, been, on the international stage, a peaceful country. Chinese pacifism might have deeper roots: as Jacques writes, Chinese are fond of drawing a contrast between exploratory and friendly mission of Zheng He and rapacious slave-grabbing European conquests.
But was China peaceful because it was weak and in Deng Xiaoping words needed international peace and domestic stability for at least one hundred years and thus had "to hide its strength, and bide its time"? Would a dominant China do "regime-changes"? Although Jacques does not pose the question directly, his view is that it would not because it does not care to export its model.
This is where the ingrained sense of superiority comes in. If you believe that others are fundamentally different (and inferior) you also may not care under what governments they live, so long as these regimes accept your suzerainty and do not pose a threat to you. Thus China's sense of superiority translates into aloofness, and perhaps paradoxically, may imply a relatively peaceful rule.
Whether this will happen or not—and even whether China will become a global hegemon—is everybody's guess. (I am certainly less convinced of that than Jacques.) But one thing, Jacques writes, is certain: "The emergence of China as a global power relativizes everything. The West is habituated to the idea that the world is its world; that the international community isits community, that international institutions are itsinstitutions….that universal values are its values…This will no longer be the case".
-- via my feedly newsfeed
A Survival Guide for The Fourth Industrial Revolution [feedly]
A Survival Guide for The Fourth Industrial Revolution
http://www.globalpolicyjournal.com/blog/19/01/2018/survival-guide-fourth-industrial-revolution
-- via my feedly newsfeed
http://www.globalpolicyjournal.com/blog/19/01/2018/survival-guide-fourth-industrial-revolution
A Survival Guide for The Fourth Industrial Revolution
L. Rafael Reif - 19th January 2018For those of us fortunate enough to come together at Davos this year, the Fourth Industrial Revolution promises gains in scientific knowledge, human health, economic growth and more. But for most people around the world, the prospect of a future in which robots and computers can perform many human jobs is a source of profound personal concern.
As president of an institute with 'technology' in its name and 'the betterment of humankind' in its mission, I take these concerns seriously. Every past technology wave ultimately produced more jobs than it destroyed and delivered important gains, from higher living standards and life expectancy to productivity and economic growth. Yet many fear that this time the change may be so fast and so vast, and its impact so uneven and disruptive, that it may threaten not only individual livelihoods but the stability of society itself.
This outcome is not inevitable. The future is in our hands. Indeed, deliberate, coordinated action is exactly what smoothed the way for such transitions in the past. If we want the advance of technology to benefit everyone, however, we need to take action right away. We must proactively and thoughtfully reinvent the future of work.
Simply understanding the problem is a challenge. Experts still disagree on exactly which groups and regions are losing jobs primarily to automation, how quickly such impacts will spread and what interventions might help. To build sound, long-term policy on something this important, we cannot rely on anecdotes. Government, foundation and corporate leaders need to invest in better data - today.
Which jobs are most immediately at risk of automation? Image: University of Oxford, Morgan Stanley
In the meantime, we must act on what we do know and make progress wherever we can. For instance, CEOs across many sectors describe one painful current quandary. They have said to me, in effect: "I have to lay off hundreds of people because their jobs have disappeared and I do not need their skills – and I have hundreds of job openings I can't fill because I can't find people with the right training and skills." This mismatch is bad for everyone: Lives are derailed, families and communities damaged, business opportunities lost.
Technology itself offers one path to a solution. In fields from robotics and cybersecurity to supply chain management, many universities, including MIT, are pioneering online programmes - such as MicroMasters - that provide top-quality, industry-relevant skills and credentials, in a form recognised by leading employers, and at a fraction of the price of traditional higher education.
For people with industry expertise who need to become proficient in digital or problem-solving skills, including teachers seeking to prepare their students for the future, an answer could be 'continuous uptraining': a system that would allow every employee to devote significant time – every week, every month or every year – to acquiring fresh skills. If educational institutions, employers and employees can imagine and refine a solution together, continuous uptraining could become a crucial tool to help individuals adapt to relentless change.
Reinventing the future of work needs to be a whole-society effort – and finding long-term solutions will require ideas and initiative from every quarter. Could educators, from kindergarten to college, make sure that every graduate, in every field, is computationally literate? Could institutions like MIT do better at helping students balance efficiency with other human values in choosing the problems they work on and in how they design solutions? Could workers help develop automating technologies that make humans more effective and efficient, instead of obsolete? Could corporations use some of the profits earned through automation to invest in developing those employees whose jobs have been erased by automation? Could unions help shape more relevant and accessible apprenticeship and uptraining programs? Could governments develop educational incentives that would motivate firms to locate in hard-hit regions? I believe the answer to all those questions can and should be yes – and I'm certain we need many more and better ideas, too.
Automation will transform our work, our lives and our society. Whether the outcome is inclusive or exclusive, fair or laissez-faire, is up to us. Getting this right is among the most important and inspiring challenges of our time. It should be a priority for everyone who hopes to enjoy the benefits of a healthy and stable society; one that offers opportunity for all.
In this work, those of us leading and benefiting from the technology revolution must help lead the way. This is not someone else's problem; it is a call to action. Technologies embody the values of those who make them. It is up to those of us advancing new technologies to help ensure they do not end up damaging the society we intend them to serve.
At MIT, we are deeply engaged in defining the current problem and forecasting challenges ahead. And we are urgently seeking allies, from across our society, who want to join in developing creative, collaborative solutions – and in building a future in which technology works for everyone.
-- via my feedly newsfeed
State and local policymakers should beware preemption clauses snuck into legislation [feedly]
State and local policymakers should beware preemption clauses snuck into legislation
http://www.epi.org/blog/state-and-local-policymakers-should-beware-preemption-clauses-snuck-into-legislation/
-- via my feedly newsfeed
http://www.epi.org/blog/state-and-local-policymakers-should-beware-preemption-clauses-snuck-into-legislation/
On January 12, 2018, the Maryland legislature successfully overrode Governor Hogan's veto of a bill granting Maryland workers access to paid sick days across the state. This is great news—it means that nearly 700,000 workers who previously lacked access to paid sick days will no longer have to choose between their health and their paycheck, or even their job. The Maryland legislature's victory comes after other states, such as Oregon and Rhode Island passed statewide paid sick days laws in in 2015 and 2017.
There is no federal law that provides workers with the right to earn paid leave for sick days or to take time off to care for an ill family member—the federal Family Medical Leave Act simply allows workers to take up to 12 weeks of unpaid leave. In the absence of federal action, with Maryland, nine states have passed paid sick days laws, and five states (and the District of Columbia) have passed paid family leave laws. Local governments, however, have taken up the cause of providing workers with this fundamental need: at least 30 cities and two counties have enacted their own paid leave ordinances in various forms.
But state governments have begun blocking local government efforts to give workers the opportunity to earn paid time off for paid sick days and/or paid family leave through the use of "preemption laws." "Preemption" in this context refers to a situation in which a state law is enacted to block a local ordinance from taking effect—or dismantle an existing ordinance. The figure below shows that at least 20 states have passed paid leave preemption laws.
Figure A
While Maryland, Oregon, and Rhode Island's paid sick leave laws are an important step forward, they all have something in common: each contains a preemption clause in the fine print. These preemption clauses mean that local governments cannot legislate more generous paid sick and safe leave benefits than the states' plans going forward.
While preemption of local governments may seem a harmless compromise to get a bill enacted now, these laws can handcuff localities who may need to act to help working people in the future. As our friends at the National Employment Law Project explain in their 2017 minimum wage report, for example, in 2004 Wisconsin Governor Jim Doyle (D) agreed to a preemption clause to prohibit local governments from raising their own minimum wages as a compromise to push the Republican-controlled state legislature to raise the statewide minimum wage. But now, Governor Scott Walker (R) is blocking any statewide increase above the federal minimum of $7.25 that was implemented in 2009, and Wisconsin's preemption law is preventing cities and counties from acting to raise the minimum wage—like forty other local jurisdictions across the country have.
Progressive state legislators should beware of preemption clauses that are snuck into the text of state bills that are intended to help working people gain a foothold in our economy.
-- via my feedly newsfeed
Unrigging the economy to grow the middle class: Pennsylvania takes the lead on overtime [feedly]
Unrigging the economy to grow the middle class: Pennsylvania takes the lead on overtime
http://www.epi.org/blog/unrigging-the-economy-to-grow-the-middle-class-pennsylvania-takes-the-lead-on-overtime/
-- via my feedly newsfeed
http://www.epi.org/blog/unrigging-the-economy-to-grow-the-middle-class-pennsylvania-takes-the-lead-on-overtime/
Yesterday, Pennsylvania Governor Tom Wolf became the first state executive to take action to provide workers overtime protections that help guarantee fair pay for hard work, since a 2016 federal rule to do this at the national level was blocked in the courts by corporate interests. As part of his "Jobs That Pay" initiative, Wolf proposed a state rule change that will modernize the state's overtime policies, providing new or strengthened overtime protections to 460,000 more middle-income workers by 2023 and ultimately putting close to $53 million more each year into Pennsylvanians' paychecks.
The Keystone Research Center (KRC), a member of the Economic Analysis and Research Network (EARN), advocated for the Wolf administration to take this action. Stephen Herzenberg, KRC economist and executive director, applauded Wolf's leadership.
On overtime pay, the governor has authority to act without the state legislature. On another vital measure to improve the lives of working families, raising the minimum wage, legislative action is required—and Pennsylvania still lags its neighboring states. Unlike these six contiguous states, the Pennsylvania legislature has failed to increase the minimum wage above the federal level of $7.25.
Nationally, millions of low- and moderately-paid working people are working overtime but not getting paid for it. Federal law guarantees certain workers overtime pay, meaning when they work more than 40 hours in a week they get 1.5 times their regular pay for the extra hours. This guarantee applies automatically to salaried workers making below a specified income threshold, because detailed studies of job duties show that most lower-paid salaried workers do not perform sufficient executive, "administrative," or professional duties required by federal law to be exempt from overtime. But as the federal government has failed to update this income threshold over the last few decades, it had been allowed to erode dramatically with inflation.
As a result, the percentage of full-time salaried workers who are automatically eligible for overtime based on their pay dropped from more than 60 percent in 1975 to less than 7 percent in 2016. Recognizing the problem this caused, the Obama administration undertook a lengthy regulatory process to increase the threshold to $47,476 annually and to automatically increase it every three years thereafter. If this rule had not been blocked, the new income threshold would have resulted in 33 percent of full-time salaried workers being automatically eligible for overtime based on their pay.
The Obama administration's overtime regulations would have provided new or strengthened protections to 12.5 million more U.S. workers. While the Trump administration appealed the Texas court decision to protect its authority to set an overtime standard, it failed to fight for the $47,476 salary threshold that was established through careful economic analysis in the 2016 rule. Under federal law, therefore, it remains legal for companies to force many low-paid salaried employees to work many hours above a 40 hour workweek—for free.
Similar to other areas of economic policy vital to working families—such as the minimum wage, but also paid family and medical level and paid sick leave—Washington is unlikely to adequately address the problem of exploited low-paid McDonald's supervisors, Walmart department heads, and office managers. Now, more than ever, the solutions will arise from states and cities. EARN partner organizations across the country are joining with allies and state officials to take the lead on improving the wages and lives of working families. In the absence of effective federal action on behalf of working people, state leaders are the best hope for presenting a vision and a road map for improving the economic prospects of all Americans.
-- via my feedly newsfeed
Thursday, January 18, 2018
Marxism as anti-ideology [feedly]
Marxism as anti-ideology
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2018/01/marxism-as-anti-ideology.html
-- via my feedly newsfeed
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2018/01/marxism-as-anti-ideology.html
-- via my feedly newsfeed
Sam Bowles has a nice piece in the FT on the case for pluralism in economics by integration – "marshalling the insights of differing schools of thought and academic disciplines into a common paradigm." I'd add only that the points at which the marshalling should occur must be determined by the facts. We learn about economics from the real world, not just from schools of thought.
I want to suggest something that some of you might think paradoxical – that Marxists are well-placed to do this because we are, in a sense, less ideological than others.
Take, for example, the question: do higher minimum wages destroy lots of jobs? As a Marxist, I can accept either answer. If they do, we have (more?) evidence that actually-existing capitalism is incompatible with decent living standards. If they don't then we have a way of making workers better off. Either way, I'm happy. I can allow myself to be guided by the evidence in a way that either free marketeers or their social democratic opponents might not be.
Or another example: could fiscal policy not just stabilize aggregate demand but increasetrend growth? If it does, then fine: we've a way of making people better off. If not, then my prior that capitalism is prone to stagnation and crisis is strengthened.
Here's a third example. Are financial markets informationally efficient or not? I can accept either answer. If they're efficient, then fund managers are ripping people off and we have another example of the exploitative nature of capitalism. If they're inefficient then we have another mechanism whereby capitalism can generate instability. (In fact, both might be true, as markets might well be micro efficient but macro inefficient). Being a Marxist has, I suspect, made me less bad at my day job than I otherwise would be.
A fourth example is Brexit. Being in or out of the EU is orthogonal to my Marxism. Again, therefore, I'm happy to be guided by the evidence on whether Brexit will make us better off or not.
There's another thing here. As a Marxist, I haven't invested my human capital in only one paradigm. Marxist economists must be pluralists simply because we must run our Marxism alongside the orthodox/mainstream/whatever economics we learn at university and in my day job. Integrating different perspectives – which might of course mean ditching large parts of some – does not therefore threaten the destruction of my human capital as much as it does specialists in one paradigm.
On a lot of issues, then, we Marxists can be intellectually flexible simply because there are a lot of fights in which we have no dog.
But, you might ask, if this is the case, isn't your Marxism just an unfalsifiable pseudo-science?
No. There are some claims which – if true – would weaken my Marxism perhaps to the point of refutation, for example: if capitalism could deliver sustained full employment with good working conditions and satisfying jobs; if it could be shown that capitalism were non-exploitative; if the capitalist state were genuinely neutral; or if capitalistic relations of production were never fetters upon growth. These claims, however, have not been satisfactorily established.
I'll turn the question around to centrists, Tories, libertarians or social democrats. What equivalent claims (if they could be established) would falsify your political position?
What I'm trying to do here is weaken the prior of many anti-Marxists. Many of you have traditionally seen Marxism as a fanatical ideology opposed to the cool-headed rationality of mainstream politics.
I'll concede that there might be something in this: the worst advert for Marxism has often been those who profess to be Marxists.
For me, though, the opposite is the case: in some respects, Marxism takes the ideology and fanaticism out of some debates.
Subscribe to:
Posts (Atom)