My new book: Social Democratic Capitalism [feedly]

My new book: Social Democratic Capitalism
https://lanekenworthy.net/2019/10/02/my-new-book-social-democratic-capitalism/

Lane Kenworthy's new book: an economic defense of Social Democratic capitalism, which is nearly identical to Bernie Sanders Democratic Socialism, or Elizabeth Warren's progressive capitalism. Kenworthy's arguments, like recent posts by Brad DeLong, frankly sound more sober, astute, and data driven than some advocates (James Galbraith, e.g.)

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It's available today. The Oxford University Press and Amazon pages have the table of contents, blurbs, and more. You can read the first chapter online. Here is the opening:

For nations, as for individuals, it's good to be rich. Affluent countries are more likely to be democratic, more likely to have government programs that cushion life's bumps and boost the capabilities and well-being of the less fortunate, and more likely to prioritize personal liberty. Their citizens tend to be more secure, better educated, healthier, freer, and happier.

The world's twenty or so rich democratic countries aren't all alike, and they've changed a good bit over the past century. Their experiences give us helpful clues about what institutions and policies best promote human flourishing. To this point in history, the most successful societies have been those that feature capitalism, a democratic political system, good elementary and secondary (K–12) schooling, a big welfare state, employment-conducive public services, and moderate regulation of product and labor markets. I call this set of policies and institutions "social democratic capitalism."

Social democratic capitalism improves living standards for the least well-off, enhances economic security, and very likely boosts equality of opportunity. It does so without sacrificing the many other things we want in a good society, from liberty to economic growth and much more. Its chief practitioners have been the Nordic nations: Denmark, Finland, Norway, and Sweden. Contrary to what some presume, there is no good reason to think social democratic capitalism will work well only in these countries. Its success almost certainly is transferable to other affluent nations. Indeed, all of those nations already are partial adopters of social democratic capitalism.

The United States, the largest of the world's rich democracies, is one of those partial adopters. If the United States were to expand some of its existing public social programs and add some additional ones, many ordinary Americans would have better lives. Despite formidable political obstacles, there is good reason to think America will move in this direction in coming decades.

Those are my conclusions. This book provides the evidence and the reasoning.

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The Dispersion of High- and Low-Productivity Firms Within an Industry [feedly]

Productivity, and its measurement limitations, pose one of the most complex problems for socialist economics. Our primary measurement indexes are PRICES.  Socialism attempts to expand the domain of non-commodity values, as technology and relative abundance (i.e. unit cheapness) expands. Things that do not have prices -- there is a  universe of VALUES that are not commercial -- typically do NOT get measured. Plus, as Tim Taylor's post illustrates, the actual INPUTS to the price/cost productivity that we DO measure, are far more complex than the unit labor costs that show up in corporate accounting.

The Dispersion of High- and Low-Productivity Firms Within an Industry
http://conversableeconomist.blogspot.com/2019/10/the-dispersion-of-high-and-low.html

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If you think about an economy as fairly stable and static, you would expect that any two companies within an industry would be fairly close in terms of productivity. After all, if Company A and Company B are selling similar products, and A has much higher productivity than B, it should drive B out of business. Thus, one might expect that at the end of this process, the competitors we observe within an industry in the real world should be fairly close in productivity level.

However, this expectation is dramatically wrong. Within an industry, it is a standard pattern to find a wide dispersion of productivity across firms in the industry. Academic researchers have been familiar with this pattern for at least 15 years. But now (pulse rate accelerates) there is systematic time series data across industries from 1997-2015!  "The Dispersion Statistics on Productivity (DiSP) is a joint experimental data product from the U.S. Bureau of Labor Statistics and the U.S. Census Bureau. The DiSP provide statistics on within-industry dispersion in productivity."

For example, here's a figure from Cheryl Grim of the US Census Bureau. The bar graphs show that if you take a firm in the 75th percentile of the shoe or the cement industry and compare it with a firm in the 25th percentile of the shoe or cement industry, the firm in the 75th percentile will be about 150% as productive. In the computer industry, a firm in the 75th percentile is 400% more productive than a firm in the 25th percentile.



The existence of such differences in productivity across industry have been known for some time.   Cindy Cunningham, Lucia Foster, Cheryl Grimm John Haltiwanger, Sabrina Wulff Pabilonia, Jay Stewart, and Zoltan Wolf explain in "Dispersion in Dispersion: Measuring Establishment-Level Differences in Productivity" (Center for Economic Studies Working Paper CES 18-25R, September 2019).

They point out that research by Chad Syverson back in 2004, looking at data from manufacturing industries in 1977, found that firms in the 90th percentile of a certain industry were about four times as productive as firms in the 10th percentile. In the more recent data: "Illustrating the properties of the new data product, we find large within-industry dispersion in labor productivity: establishments at the 75th percentile are about 2.4 times as productive as those at the 25th percentile on average. 

Why do such differences exist? The reasons are obvious enough, as Grim explains?

Producers within industries differ in many ways. They produce different products of varying quality and have different customers and markets. They use different technology and business practices to combine different amounts of materials and equipment to produce their products. Some businesses are also larger and/or older than other businesses. Their ability to adjust their scale and mix of operations may vary due to these differences. Experimenting with new products and processes can also contribute to productivity differences. Businesses that have successfully adopted new technologies are likely to be more "productive" (as measured by these differences in revenue per hour) compared to businesses that have not yet adopted such technologies. All of these factors can contribute to enormous variations in this measure of business performance.

The fact that firms in the same industry be so different in productivity levels, and that these differences don't seem to fade away, has a number of interesting implications.

First, the pattern suggests that productivity growth doesn't always mean cutting-edge gains; indeed there is enormous potential for economic growth if the firms now lagging in productivity can be brought up to speed, perhaps by merging with higher productivity firms. In addition, one way that productivity growth happens for the economy as a whole is when high-productivity firms put low-productivity firms out of business.

Second, the persistence of these gaps suggests that some firms are protected from competition. For example, cement is not very transportable, and so competition in the cement industry is often limited to local firms. The potential reason why productivity differences may persist in other firms is worth considering.

Third, there seems to be some evidence that productivity diffusion is widening, as "superstar" firms in various industries pull further ahead. Indeed, this may be an important factor contributing to growth of inequality of wages, because workers and managers at high-productivity firms are typically much better-paid than those at low-productivity firms. edly newsfeed

Business Insider: The backbone of the stock market over the past 10 years is starting to fade [feedly]

If Marx were still alive, this would be a great piece to illustrate parasitism in capitalism: A tax cut intended for investment by billionaire interests in new growth. Instead they put it in their pockets through the stock buyback transactions. This results in lots of stock market transactions that LOOK like growth, but are NOT. The billionaires put the tax cut in their knapsack, having no profitable or secure alternative in the midst of volatility induced caution. The volatility is largely generated by Trump.

The backbone of the stock market over the past 10 years is starting to fade
https://markets.businessinsider.com/news/stocks/stock-buybacks-declining-bad-news-for-the-bull-market-2019-10-1028573892?utm_source=feedly&utm_medium=webfeeds

• Share buybacks of S&P 500 index stocks fell 20% in the second quarter of 2019, according to Sean Darby of Jefferies. 
• Buybacks have slowed since hitting a record $1.1 trillion in 2018 — a surge that was fueled by tax cuts.
• The more than 10-year bull market has been largely supported by share buybacks as companies have boostesd share prices by buying back their own stocks. 
• Read more on Markets Insider. 

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One of the biggest forces supporting the 10-year bull market is beginning to slow down. 

In the second quarter of the year, share buybacks of S&P 500 index stocks declined to $160 million, down 20% on the quarter, and 19% lower than the previous year, according to Jefferies. 

That's a departure from 2018, when corporate buybacks hit a record $1.1 trillion, fueled in part by the Trump administration's tax reform.

The bull market has been largely supported by companies buying back their own shares. During periods devoid of other positive catalysts — such as the five-quarter S&P 500 earnings contraction in 2015 and 2016 — repurchases have been the market's ace in the hole.

When a company repurchases its own stock, it boosts the share price and earnings per share number by reducing the total number of shares outstanding. The slower pace of buybacks could mean the stock market has less support to keep gaining, according to Darby. 

Total S&P buybacks "seem to have peaked," since the great financial crisis, Sean Darby, global equity strategist at Jefferies wrote Wednesday. The largest declines in buybacks were seen in utilities and healthcare, he said, while buybacks in real estate and energy increased.

Read more: America's No. 1-ranked millennial wealth adviser reveals his 5 definitive tips for young investors

The slowed buyback numbers come as markets are grappling with the effects of the trade war between the US and China, the threat of further tariffs, and signs of weakening in the US and global economies. On Wednesday, the Dow plunged more than 500 points after weak economic data sparked recession fears in the US. 

Corporate buybacks have come under pressure recently from politicians, including a few presidential candidates who say the practice makes inequality worse by returning cash to shareholders instead of paying workers more. Sens. Elizabeth Warren, Bernie Sanders, and Marco Rubio are the top critics of buybacks, and each has a plan to curb them. 

Because the companies with the largest share of buybacks have outperformed the market since 2009, Jefferies also highlighted stocks likely to maintain buying momentum through the end  of the year. Macy's, Halliburton, and Newell Brandstopped the list. 

In addition, there is evidence that some companies are stepping up their buyback programs — Bank of America Merrill Lynch said in a note that buybacks neared record highs last week. 

At the stock level, Apple, Bank of America, and JPMorgan Chase had the largest amount of buybacks, according to Jefferies. 

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Worst month for US manufacturers since 2009: ISM [feedly]

More details on the mfg slump

Worst month for US manufacturers since 2009: ISM
https://www.asiatimes.com/2019/10/article/worst-month-for-us-manufacturers-since-2009-ism/

The US manufacturing sector slowed again in September, falling to its lowest level since 2009, amid trade war worries, according to an industry survey released Tuesday.

It was the second month in a row manufacturing has contracted, continuing a slowing trend underway since March, according to data from the Institute for Supply Management (ISM).

ISM's monthly manufacturing index fell to 47.8%, a sharp drop from 49.1% in August. Any reading below 50 indicates contraction.

"Global trade remains the most significant issue," said Timothy Fiore, chair of ISM's manufacturing survey. "Overall, sentiment this month remains cautious regarding near-term growth."

The decline was a surprise to economists who forecast a slight uptick last month following the decline in August.

However, "Comments from the panel reflect a continuing decrease in business confidence," Fiore said in a statement.

Many of the comments from survey participants cite President Donald Trump's trade war with China, noting that the retaliatory tariffs are hurting business and undermining confidence, despite comments from officials claiming Americans have not been impacted by the dispute.

Fiore noted the contraction in new export orders that began in July, and the survey showed many components declined including production and employment, although prices increased.

One respondent from the electrical equipment sector summed it up: "Economy seems to be softening. The tariffs have caused much confusion in the industry."

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Robots to Cut 200,000 U.S. Bank Jobs in Next Decade, Study Says [feedly]

Robots to Cut 200,000 U.S. Bank Jobs in Next Decade, Study Says
https://www.bloomberg.com/news/articles/2019-10-02/robots-to-cut-200-000-u-s-bank-jobs-in-next-decade-study-says

Technological efficiencies will result in the biggest reduction in headcount across the U.S. banking industry in its history, with an estimated 200,000 job cuts over the next decade, Wells Fargo & Co. said in a report.

The $150 billion annually that the country's finance firms are spending on tech -- more than any other industry -- will lead to lower costs, with employee compensation accounting for half of all bank expenses, said Mike Mayo, a senior analyst at Wells Fargo Securities LLC. Back office, bank branch, call center and corporate employees are being cut by about a fifth to a third, with jobs related to tech, sales, advising and consulting less affected, according to the study.

"It will be a dramatic change in contact centers, and these are both internal and external," Michael Tang, a Deloitte partner who leads the consulting firm's global financial-services innovation practice, said in an interview in the Wells Fargo report. "We're already seeing signs of it with chatbots, and some people don't even know that they're chatting with an A.I. engine because they're just answering questions."

Wells Fargo's Mayo joins bank executives, consulting firms and others in predicting huge cuts to the banking workforce amid the push toward automation. McKinsey & Co. said in May that it expects the headcount for front-office workers -- the bankers and traders historically seen as among finance firms' most valuable assets -- to drop by almost a third with the rise of robots.

Front-office headcount for investment banking and trading fell for a fifth year in 2018, according to Coalition Development Ltd. data. R. Martin Chavez, an architect of Goldman Sachs Group Inc.'s effort to transform itself with tech, said last month that all traders will soon need coding skills to succeed on Wall Street.

— With assistance by Lananh Nguyen
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World Economy Sends Up Flares as Manufacturing Slump Hits U.S. [feedly]

World Economy Sends Up Flares as Manufacturing Slump Hits U.S.
https://www.bloomberg.com/news/articles/2019-10-01/asia-factory-sentiment-remains-brittle-ahead-of-u-s-china-talks

text only content:

The global economy flashed clearer warning signs on Tuesday as a wave of data showed manufacturing stuck in a slump, exports falling and sentiment sliding.

In the U.S., a closely watched factory index unexpectedly dropped to the lowest since 2009 -- driving down stocks as well as yields on Treasuries. Meanwhile the specter of deflation resurfaced as South Korea, a bellwether for international trade, reported a drop in consumer prices and the Reserve Bank of Australia cut its interest rate to a record low.  With a trade war between the U.S. and China still raging, industry executives from Germany to Japan and Russia complained of contracting business, and the World Trade Organization cut its forecast for commerce to the lowest in a decade.

Fresh Warning

The World Trade Organization cuts the outlook for global commerce

Source: WTO

Although a measure of Chinese manufacturing improved and consumer spending globally has largely held strong, the overall tone sounded of the world economy failing to rebound amid mounting trade tensions and rising Brexit risks.

That leaves the U.S. and China and also the U.K. and European Union under pressure to resolve their differences, with central bankers and governments also having to find ways to support demand.

"There can be few precedents since the 1930s of global growth prospects being affected so significantly by trade policy disruptions," Fitch Ratings Ltd. Chief Economist Brian Coulton said.

Bloomberg Economics: Market Indicators Flash Recession Risk Warning

UBS Group AG economists reckon global growth is tracking just 2.3% at the moment, almost a percentage point less than at the start of the third quarter. Those at Danske Bank are warning there is a 30% chance of a global recession in the next two years. A global manufacturing gauge improved slightly in September, but employment fell for a fifth month.

While trade tensions are part of the story, there are also industry-specific issues -- autos in Germany, semiconductors in South Korea -- adding to the hurdles.

German car-parts giant Continental AG last month laid out a sweeping restructuring plan that could affect as many as 20,000 jobs worldwide. Japan's Kawasaki Heavy Industries cut its forecasts, citing sales to chipmakers.

Central banks around the world are fighting the slowdown with new interest-rate cuts and monetary stimulus. But they are also ramping up calls on governments to jump in with fiscal measures, saying they can't do all the heavy lifting.

In the meantime, global bond investors are betting against a meaningful inflation pickup. Even with sovereign yields below zero, they are still piling into government debt, and so-called deflation trades are on the rise.


The latest purchasing managers indexes may reinforce those views. German manufacturers cut prices in September by the most in more than three years. In Japan, where manufacturing sentiment is declining, factories lowered selling prices for a fourth straight month. British companies warned of "Brexit uncertainty and clients routing supply chains away from the U.K."

Such an environment is worrying for central bankers in a world where inflation is already low and well short of targets. Consumer-price growth in the euro area slipped below 1% in September for the first time since 2016, falling further from the European Central Bank's goal.

Parts of the global economy still show resilience, and services are still growing. U.S.-China trade negotiations remain critical for the outlook, with a Chinese delegation set to visit Washington for talks this month aimed at hammering out a deal.

The decline in U.S. manufacturing is an "amber light on the dashboard," John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, said on Bloomberg Television. "The Fed is very likely to cut again at the end of October as a result of this and so long as the trade-war situation remains as an overhang."
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Warren Versus the Petty Plutocrats [feedly]

PK on politics has a less sterling accuracy than on economics, but he always sharp.

Warren Versus the Petty Plutocrats
https://www.nytimes.com/2019/09/30/opinion/elizabeth-warren-wealth-tax.html

text only version  if blocked by paywall

Remember when pundits used to argue that Elizabeth Warren wasn't likable enough to be president? It was always a lazy take, with a strong element of sexism. And it looks ridiculous now, watching Warren on the campaign trail. Never mind whether she's someone you'd like to have a beer with, she's definitely someone thousands of people want to take selfies with.

But there are some people who really, really dislike Warren: the ultrawealthy, especially on Wall Street. They dislike her so much that some longtime Democratic donors are reportedly considering throwing their backing behind Donald Trump, corruption, collusion and all, if Warren is the Democratic presidential nominee.

And Warren's success is a serious possibility, because Warren's steady rise has made her a real contender, maybe even the front-runner: While she still trails Joe Biden a bit in the polls, betting markets currently give her a roughly 50 percent chance of securing the nomination.

But why does Warren inspire a level of hatred and fear among the very wealthy that I don't think we've seen directed at a presidential candidate since the days of Franklin Delano Roosevelt?


On the surface, the answer may seem obvious. She is proposing policies, notably a tax on fortunes exceeding $50 million, that would make the extremely wealthy a bit less so. But delve into the question a bit more deeply, and Warren hatred becomes considerably more puzzling.

For the only people who would be directly affected by her tax proposals are those who more or less literally have more money than they know what to do with. Having a million or two less wouldn't crimp their lifestyles; most of them would barely notice the change.

At the same time, even the very wealthy should be very afraid of the prospect of a Trump re-election. Any doubts you might have had about his authoritarian instincts should have been put to rest by his reaction to the possibility of impeachment: implicit death threats against whistle-blowers, warnings of civil war and claims that members of Congress investigating him are guilty of treason.

And anyone imagining that great wealth would make them safe from an autocrat's wrath should look at the list of Russian oligarchs who crossed Vladimir Putin — and are now ruined or dead.

So what would make the very wealthy — even some Jewish billionaires, who should have a very good idea of the likely consequences of right-wing dominance — support Trump over someone like Warren?


There is, I'd argue, an important clue in the "Obama rage" that swept Wall Street circa 2010. Objectively, the Obama administration was very good to the financial industry, even though that industry had just led us into the worst economic crisis since the 1930s. Major financial players were bailed out on lenient terms, and while bankers were subjected to a long-overdue increase in regulation, the new regulations have proved fairly easy for reputable firms to deal with.

Yet financial tycoons were furious with President Barack Obama because they felt disrespected. In truth, Obama's rhetoric was very mild; all he ever did was suggest that some bankers had behaved badly, which no reasonable person could deny. But with great wealth comes great pettiness; Obama's gentle rebukes provoked fury — and a huge swing in financial industry political contributions toward Republicans.

The point is that many of the superrich aren't satisfied with living like kings, which they will continue to do no matter who wins next year's election. They also expect to be treated like kings, lionized as job creators and heroes of prosperity, and consider any criticism an unforgivable act of lèse-majesté.

And for such people, the prospect of a Warren presidency is a nightmarish threat — not to their wallets, but to their egos. They can try to brush off someone like Bernie Sanders as a rabble-rouser. But when Warren criticizes malefactors of great wealth and proposes reining in their excesses, her evident policy sophistication — has any previous candidate managed to turn wonkiness into a form of charisma? — makes her critique much harder to dismiss.

If Warren is the nominee, then, a significant number of tycoons will indeed go for Trump; better to put democracy at risk than to countenance a challenge to their imperial self-esteem. But will it matter?

Maybe not. These days American presidential elections are so awash in money that both sides can count on having enough resources to saturate the airwaves.

Indeed, over-the-top attacks from the wealthy can sometimes be a political plus. That was certainly the case for F.D.R., who reveled in his plutocratic opposition: "They are unanimous in their hate for me — and I welcome their hatred."

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So far Warren seems to be following the same playbook, tweeting out articles about Wall Street's hostility as if they were endorsements, which in a sense they are. It's good to have the right enemies.

I do worry, however, how Wall Streeters will take it if they go all out to defeat Warren and she wins anyway. Washington can bail out their balance sheets, but who can bail out their damaged psyches?

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman

A version of this article appears in print on Oct. 1, 2019, Section A, Page 23 of the New York edition with the headline: Warren vs. The Petty Plutocrats. Order Reprints | Today's Paper | Subscribe

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