Friday, June 30, 2017

Chart of the Week: Ireland’s Fight Against Income Inequality

Chart of the Week: Ireland's Fight Against Income Inequality // IMF Blog

By IMFBlog

June 30, 2017

Shoppers in Dublin, Ireland: the country has high income inequality, before taxes and transfers (photo: Caro Rupert Oberhaeuser/Newscom)

Ireland's economy continues to recover after a housing market crash in 2008 plunged the country into a deep and severe crisis. The strong social welfare system provided an important cushion against the worst effects of the crisis.

Ireland's tax-benefit system is one of the most effective in the European Union in redistributing income. The tax system is relatively progressive and funds a robust system of social benefits, a significant share of which is means-tested. Income inequality before taxes and transfers in Ireland is high—37 percent of income is held by the top 10 percent of income earners. Social transfers make up about 70 percent of income for the bottom 20 percent of earners.

Our Chart of the Week from a new paper shows how Ireland has over a number of years used social benefits and taxes to reduce high income inequality.  

The most common measure of income inequality is the Gini coefficient, where zero expresses perfect equality, and 100 expresses maximum inequality. In Ireland's case, about 60 percent of the average 25-percentage point improvement in income inequality, as measured by the difference between the Gini coefficient before and after taxes and transfers, was driven by social benefits. This is one of the highest among EU countries and largely means-tested. Another one-fourth of the improvement was due to direct taxes, which is broadly in line with the EU average.

Part of the story of income inequality in Ireland is also about geography: 40 percent of the population live in Dublin, which has more employment opportunities and higher incomes. Regions that suffered high unemployment before the crisis continue to lag in the ongoing recovery.

Ireland still faces an uphill battle: long-term unemployment above pre-crisis levels, a relatively low participation rate in the labor force, driven in part from low participation by women, and young people facing more uncertain job opportunities than they did before the crisis.

Part of the solution, already under way, is to build on already strong basic and tertiary educational attainment to take advantage of opportunities in high productivity sectors such as information and communication technology. Broader investment in vocational training and apprenticeships are also key to help new job-market entrants and those looking to return to work. The National Skills Strategy aims to provide skill development opportunities and foster lifelong learning. New Regional Skills Fora will facilitate ongoing employer-educator dialogue to match identified needs with sustainable provision in each region, to optimize the return on investment in education and training.

Also, to help more women enter the workforce, Ireland needs high quality and affordable childcare. To tackle this, the government will replace existing programs with the generally means-tested Single Affordable Childcare Scheme in September, with a strong focus on low-income, disadvantaged families. Further efforts to strengthen incentives to work, including by reducing high marginal income taxes for second earners, would also help women join the paid workforce.

For more on the challenges facing women and young people in the global economy, check out our March issue of Finance and Development Magazine's feature on policies that help integrate women into the workforce, and our June issue on Millennials and the Future of Work.


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Illinois austerity turning state to junk



Stephen Buranyi says the scam that is academic publishing "actually holds back scientific progress":

Given a choice of projects, a scientist will almost always reject both the prosaic work of confirming or disproving past studies, and the decades-long pursuit of a risky "moonshot", in favour of a middle ground: a topic that is popular with editors and likely to yield regular publications.

The FCA says that active fund managers "did not outperform their own benchmarks after fees."

These two observations are related. They show us that selection mechanisms – peer review, hiring fund managers and the funds market – don't necessarily select for the best. A new paper (pdf)by George Akerlof and Pascal Michaillat discusses one way in which this can happen.

They start from some experiments with flour beetles in the 1950s and 60s. These found that when two different species were placed into jars of flour, it was not the case that the most biologically fit species came to dominate. Instead, sometimes one species did and sometimes the other. The reason for this was because the species were more likely to eat the eggs of the other species than those of their own. This meant that when one species increased relative to the other – perhaps for arbitrary reasons – it continued to increase still further. Such an "egg-eating bias", say Akerlof and Michaillat, means that in science unfit paradigms might prevail over fitter ones - as Buranyi claims.

The egg-eating bias takes the form of professors or journal editors preferring candidates or papers in their own image – ones that work in their paradigm. This is sometimes because of simple favouritism. But it can also be simply because it's easier to evaluate someone's work if it is like your own.

This fits with the claims in economics that bad paradigms – suchas (pdf) DSGE (pdf) or CAPM – have prevailed despite their empirical flaws.

It also fits with the poor performance of fund managers. One reason for this is that older fund managers hire and train younger ones on the basis of judgment-based stock selection rather than their ability to exploit proven means of beating the market such (pdf) as defensive or momentum investing. And as Bjorn-Christopher Witte shows, market forces do not necessarily weed out bad managers and favour good: markets are imperfect and sometimes perhaps even counter-productive selection mechanisms.

It also, of course, has implications for corporate management. It's consistent with work by Dan Bernhardt, Eric Hughson and Edward Kutsoati who show that because bosses favour underlings in their own image, firms can become increasingly inefficient: for example, as finance-types exclude engineers. In the same vein, Eric Van den Steen has described (pdf) how "organizations have an innate tendency to develop homogeneous beliefs". This is because like hires like, and then people learn from those similar to themselves.

You can also, of course, tell a story about gender bias along these lines. (And, of course, about the media).

The point here is simple. Institutions – be they markets, firms, universities, publishers or whatever – are (among other things) selection mechanisms. We should not assume that such mechanisms work perfectly to optimize efficiency or truth. We must look under the bonnet to ask how exactly they work, rather than tell ourselves just-so stories.

In particular, institutions select – perhaps not entirely intentionally – against cognitive diversity and for groupthink. But as John Stuart Mill warned, this can be "a social tyranny more formidable than many kinds of political oppression" which can end up "enslaving the soul itself."

John Case
Harpers Ferry, WV

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Enlighten Radio:GOP Stunning Achievement: West Virginia NOW NUMBER ONE in low wages!

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Thursday, June 29, 2017

Letter to the House Committee on Education & the Workforce concerning H.R. 986, The Tribal Labor Sovereignty Act of 2017; H.R. 2776, The Workforce Democracy and Fairness Act; and H.R. 2775 [feedly]

Letter to the House Committee on Education & the Workforce concerning H.R. 986, The Tribal Labor Sovereignty Act of 2017; H.R. 2776, The Workforce Democracy and Fairness Act; and H.R. 2775


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Heidi Shierholz and Celine McNicholas of the Economic Policy Institute Policy Center submitted the following letter to the U.S. House of Representatives Committee on Education & the Workforce, on June 28, 2017.

June 28, 2017

The Honorable Virginia Foxx

The Honorable Bobby Scott
Ranking Member

Committee on Education & the Workforce
U.S. House of Representatives
Washington, DC

Dear Chairwoman, Ranking Member, and Distinguished Committee Members:

We write on behalf of the Economic Policy Institute Policy Center (EPI-PC), to express our views on H.R. 986, The Tribal Labor Sovereignty Act of 2017; H.R. 2776, The Workforce Democracy and Fairness Act; and H.R. 2775, The Employee Privacy Protection Act. The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986. We were the first – and remain the premier – such think tank to focus on the needs of low- and middle-income workers in economic policy discussions.

For years, EPI's researchers have studied the effect of the erosion of collective bargaining and union membership. The research is clear1 – the erosion of collective bargaining has been a core contributor to our decades-long problems with wage stagnation and inequality, hurting not only union workers but nonunion workers as well. Any legislation that amends our nation's basic labor law should protect and enhance workers' freedom to join a union and collectively bargain, not make it harder for working men and women to exercise this fundamental right. Unfortunately, all three of the bills the Committee is considering today would make it harder for workers to engage in collective bargaining. We strongly urge all Members of this Committee to oppose these bills.

H.R. 2776, The Workforce Democracy and Fairness Act (WDFA), mandates unnecessary delay in the union election process, requiring a 35-day waiting period between the filing of an election petition and an election. The legislation also enables employers to gerrymander a bargaining unit (a group of workers that join together in a union). Under the WDFA, employers could pack the voting rolls with workers who do not share the organizing workers' interests, making it very difficult for workers to win a union. At the same time, the bill would make it harder for workers to grow their union by adding members to an existing bargaining unit. This double standard reveals the true goal of the legislation—to ensure that all workers are left on their own to negotiate with their employers.

H.R. 2775, The Employee Privacy Protection Act (EPPA), restricts the voter information unions receive during an organizing campaign. Under current law, a union has the right to a list of voter names, job classifications, work locations, shifts, and contact information within two days after a bargaining unit is determined. The EPPA would require that the voter list information be provided to the union "not earlier than 7 days" after a final determination of the bargaining unit. However, the bill does not provide a maximum waiting time. So, the union could receive the information the day before the election. Further, the EPPA restricts the contact information unions receive. The bill forces a worker to select, in writing, one form of contact information (telephone, email, or mailing address) to provide to the union. It prohibits workers from providing multiple forms of contact information.

H.R. 986, The Tribal Labor Sovereignty Act, would deprive workers who are employed by tribal-owned and -operated enterprises located on Indian land of their rights under the National Labor Relations Act (NLRA). The NLRA contains no express exemption for federally recognized tribes or the commercial enterprises they own or control. The National Labor Relations Board (NLRB) has considered whether to assert jurisdiction over labor disputes on tribal lands. In 2004, the NLRB articulated a test for whether the NLRB should assert jurisdiction over tribal enterprises. The test provides for a careful balancing of tribal sovereignty with federal labor law protections. This legislation upsets this balance and instead undermines the rights of working men and women.

Workers deserve policies that will help shift power back to working people by strengthening their rights to organize and collectively bargain for better wages and benefits, not policies that make it impossible for them to do so. We urge you and all members of the Committee to vote against all three of these bills.

We would be happy to answer any additional questions from Members of this Committee about our analysis of these bills or questions on the economic impact of the continued erosion of collective bargaining.


Heidi Shierholz
Director of Policy and Senior Economist, Economic Policy Institute Policy Center

Celine McNicholas
Labor Counsel, Economic Policy Institute Policy Center

1. Rosenfeld, Denice, and Laird, 2016. "Union decline lowers wages of nonunion workers."

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A Job-Killing Robot for Rich People [feedly]

A Job-Killing Robot for Rich People

Dean Baker
Jacobin, June 27, 2017

See article on original site

In the last couple years, the financial transactions tax (FTT) has moved from a fringe idea to a policy proposal treated seriously by even the mainstream of the Democratic Party. The decision by Senator Bernie Sanders to make it a central part of his presidential campaign certainly helped, but a number of members of Congress, including Keith Ellison and Peter DeFazio, have also pushed FTT proposals for many years.

The FTT is also gaining momentum overseas. There's a push to enact an FTT in the eurozone. And in England, an expanded FTT — the London stock exchange has long levied a 0.5 percent tax on stock trades — was included in the Labour Party's platform in the recent election.

But while the idea of taxing financial transactions is growing more popular, even many of its proponents don't realize its full benefits. An FTT is usually seen as a way to raise large amounts of revenue (in the US, it could possibly generate as much as $190 billion a year, or 1 percent of GDP). Or it is viewed as a means to limit speculative trading in the financial sector, potentially making markets less volatile.

The best argument for an FTT, however, is that it can sharply reduce some of the highest incomes in the economy by curtailing the trading that makes those incomes possible. As a result, it can play a large role in reversing the upward redistribution of income that we've seen over the last four decades.

Investors ...

The key point that many miss about a financial transactions tax is that it would be borne not by investors but by the financial industry.

The logic of this point is straightforward. Any tax would likely be passed on almost in full to investors in the cost of an individual trade. This means that if a tax were equal to 50 percent of the current cost of trading stocks, bonds, or other financial instruments, then the cost of a trade to an investor would rise by close to 50 percent.

For example, suppose the current cost for selling $10,000 of stock is $30, or 0.3 percent of the sale price. If we imposed a 0.15 percent tax on the sale, then we would expect the cost of the sale to investors to increase to roughly $45 ($30 plus the $15 tax), if the tax was passed on completely to investors.

But there is a large amount of research showing that trading volume would decline roughly in proportion to the increase in trading costs. This means that if the cost of a trade rose by 50 percent, as it would in this scenario, then we would expect trading volume to fall by roughly 50 percent. In other words, a typical investor would end up trading roughly half as much as he had before the tax was imposed.

The drop in trading volume would matter to investors if they actually benefitted from trading, but taken as a whole, they don't. If someone sells shares of stock at a high price, they win from the deal. But someone else bought the shares at a high price and ended up as a loser. On average, the winners and losers balance out, which means trading is, on net, a wash for investors. If we have less trading, because of an FTT or any reason, investors aren't hurt by it.

Detractors might argue that lower levels of trading would hinder market liquidity. If investors didn't think they could sell shares of stock reasonably quickly, they would be more reluctant to buy them. And if they were more reluctant to buy them, companies would have a harder time raising capital in financial markets, which would slow investment and growth.

While this could be a problem if we had a small and underdeveloped capital market, that is not the case in the United States today, nor has it been for many decades. Even if we cut trading volume in half, we would still have as much trading as we did in the mid-1990s, when the US capital markets were already very large.

... And Industry

Instead of coming out of the pockets of investors, the revenue from an FTT would come out of the pockets of the financial industry.

An FTT that raised $100 billion a year, for instance, would shrink the financial sector's size by roughly $100 billion. This downsizing would sharply reduce the number of very high-paying jobs in the sector. The narrow financial sector (securities and commodities trading) would be trimmed by a third, presumably reducing the number of very high-paying positions by at least that much.

Since the financial sector includes many, perhaps most, of the highest paid workers in the country, an FTT would be a big blow to those at the top. Just how big? The Social Security Administration (SSA) reports that the 202 highest-paid people in the country enjoyed average salaries of more than $90 million each in 2015. (This likely understates their actual pay since much of their wage income is hidden as capital gains income in the form of "carried interest.")

While the SSA data does not include industry breakdowns, it is likely that many or even most of these 202 super-high earners work in the financial sector. Even for a CEO, $90 million is an extraordinary sum. The financial industry likely also employed many of the next eight hundred top earners, who received an average of roughly $30 million in 2015.

In addition to reducing inequality directly — by eliminating many high-paying positions — an FTT would also have a substantial indirect effect. If we got rid of a large percentage of very high-paying positions in the financial sector, it would reduce the number of super-lucrative slots in the economy as a whole. We could expect this to put downward pressure on compensation at the top more generally as more people looked for high-paying jobs in software, biotech, or other sectors.

The dynamic would be somewhat analogous to what's happened in manufacturing: the loss of good-paying jobs due to trade pushed down the pay of non-college-educated workers more generally. The difference is that in the case of finance, we're talking about a very small group of extraordinarily well-remunerated workers, not the bulk of the US workforce.

Think of an FTT as a job-killing robot for rich people.

Attacking Finance

Of course, the attack on the financial sector can and should go beyond imposing an FTT.

Much of the profit in private equity stems from tax gaming and abusing bankruptcy law. If we eliminated the opportunities for gaming (most importantly, the tax deduction for corporate interest payments), the high earners in private equity would take a big hit.

There are other areas in which the financial sector is purely predatory, such as the excessive fees charged on retirement accounts or the management fees charged to public pension funds.

If these avenues for getting rich were closed off, the opportunities for very high-paying jobs would be substantially reduced. While this would not directly fix a broken corporate governance structure that allows for outlandish CEO pay or address the arcane licensing rules and immigration restrictions that allow many medical specialists to earn more than $500,000 a year, whacking the financial sector would be a very good start in reversing rising inequality.

And as a bonus, we could use the money raised to pay for free college or other good things — rather than letting it continue to line the pockets of investment bankers.

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That Seattle minimum wage study has some curious results. [feedly]

That Seattle minimum wage study has some curious results.

[I'm outta town with very shaky internet access, but wanted to make a tiny bit of noise about this.]

I'm quoted in this story about a new paper on the Seattle minimum wage increase–it's in the process of phasing up to $15/hr–as follows:

"The literature shows that moderate minimum wage increases seem to consistently have their intended effects, [but] you have to admit that the increases that we're now contemplating go beyond moderate. That doesn't mean, however, that you know what the outcome is going to be. You have to test it, you have to scrutinize it, which is why Seattle is a great test case."

I still think that. But I also think something seems pretty "off" with the study, reviewed here by the WaPo.

–How could they get such job- and income-loss effects for low-wage workers in Seattle relative to their controls with such tiny wage effects? This is especially curious when considering the excellent point made by Schmitt and Zipperer, who critically review the Seattle study, that compared to Seattle's relatively high wage base, $13/hr isn't that far out of the usual range (be sure to read their critique).

–It seems extremely unlikely that increasing the min wg to $13 leads to job growth for those making >$19. I can't think of any labor market logic to that.

–The Seattle economy is doing really well, with solid job and wage growth amidst very low unemployment. I'd think that if the increase threw such a large wrench into the low-wage labor market as this study suggests, we'd see it in the broader economic statistics.

When you have an outlier study–their negative results are huge multiples of past research—with such unusual "internals," there may be something wrong. It could be the multi-establishment firms they left out, though if the increase is whacking smaller firms, that's a problem too.

So I suspect their control cohort—the other parts of the state that are serving as a control—is non-independent of the Seattle increase. This new study from Allegretto et al doesn't have the granular data available to the Seattle researchers but it uses what looks to me like a more credible control cohort and finds the Seattle increase to be having its intended effect.

Like I said, those of us who support out-of-sample min wg increases need to scrutinize the Seattle experience closely, and protect against confirmation bias. This time may actually be different. But you really don't want to make that claim based on one extreme outlier study with some eyebrow-raising quirks.

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Mark Thoma: W. Arthur Lewis and the Tradeoffs of Economics and Economists [feedly]

W. Arthur Lewis and the Tradeoffs of Economics and Economists

From Vox EU:

W. Arthur Lewis and the tradeoffs of economics and economists, by Ravi Kanbur, VoxEU: There is nothing new under the sun. The passionate political economy discourses of today consume us entirely. But they are in fact perennials, broaching the fundamental questions of economic policy that have ruled supreme since economics gained an independence of sorts from moral philosophy 250 years ago.1 The nature of market failure, the case for government intervention on grounds of efficiency and equity, and the interplay between economic and political forces are some of the tracks on which discourses have run for generations. The life and work of W. Arthur Lewis, winner of the 1979 Nobel Prize in economics, is a testament to the tradeoffs of economics, and of economists.
Arthur Lewis was born in the British West Indies in 1915. He won a scholarship to study at the London School of Economics, graduating with first class honours in 1937.2 And yet Lewis's path was not entirely smooth. Even at the LSE, an institution founded by Fabian socialists, he faced the racism that he also met in the streets of London. When he was considered for a temporary one year appointment at the LSE in 1938, the Director of the LSE wrote to the Board of Governors that: "The appointments committee is, as I said, quite unanimous but recognise that the appointment of a coloured man may possibly be open to some criticism. Normally, such appointments do not require confirmation of the Governors but on this occasion I said that I should before taking action submit the matter to you" (Tignor 2006: 21).3
Lewis became involved with the burgeoning decolonisation movement in Britain, and consorted with the likes of C L R James, George Padmore, Eric Williams, and Paul Robeson. The 1930s and 1940s were a period of ferment not just on the decolonisation front. Economic policy in general was under discussion and dispute. From Cambridge, John Maynard Keynes had excited a generation of students with his critiques of 'the Treasury View' in the face of massive and persistent unemployment. Arthur Lewis was Keynesian in macroeconomic matters, but also more interventionist in microeconomic and structural policy. This set him against Sydney Caine, an influential official in the Colonial Office, in the work of the Colonial Economic Advisory Committee, on which Lewis served. Lewis described Caine as "a religious devotee of laissez-faire, and his headship of the Economic Department at this juncture is fatal" (Mine 2006).
In 1951, Kwame Nkrumah won a sweeping victory in the elections in the British colony of the Gold Coast (soon to become the independent country of Ghana) and in 1952 Lewis was invited by Nkrumah to write a report on industrialisation (Lewis 1953).4 At this very time, Lewis was fashioning his Nobel Prize winning argument on 'surplus labour', which he argued was the state of affairs in the West Indies, in Egypt, and in India (Lewis 1954). In these situations, the main brake on development was inadequate investment in manufacturing, and to the extent that this investment was held back by market failures in the manufacturing sector, the government should intervene to address them.
However, Lewis's thrust in his report was that the Gold Coast, unlike India, did not present a situation of surplus labour. Rather, it was one of labour shortages given the large amount of land available in agriculture. In this situation the way of releasing labour for manufacturing, without pushing up wages so much that investment would be choked off, was to increase agricultural productivity. In labour shortage economies, that would have been priority number one. The Gold Coast industrialisation report revealed the evolving balance of Arthur Lewis as the economist. Identify the nature of the market failure first, then design the intervention.
Arthur Lewis was present in Accra for the celebrations when the Gold Coast became Ghana on 6 March 1957.5 But he was to return in October of 1957 for a fateful stint as the government's chief economic adviser, at the invitation of Kwame Nkrumah. His 15 months as resident adviser in Ghana were tumultuous. There were some policy areas in which he sided with the government and Nkrumah. Perhaps the most famous of these is his general agreement that the surpluses from the cocoa price boom should be collected by the government and used for development purposes rather than passed through to cocoa farmers, a view very different from positions being advanced by Bauer (1954) at that time. However, in the main Lewis clashed with Nkrumah, especially on various 'white elephant' projects that were being considered and approved, many of them in the name of industrialisation.
The letters of this time provide a real insight into the clash between the economist and the politician. After a series of attempts by Lewis to intervene in the drafting on the Five Year Plan, his verdict on the plan was that it made "inadequate provision for some essential services while according the highest priority to a number of second importance….Alas, the main reason for this lack of balance is that the plan contains too many schemes on which the Prime Minister is insisting for 'political reasons'" (Tignore 2006: 167). Nkrumah's responses to Lewis were to be expected from a man who had famously said "seek ye the political kingdom first". In an exchange that brought to a head Lewis's decision to leave his post as economic adviser, Nkrumah emphasised "political decisions which I consider I must take. The advice you have given me, sound though it may be, is essentially from the economic point of view, and I have told you, on many occasions, that I cannot always follow this advice as I am a politician and must gamble on the future" (Tignor 2006: 173).
How can one explain the seeming contradictions in Lewis? On the one hand was the critic of laissez-faire economic policies, whom the radical anti-colonialists expected to be on their side. On the other was the economist who acted as a check on the extreme statist interventions proposed by this same tendency in economic policy discourse, arguing against heavy state subsidy to industry on purely economic grounds, even leaving aside its propensity for corruption and use as political patronage.
As a student, Lewis must have read John Maynard Keynes's clarion call in his essay "The End of Laissez Faire" (Keynes 1926).6 This was, seemingly, a call to abandon the tenets of 19th century economic liberalism in favour of a more interventionist credo – "let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded" (Keynes 1926: 287-8). This is Keynes presaging the Lewis of the 1930s and 1940s railing against Sydney Caine and his laissez-fair policies for the colonies. And yet in the same essay Keynes hints at a different world view, a more nuanced perspective on state intervention:
"We cannot therefore settle on abstract grounds, but must handle on its merits in detail what Burke termed ʹone of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion'" (p. 288-91).
How like Lewis, or rather how like the economist Lewis became in Ghana.7 I have argued elsewhere that Edmund Burke's question is the eternal question of political economy and accounts for the cycles of thought in economics (Kanbur 2016). This is what allowed Lewis to support some industrial intervention in his first report on the Gold Coast, while at the same time asserting the primacy of agricultural development. It is what allowed him to support substantial taxation of cocoa while at the same time railing at the (economic and political) misuse of the funds so raised. That was Arthur Lewis in Ghana, but it was Arthur Lewis all along. It has also been political economy all along, and will continue to be so.
Aryeetey, E, and R Kanbur (eds.), The Economy of Ghana Sixty Years After Independence, Oxford: Oxford University Press.
Bauer, P (1954), West African Trade: A Study of Competition, Oligarchy, and Monopoly in a Changing Economy, Cambridge University Press.
Kanbur, R (2016), "The End of Laissez Faire, The End of History and The Structure of Scientific Revolutions", Challenge, 59 (1), 35-46.
Kanbur, R (2017), "W. Arthur Lewis and the Roots of Ghanaian Economic Policy", In E Aryeetey and R Kanbur (eds.) The Economy of Ghana Sixty Years After Independence, Oxford: Oxford University Press.
Keynes, J M (1926), "The End of Laissez-Faire", in The Collected Writings of John Maynard Keynes, Volume IX, Essays in Persuasion, Royal Economic Society, Palgrave MacMillan, 1972.
Lewis, W A (1953), Report on Industrialization of the Gold Coast, Accra.
Lewis, W A (1954), "Economic Development with Unlimited Supplies of Labour", Manchester School, 22 (2), 139-191.
Mine, Y (2006), "The Political Element in the Works of W. Arthur Lewis: The 1954 Lewis Model and African Development", The Developing Economies, XLVI-3, 329-355.
Tignor, R L (2006), W. Arthur Lewis and the Birth of Development Economics, Princeton University Press.
[1] The conventional dating for this is of course the publication of Adam Smith's Wealth of Nations in 1776.
[2] I draw liberally on the comprehensive and excellent biography by Tignor (2006).
[3] Tignor (2006: 37) also recounts the story of how, despite his by then brilliant academic qualifications, his appointment to a Chair at Liverpool was blocked for reasons of "other considerations than high academic standing." Finally, however, he did get his Chair, the Stanley Jevons Chair at the University of Manchester in 1948.
[4] Lewis's transmittal letter on the report, written to Minister of Commerce and Industry K A Gbedemah and dated 5th June, 1953, notes the details of the assignment: "I have the honour to transmit herewith my Report on industrialization and economic policy, which I was commissioned to write by letter No. MCI/C,16/SF.3/18 from your Ministry, dated November 29, 1952. I visited the Gold Coast from December 15th, 1952, to January 4th, 1953, and travelled extensively in the country, covering about 1,800 miles by road and by air. I had the opportunity of visiting many industrial establishments, and I discussed the subject with as many persons as possible in the time available." (Lewis, 1953, p. i).
[5] For an assessment of Ghana's economy in the sixty years since independence, see Aryeetey and Kanbur (2017).
[6] For an assessment of this essay in the broader context of the evolution of economic thought, see Kanbur (2016).
[7] Tignor (2006) and Kanbur (2017) further discuss Lewis's post-Ghana life and work.

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Cleveland FED: New Data on Wealth Mobility and Their Impact on Models of Inequality [feedly]

New Data on Wealth Mobility and Their Impact on Models of Inequality

Daniel Carroll and Nick Hoffman of the Cleveland Fed:

New Data on Wealth Mobility and Their Impact on Models of Inequality: Wealth inequality, the unequal distribution of assets across households, has been rising for decades. However, this statistic alone gives an incomplete picture of the inequality of households' economic experiences and opportunities. A fuller understanding comes from also knowing how much movement within the distribution households experience over time. For instance, is it likely that someone with low wealth today will be a wealthy person at some point in the future, or are they rigidly stuck at the bottom? In other words, a fuller understanding of households' economic opportunity comes from a combination of data on both wealth inequality and wealth mobility.
This Commentary explores the topic of wealth mobility in the United States during the past three decades (see Carroll and Chen 2016 for similar work on income inequality and mobility). Examining supplemental data from the Panel Study of Income Dynamics (PSID), which track families' wealth over time, we calculate changes in relative wealth mobility; that is, how likely families are to move up or down the wealth distribution, relative to one another. We find that wealth mobility has declined since the 1980s, a trend that is robust to a wide range of measures. Finally, we identify savings behaviors that are associated with more mobile families. Such behaviors may explain the disparity between observed levels of mobility and the levels predicted by the standard model used to study inequality. ...

Jumping ahead:

Conclusion Wealth mobility depends on luck and household choices. It is a reflection of households' opportunities as well as their responses to those opportunities. Panel data from the past 30 years show a decline in wealth mobility across several measures. It appears that families are less likely to change wealth quintiles over time, while those that do move are less likely to move very far. The reasons for these trends are not fully known, but increasing wealth inequality has contributed to the decline. Families that do make large movements through the wealth distribution appear to be more likely to own some form of a risky asset, as compared to families that do not make large movements.
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Piketty: Will Macron’s Marchers take power? [feedly]

Will Macron's Marchers take power?

With over 350 seats, the MPs elected on the « La république en marche » (LREM) ticket will have an overwhelming majority in the Assemblée Nationale (Parliament). Will they use it to be in the forefront of reform and renewal of French politics? Or will they simply play a passive role, rubber stamping and obediently voting the texts that the government sends them?

It happens that they will shortly be faced with their first real-life test with the question of deduction of income tax at source. The government wishes to postpone the implementation until 2019, perhaps forever, for reasons which are totally opportunist and unjustified. This big step backwards is bad news for the alleged intention to reform and modernise the French fiscal and social system proclaimed by the new government (a general intention that is unfortunately rather vague once we enter into the details: see What reforms for France), and leads us to fear the worst for what is to come. Now, contrary to what has been stated, the government cannot take this sort of decision without a vote in Parliament which should therefore take place in the coming days or weeks.

There are two possibilities. Either the LREM MP's force the government to maintain this crucial reform and its application as from January 2018, as was already voted by the outgoing Parliament in the autumn of 2016 in the context of the 2017 Finance Act. It will then be clear that the new MP's are ready to play their role fully in future reforms and oppose the executive when necessary. The other option is to follow in the steps of the conservatism of the government, which, unfortunately, seems to be the most likely outcome. This would alert us to the fact that with this new majority and this new authority we are dealing with reformers who are mere paper tigers.

Tax deduction at source and the social contract

What are we talking about? The deduction of income tax at source was implemented in 1920 in Germany and Sweden, during World War Two in the United States, the United Kingdom and the Netherlands, and in the 1960s-1970s in Italy and Spain. France is the only developed country which has not introduced this. This is one of the most archaic aspects of our tax system and our administration. In this respect, we are between 50 and 100 years behind all other countries.

This is all the more regrettable as tax deduction at source would enable a considerable gain in efficiency for all the parties concerned. In the first instance, for taxpayers, who in the present system find themselves paying their taxes one year after receiving the income, when their professional and financial system may well have completely changed. On the contrary, the new system would enable tax payment to be adjusted in real time to the situation of each individual.

In matters of tax administration, this would enable tax officials to focus on more important tasks, in particular on tax inspection and combating tax evasion.

Finally, for businesses: some business leaders, noted for their conservatism, claim that this reform will mean more work for them (the same line of argument has always been used in all the countries in which this reform has been implemented over the past century). The truth is that deduction at source has already been established in France since 1945 for social contributions. In total, income deducted at source amounts to more than 20% of GDP, if one includes all social contributions (including CSG), whereas income tax represents less than 4% of GDP. The extension to deduction at source of income tax will be a source of simplification for our tax system which will ultimately be to the advantage of businesses and all social and economic stakeholders.

In fact, the constant postponement of this reform has led to bureaucratic nonsense of an incredible complexity. A blatant example is the employment allowance (PPE), recently renamed activity bonus (PRIME D'ACTIVITE). At the moment, after deduction at source of social contributions, the wages of a full-time worker earning the statutory minimum wage (SMIC) are reduced by approximately 300 euros per month (1,450 Euros before tax to 1,150 Euro net). Then, if he or she applies for it, several months later the employee will receive the equivalent of 130 euros per month as an activity bonus from the family allowance benefits fund (caisses d'allocations familiales). It would obviously be preferable to deduct less at source, to ensure that each worker receives a higher net wage on his or her monthly payslip and thus be able to organise their lives in function of resources of which he or she is assured, instead of wasting time in uncertain procedures which are random and stigmatizing. Why have we ended up with such an absurd system? Because income tax is not deducted at source. The result is that it has never been possible to pay the PPE (the employment allowance) – which was part of income tax when it was introduced – automatically on the pay slip. This is one of the many concrete situations which could be cleared up if the reform was implemented.

Over and above these practical aspects, which are essential, there is a much broader democratic, political and philosophical dimension at stake in the establishment of tax deduction at source. It is one of the key elements in the clarification of the relation between the State and the tax-paying citizen. It enables the question of taxes and that of transfer payments, the issue of fiscal justice and of social justice, the question of a fair income and that of a fair wage to be considered at one and the same time.

Generally speaking, it would be a grave error to deal with these questions of taxation and mode of deduction as purely technical questions. In the absence of a fair and accepted system of deduction, without consent to taxation there can be no collective capacity to act. Fiscal revolutions are central to all the major political revolutions. Without deduction at source, the social security system could not have been established. Just imagine each wage-earner writing a cheque to the social security fund one year late, for sums amounting to over 20% of GNP? The fact that deduction at source has never been extended to the State taxes conveys a distinct limit to our collective capacity to construct a relationship of trust between the tax-payer citizen and the central State in France. This is an issue which involves our social contract in its totality.

François Hollande's last five-pin billiards shot –

Unfortunately, the issue of generalising deduction at source has been a subject for discussion for decades now in France. On each occasion this reform has been rejected. In 1999, confronted with the protests of part of the tax officials and businesses, the Jospin government finally decided to sacrifice M. Sautter, the Minister who introduced the reform. At the time, it was postponed for one year. That was 18 years ago.

After considerable hesitation, the socialist governments in power between 2012 and 2017 finally decided to introduce a very well thought out project which was voted by Parliament in the autumn of 2016, enabling the reform to be introduced in January 2018. It is of course regrettable that this new system was not implemented earlier, before the elections and not after, to ensure that the reform could no longer be challenged. Doubtless it can be considered a desperate attempt by François Hollande in support of his campaign for re-election and we all know how that ended.

The fact remains that it is a good reform, undoubtedly the most important for decades in the field of taxation. The system formally adopted by the MPs in Autumn 2016 in the context of the Finance Act for 2017 is a good system. In particular, it is based on modern, information technologies (which the German, Swedish, American and British reformers did not have in the inter-war years or World War Two) which enable the transmission in real time and anonymously of all the information required for businesses to apply the correct rate of deduction. All the relevant consultations with tax officials and businesses had taken place, there were no further challenges to the reform, everything was ready for its implementation in January 2018.

Following the productive discussion in Parliament in Autumn 2016, it had even been suggested that taxpayers who so desired could easily choose the application of a neutral rate (which would not take into account any other income they might have, or their family situation) or a customized rate (enabling the spouse who earns less, often the woman, to be deducted at a lower rate than that applied to the other). No other country in history has been able to provide as many guarantees and choices for the implementation of tax deduction at source (this is the advantage of later reforms: we have better technical supports).

When the head reformer buries the reform

In May 2017, along comes a new president, Emmanuel Macron, self-proclaimed 'head reformer' of the country. What did he announce in a press release dated 7thJune, a few days before the first round of the parliamentary elections?- that the implementation of deduction at source had been postponed indefinitely. True; an implementation in 2019 is mentioned. But given that the last postponement for one year dates back to 1999, concern is legitimate. The historical experience of these issues suggests that this type of reform must be implemented at the beginning of the five-year term (quinquennat) especially when they are already fully operational, otherwise there is a high risk of permanent postponement.

All this is particularly worrisome in that the official excuse – that it would place too great a burden on businesses and that the reform was not yet ready – is quite simply not credible.

The German, Swedish, American, British, Dutch, Spanish, Italian etc. businesses have been ready for a century, or half a century (depending on the country) to apply tax deduction at source at a time when information technology did not even exist, and we are being made to believe that French businesses would not be ready to implement this system in 2018? None of these countries has ever reversed this reform and we are still wondering whether France is ready to meet the challenge? The whole thing makes no sense.

The truth is that everyone knows that the real reasons for postponement are elsewhere. It is a question of pleasing the most conservative fringe of business leaders on one hand; but primarily it guarantees maximum visibility for the micro fiscal reform that Macron wishes to implement in January 2018. This is the rise of 1.7% in the CSG (generalized social contributions) enabling the financing of a reduction of 3% in regular social contributions for employees (at the expense of pensioners, in particular). This reform should result in a rise in net salary. Macron wishes this message to come over loud and clear. The implementation of tax deduction at source at the same time might confuse the issue, something which Macron wishes to avoid.

I want to be very clear: this is a particularly lame excuse. Firstly, because taxpayers are perfectly capable of understanding that these two reforms are separate, provided that an effort is made to explain this to them.

Then, because 'fiddling' with the CSG rate and social contributions is particularly untenable in substance. The fact is that retirement pensions of over 1,400 Euros per month are to be cut to raise the monthly salaries of 5,000 Euros, 10,000 Euros or 20,000 Euros. Good luck to the LREM MP's who have to explain the logic of this type of redistribution to their electors. I only hope that when the time comes they will have more common sense than the lead 'reformer'. In this situation, the correct solution would obviously be a reform based on progressive rates, that is lower for the low-income groups and higher for the higher ones, whether it be salaries or retirement pensions.

In any case, it is extremely alarming to see a President take the risk of permanently compromising a reform as structural as the implementation of tax deduction at source, simply to ensure more visibility to a very small tax reform (which, no matter what one might think about the content, is only a minor parametric reform: the rate of an existing tax is being raised, to lower that of another).


Lies and bad faith

The last totally dishonest excuse sometimes relayed by complacent or poorly informed media is that deduction at source would be impossible to implement in France due to the 'familialisation or family-based' aspect of income tax, that is the fact that income tax depends on the family situation (dependent children and spouse). In reality, the same applies in all countries. Throughout the world, in one way or another, income tax depends on the number of dependent children with different systems of taxable income or tax reductions. These systems are indeed different from the family quotient used in France, but the rate of deduction to be applied, in consequence, is also a function of the number of dependent children (sometimes in an even more specific way than in France, given that the family quotient is capped in France), and this in no way prevents tax deduction at source from being applied. It should also be borne in mind that in Germany and in the United States, the calculation of income tax depends also on the income of the spouse, in accordance with a system which is close to the marital quotient in France and, there again, this has in no way prevented the deduction at source from being applied for almost a century now. On all these questions, the French reform offers in reality much more flexibility and confidentiality than all similar reforms applied in other countries.

In conclusion: the government communiqué dated 7 June 2017 announced the postponement of the reform, as if everything had already been decided, discreetly specifying that 'appropriate legislative and regulatory measures would soon be taken to organise the postponement'. In fact, even if the new executive power would very much like to do without the checks and balances of parliamentary oversight, this is happily impossible under our current laws. The reform of tax deduction at source with a clear timetable for implementation was formally adopted by parliament (the Assemblée) in the autumn of 2016. This timetable can only be changed and the reform postponed by a new vote in the Assemblée. It is to be hoped that the LREM MPs will know how to seize this golden opportunity to assert their faith in the democratic renewal, the reform and the modernisation of our country.

 -- via my feedly newsfeed

Enlighten Radio:Labor Beat on Winners and Losers: Railroad Earth, Richard Wolff, Union Edge

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Wednesday, June 28, 2017

Enlighten Radio:The Are You Crazy Day -- Starting with the Fabulous Lou Rawls

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Tuesday, June 27, 2017

Enlighten Radio:Best of the Left Tuesday on Enlighten Radio

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Sunday, June 25, 2017

Enlighten Radio Podcasts:Winners and Losers Podcasts: Coalition on Human Needs, plus Hound dog and Abel Eakin

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Enlighten Radio Podcasts:Two -- Two -- Are you Crazy? PodcastsT

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Fwd: The American Health Care Act by the numbers

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What millions of Americans could lose under the AHCA

In a new Economic Snapshot, EPI's Josh Bivens outlines the economic impacts millions of Americans will face if the Affordable Care Act is repealed and replaced with the American Health Care Act (AHCA). Bivens finds that the AHCA would increase out-of-pocket expenses for American families by $33 billion each year by 2026—in addition to 23 million Americans losing health coverage. Furthermore, the AHCA could slow job growth nationally by 1.1 million jobs in 2020 due to Americans spending more on health care and having less disposable income to spend on other goods.  Read the Economic Snapshot »
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Unpaid congressional internships: Bad for students, bad for policy

Summer has officially arrived in the nation's capital, and with it an influx of summer interns who will work in congressional offices—for no pay. In a new article, EPI's Celine McNicholas finds that at least three-quarters of all House offices employ unpaid interns. At the most basic level, McNicholas writes, unpaid internships undermine the central premise of our nation's labor and employment law—that everyone has a right to be paid for their work. But the lack of paid internships also limits the opportunities of young people whose families cannot afford to finance such an opportunity, ultimately contributing to the institutionalization of socioeconomic disparities.

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On Tuesday, Rep. Rosa DeLauro (D-Conn.) and Sen. Elizabeth Warren (D-Mass.) introduced the Schedules That Work Act, which is designed to give hourly workers more certainty about their work schedules. For millions of hourly workers, a predictable, stable work schedule is rare—leading to unstable earnings and making it difficult for workers to take care of their families. EPI research associate Lonnie Golden explains the significance of the bill, which requires that employees receive sufficient advance notice of schedules and have the right to request schedule changes. EPI's Janelle Jones writes that low-wage workers in particular would benefit from this legislation.

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