Thursday, January 31, 2019

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Krugmaan: Elizabeth Warren Does Teddy Roosevelt [feedly]

Elizabeth Warren Does Teddy Roosevelt

Paul Krugman
America invented progressive taxation. And there was a time when leading American politicians were proud to proclaim their willingness to tax the wealthy, not just to raise revenue, but to limit excessive concentration of economic power.

"It is important," said Theodore Roosevelt in 1906, "to grapple with the problems connected with the amassing of enormous fortunes" — some of them, he declared, "swollen beyond all healthy limits."

Today we are once again living in an era of extraordinary wealth concentrated in the hands of a few people, with the net worth of the wealthiest 0.1 percent of Americans almost equal to that of the bottom 90 percent combined. And this concentration of wealth is growing; as Thomas Piketty famously argued in his book "Capital in the 21st Century," we seem to be heading toward a society dominated by vast, often inherited fortunes.

So can today's politicians rise to the challenge? Well, Elizabeth Warren has released an impressive proposal for taxing extreme wealth. And whether or not she herself becomes the Democratic nominee for president, it says good things about her party that something this smart and daring is even part of the discussion.


The Warren proposal would impose a 2 percent annual tax on an individual household's net worth in excess of $50 million, and an additional 1 percent on wealth in excess of $1 billion. The proposal was released along with an analysis by Emmanuel Saez and Gabriel Zucman of Berkeley, two of the world's leading experts on inequality.

Saez and Zucman found that this tax would affect only a small number of very wealthy people — around 75,000 households. But because these households are so wealthy, it would raise a lot of revenue, around $2.75 trillion over the next decade.

Make no mistake: This is a pretty radical plan.

I asked Saez how much it would raise the share of income (as opposed to wealth) that the economic elite pays in taxes. His estimate was that it would raise the average tax rate on the top 0.1 percent to 48 percent from 36 percent, and bring the average tax on the top 0.01 percent up to 57 percent. Those are high numbers, although they're roughly comparable to average tax rates in the 1950s.

Would such a plan be feasible? Wouldn't the rich just find ways around it? Saez and Zucman argue, based on evidence from Denmark and Sweden, both of which used to have significant wealth taxes, that it wouldn't lead to large-scale evasion if the tax applied to all assets and was adequately enforced.

Wouldn't it hurt incentives? Probably not much. Think about it: How much would entrepreneurs be deterred by the prospect that, if their big ideas pan out, they'd have to pay additional taxes on their second $50 million?

It's true that the Warren plan would limit the ability of the already incredibly wealthy to make their fortunes even bigger, and pass them on to their heirs. But slowing or reversing our drift toward a society ruled by oligarchic dynasties is a feature, not a bug.

And I've been struck by the reactions of tax experts like Lily Batchelder and David Kamin; while they don't necessarily endorse the Warren plan, they clearly see it as serious and worthy of consideration. It is, writes Kamin, "addressed at a real problem" and "goes big as it should." Warren, says The Times, has been "nerding out"; well, the nerds are impressed.

But do ideas this bold stand a chance in 21st-century American politics? The usual suspects are, of course, already comparing Warren to Nicolás Maduro or even Joseph Stalin, despite her actually being more like Teddy Roosevelt or, for that matter, Dwight Eisenhower. More important, my sense is that a lot of conventional political wisdom still assumes that proposals to sharply raise taxes on the wealthy are too left-wing for American voters.

But public opinion surveys show overwhelming support for raising taxes on the rich. One recent poll even found that 45 percent of self-identified Republicans support Alexandria Ocasio-Cortez's suggestion of a top rate of 70 percent.

By the way, polls also show overwhelming public support for increasing, not cutting, spending on Medicare and Social Security. Strange to say, however, we rarely hear politicians who demand "entitlement reform" dismissed as too right-wing to be taken seriously.

And it's not just polls suggesting that a bold assault on economic inequality might be politically viable. Political scientists studying the behavior of billionaires find that while many of them push for lower taxes, they do so more or less in secret, presumably because they realize just how unpopular their position really is. This "stealth politics" is, by the way, one reason billionaires can seem much more liberal than they actually are — only the handful of liberals among them speak out in public.

The bottom line is that there may be far more scope for a bold progressive agenda than is dreamed of in most political punditry. And Elizabeth Warren has just taken an important step on that agenda, pushing her party to go big. Let's hope her rivals — some of whom are also quite impressive — follow her lead.

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 Jan. 29, 2019, on Page A22 of the New York edition with the headline: Elizabeth Warren Does Teddy RooseveltOrder Reprints | Today's Paper | Subscribe

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EPI: The Fed shouldn’t give up on restoring labor’s share of income—and measure it correctly [feedly]

This a wonky article, but it touches on fundamentals questions and factors in considering what constitutes an economically "just" wage, including the impact, and policy adjustments, required by "structural" change WHILE striving toward full employment. Structural is an important, but somewhat squishy term, in economic literature: Here it refers to significant changes (e.g. the IT revolution, or monopolization) in the division of labor and capital -- primarily generated BY the real economy (either consequences or side-effects) --  but that appear to current markets as "externalities" -- i.e. not market forces.

The Fed shouldn't give up on restoring labor's share of income—and measure it correctly

U.S. workers' wages have climbed modestly but noticeably over the past year. EPI's nominal wage tracker shows that in 2015 and 2016, this growth averaged 2.4 percent, in 2017 it averaged 2.5 percent, but in 2018 it accelerated to 2.85 percent—and it surpassed 3 percent growth in the last quarter of the year. This uptick has been long-coming and it took a longer spell of low unemployment to spur it than most would have thought.

3 percent growth for a quarter, however, should not constitute "mission accomplished" in the minds of macroeconomic policymakers like the Federal Reserve. In the long run, nominal wage growth should run at a rate equal to the Fed's inflation target (2 percent) plus the long-trend growth in potential productivity (let's call this 1.5 percent).1 This indicates that even the recent accelerations in wage growth leave us failing to meet these long-run goals.

Even more importantly, wage growth should run substantially above these long-run targets for a spell of time after long periods of labor market slack. The arithmetic reasoning for this is straightforward: any time wage growth runs slower than current rates of inflation plus productivity, the result will be labor compensation shrinking as a share of the economy. The economic intuition is simply that extended periods of labor market slack sap workers' ability to secure wage increases from employers.

This undermining of labor's leverage shows up clearly in the data. EPI's nominal wage tracker, besides charting wage growth over time, also tracks a measure of labor's share of income, precisely to highlight the accumulated shortfall of labor income that policymakers should aim to restore.

Figure A

Measuring the labor share correctly

We think tracking labor's share of income is crucial for policymakers, and that this figure contains lots of interesting insights about macroeconomic dynamics. Before we delve into these insights, however, we should first note that our measure above is not the only way to measure labor's share of income. In particular, a measure obtained directly from the Bureau of Labor Statistics (BLS) productivity series is often referenced. This measure—reproduced below and shown side-by-side with our preferred measure—shows some non-trivial differences in the labor share over time. Most strikingly, the BLS measure has a much stronger long-run downward trend than the measure we use.

Figure B

What explains these differences? Three things: First, our measure examines labor's share in the corporate sector only, while the labor share from the BLS productivity series looks at the broader non-farm business (NFB) sector. Second, our measure uses net, not gross, measures of income. So, our measure strips out depreciation from the income in the denominator of the labor share. Third, our measure strips out the profits of Federal Reserve banks. We think each of these decisions yields a better measure if you want a labor share indicator that sheds light on the relative bargaining strength of workers vis-a-vis employers—below we explain why.

First, we focus on the corporate sector rather than the total economy or even the NFB sector. We make this choice because in the corporate sector all income is either labor income or capital income. Since we are interested in using changes in the labor share as measures of relative bargaining strength between workers and employers, this clean distinction between incomes is useful. In the total economy, there are many income flows that do not necessarily tell us much about this relative bargaining strength. Rental incomes accruing to property-owners, for example, can come at the expense of both workers and their employers, and can in theory reflect land scarcity rather than anything profound about the current state of macroeconomic slack. Proprietor's incomes are a mix of labor and capital incomes, and correctly apportioning which share of these should be chalked up to returns to labor versus capital is near-impossible. The corporate sector divides income cleanly into labor versus capital, and yet remains large enough (accounting for over 70 percent of the U.S. private sector) to provide generalizable findings.

Second, we focus on net measures of income that account for depreciation. Depreciation is the reduction in the value of assets that occurs through wear and tear or technological obsolescence. If income from current production is not used to reinvest and keep the value of the capital stock whole in the face of constant depreciation, this would lead to a smaller capital stock and reduced productivity over time. Hence, depreciation represents a claim on income that cannot boost the living standards of either workers or capital owners. Further, the share of depreciation in corporate sector value-added (as well as its share in total economy gross domestic product) has been rising steadily over time. The reason for this rise is well understood: information and communications technology equipment has been steadily rising as a share of the overall capital stock, and this type of capital depreciates far more rapidly than other types (think of how often you need to replace your laptop or cellphone these days). This steady rise in depreciation is a significant reason why the decline in the labor share shown in the BLS NFB measures is larger than in our measure. Yet the decline in the labor share that's due to the rise of depreciation really doesn't tell us much about labor market dynamics or macroeconomic slack.

Finally, we choose to strip out the profits of Federal Reserve banks for our measure.2In the course of their open market operations (buying and selling bonds to move interest rates), the Fed makes profits. These profits are used to finance the Fed's operations and they remit anything left over to the U.S. Treasury. These profits have very little to do with underlying labor market dynamics or macroeconomic slack. Before 2008, because these profits were generally quite small and relatively stable as a share of corporate sector value-added, they could largely be ignored in examinations of the labor or profit share. Post-2008, however, the Federal Reserve vastly expanded the scale of assets it purchased as part of its effort to hold down long-term interest rates (an effort commonly referred to as "quantitative easing"). This larger balance sheet led to significantly larger Federal Reserve profits during the recovery from the Great Recession. All else equal, this would have led to a further decline in the measured labor share of income. But since these Federal Reserve profits were not the result of increased leverage vis-a-vis workers over implicit wage bargaining, it doesn't make much sense to allow them to depress the labor share measures we're examining for evidence about this relative bargaining strength. In recent years, the Federal Reserve profits have been declining as their balance sheet has shrunk modestly. This would, all else equal, boost the labor share of income, but this boost would not represent increased leverage by workers. Given these considerations, our measure of corporate sector income and profits removes the profits earned by Federal Reserve banks. This again leads to a smaller decline in the labor share when compared to the BLS measures over the whole post-Great Recession period.

What does a correctly-measured labor share tell us about policy?

Assume for the moment that our way of tracking the labor share is better for assessing underlying labor market dynamics and the state of macroeconomic slack. This measure contains a number of interesting findings. One finding, which most might find counterintuitive, is that during recessions (the shaded areas on the chart) the labor share actually tends to rise. This mostly tells us that corporate profits are very cyclical, and fall even faster during recessions than labor income.3 But once the official recession is over, these profits tend to recover much faster than labor income and this leads to a rapid decline in labor's share in the early phases of business cycle recoveries. As recoveries mature and turn into expansions, the reduction in labor market slack eventually allows the labor share to begin making up some of its early-recovery losses.

Another striking feature of our measure of the labor share is how depressed it remains even as we approach 10 years from the end of the Great Recession. This highlights that even wage growth significantly faster than we've seen in recent months can persist for a long time before it necessarily translates into inflation breaching the Fed's 2 percent target. If inflation-adjusted wages start rising faster than economy-wide productivity, this does not necessarily lead to an inflationary wage-price spiral; instead some of this faster wage growth can be absorbed by firms in coming years through a slight reduction in their still quite-fat profit margins. In an earlier paper, we calculated for how long nominal wage growth could outpace the sum of inflation and productivity growth before previous labor share peaks were broached.4 The figure below reproduces these calculations, using the Fed's 2 percent inflation target and productivity growth averages since the beginning of 2017 (1.1 percent), and various scenarios for nominal wage growth.

Figure C

The results are striking. The 3.2 percent wage growth that characterized the last quarter of 2018 would take literally decades and decades to yield a return to the labor share that characterized the last quarter before the Great Recession hit (the last quarter of 2007, or 2007Q4). 3.5 percent growth—the long-run target we referenced before—would only return the economy to the 2007Q4 labor share level by 2031. Even 4 percent nominal wage growth would only see the labor share return to 2007Q4 levels by the end of 2024. We should note here how fundamentally conservative these projections are, in that they assume productivity growth only runs at 1.1 percent in coming years, even as labor markets tighten and wages rise. If productivity growth—spurred by firms looking to make labor-saving investments as wages rise—instead moves closer to its long-run average of 1.5 percent, then it would take even longer at any given pace of wage growth to return to historical labor share levels.

Is it possible that structural changes, not just prolonged labor market slack, have contributed to the fall in the labor share and macroeconomic reflation alone won't be able to claw back this post Great Recession decline? It's possible—and the most-sensible theory for what precise structural change might have led to this is a rise in monopoly power. Empirical research clearly shows upticks in industry concentration ratios, and a number of large and crucial economic sectors (health care and finance, in particular) are characterized by immense pricing power. Other sectors (mostly technology) have also seen waves of consolidation that have not led (yet?) to rapid price growth, but have raised a whole host of concerns about the intersection of economic and political power.

And yet the first priority in setting the conditions for better wage growth remains pushing down the unemployment rate and wringing out any last sign of slack from the labor market. In fact, our examination of labor share indicates that we can't even diagnose the extent of the monopoly problem's effect on wages and incomes until we wring out this labor market slack and spark some wage-driven price inflation.

Consider the recovery following the recession in the early 1990s. Between the third quarters of 1990 and 1997, labor's share of income in the corporate sector fell by almost 5 percentage points. This a big change—a change like that today would translate into about $600 billion being claimed by capital-owners rather than workers. So, this fall in labor's share was large, but it was also quite persistent; seven years is a long time to see the labor share not recover from a recession-induced fall. Because most economists in 1997 thought the economy was clearly at full employment even as sluggish wage growth kept labor share flat, new theories were pushed forward (just like today) about how sluggish wage growth must be being driven by something else besides labor market slack. Skill-biased technological change was the fashionable explanation at the time.

But, three years later, in the third quarter of 2000, labor share was just 0.3 percentage points below its 1990 peak and wages had risen sharply across-the-board. What changed in those three years between 1997 and 2000? Unemployment continued to fall and the share of employed adults (and prime-age adults) continued to rise, tightening up labor markets. The real innovation of this period was a Fed that did not preemptively raise interest rates to choke off falling unemployment; instead they waited for actual wage-driven price inflation to appear in the data. When it didn't, they let the recovery continue.

Today's Fed should follow this advice and assume that the U.S. economy can restore the labor share of income lost during the recovery from the Great Recession; at least until the data tells us that it cannot by showing a large jump in inflation before this share is restored.

This is a preview edition of a new macroeconomic policy briefing that will be published by the Economic Policy Institute before each FOMC meeting. These analyses will take a deep dive into one aspect of monetary or other macroeconomic policies and data. To receive the briefing in your inbox, sign up below.


1. See Bivens (2015) and Bivens (2017) on the rationale for this nominal wage target and for evidence that recent years' productivity malaise should not lead to large downward revisions in estimates of the economy's potential productivity growth rate.

2. We call these "profits" of Federal Reserve banks because that's what the Bureau of Economic Analysis (BEA) labels them in the data. Given that the Federal Reserve system is not a private business, it's a bit of a strange label for lots of reasons, but we'll follow the convention here.

3. This recession-induced rise in the labor share is most striking in the last half of 2008, as the write-off of the value of bad loans in the financial sector was reflected in large, one-time declines in corporate profits, sending labor's share soaring for these quarters.

4. See Figure 7 in Bivens (2015).

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Monday, January 28, 2019

In Davos vs. the new progressives, round one goes to the left [feedly]

In Davos vs. the new progressives, round one goes to the left

There was a revealing moment at this year's World Economic Forum in Davos, Switzerland.

In recent years, as global elites from the business, financial and political spheres — along with the political donor class — have converged at their annual meeting, they have been increasingly hard pressed to celebrate the triumph of neoliberal politics and expanded global connectedness. At the same time, they've been perplexed and discomforted by policy solutions put forth by those outside their Davos bubble to push back on rising inequality.

The moment to which I refer happened when computer executive Michael Dell — who has a net worth of $28 billion — reportedly laughed off calls by Rep. Alexandria Ocasio-Cortez (D-N.Y.) for a 70 percent marginal tax rate for income above $10 million, and challenged the audience to "name a country where that's worked. Ever."


Economist Erik Brynjolfsson was also on the panel and, to his credit, quickly met Dell's challenge with one prominent place: the United States.

From 1913, our average top tax rate was about 60 percent, then from the 1930s to the 1980s, the top tax rate ranged from about 60 to 90 percent (today's top tax rate is 37 percent). Such high top rates "worked" in the sense that they did not obviously dampen growth, which was on average stronger in those years than since, when rates have been lower — a pattern that holds for various other countries as well. To be clear, this is correlation, not causation, but Dell's point was nonsense.

Unless he meant such tax rates "don't work" for him and other denizens of the wealth stratosphere. If so, his point is revealing. Dell's wealth places him near the top of the top 0.001 percent. In recent years, angst in Davos has noticeably increased over the rise of populism, Trumpism, Brexit and the impact of the concentrated wealth the World Economic Forum has come to represent. What there hasn't been, however, is much in the way of policy solutions to correct any of the above.

This is no great revelation: The beneficiaries of the status quo — at least, the one that prevailed before President Trump, Brexit, November's midterms and so on — are rarely the ones to challenge it. That falls to outsiders like Ocasio-Cortez (or AOC as she is popularly known) and those who have long touted the notion of a "rigged economy," like Sen. Elizabeth Warren (D-Mass.), who just introduced a wealth tax on net worth above $50 million. Others, including Sens. Kamala D. Harris (D-Calif.) and Sherrod Brown, (D-Ohio) and Rep. Ro Khanna (D-Calif.), have also proposed significantly progressive tax ideas, in their cases through large expansions of tax credits for lower-income working households.

With all that going on, old boomers like myself can perhaps be forgiven for walking around humming Bob Dylan's"The Times They Are a-Changin'." (Come senators, congressmen/ Please heed the call/ Don't stand in the doorway/ Don't block up the hall) But are they (a-changin')? If so, why and in which direction?

That's too complex a question for one post, so let's narrow it down to progressive taxation. Yes, I think they are. Whether Congress legislates some version of any of these plans is, of course, a function of political outcomes that no one can foresee, but if Democrats control federal politics, I can see the tax code a-changin' in a progressive direction.

Part of that outcome would be driven by a widespread sense among Democrats across their caucus, and including moderates, that the Trump tax cuts were a serious mistake, exacerbating existing market inequalities, robbing the Treasury of much-needed revenue, incentivizing production abroad and opening more loopholes for tax avoidance and evasion. Another motivation, further to the left of the caucus, is the belief that earlier Democratic administrations did not go far enough in this space, nibbling at the edges of inequality instead of trying to take a bigger bite out of it.

The fact that the leftward caucus's ideas are being taken so seriously signals their ascendancy. Another big reason for this spate of progressive ideas is that the moderate wing of the Democratic Party hasn't done enough to push back on inequality, which — as measured by, say, industry and wealth concentration — is getting worse, not better.

Their ascendancy resonates. Who do you think captures the urgency of the current moment in our political economy: the 39th-richest guy in the world laughing off AOC's idea in the Swiss Alps, or AOC herself? Different people will have different answers to this question, but for most of us, I'll bet it's the latter.

At this stage, the usual technocratic suspects, myself included, are trotting out their defenses of and attacks on these ideas. Warren's wealth tax, for example, creates real implementation challenges. Valuing and taxing wealth has largely been outside the scope of our tax system, and it creates the need for a stronger IRS with solid connections to similar agencies in places where wealth goes to hide. (Now there's a bit of global coordination we need to see a lot more of!)

To be clear, such advances are in her proposal.

Arguments that high marginal tax rates on income, closing loopholes or taxing income derived from wealth (e.g., capital gains) will hurt investment, productivity and growth, are a lot harder to sustain, given our history. Research shows much smaller responses to tax changes than conservatives tout and the obvious phoniness of the claims to sell the Trump cuts, which are, in one of least surprising outcomes in the history of tax policy, not "paying for themselves."

But weedy, predictable arguments are not the point right now. What's exciting about this moment are the directional aspirations of the most diverse group of progressive policymakers we've ever seen at the federal level.

Sticking with Alpine references, I don't mean to lean too far over my skis. But it's possible that the sun is setting on the Davos elites and rising on bold, progressive policymakers.
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Working Class Perspectives The Ghosts of Bisbee [feedly]

There is economics, and then their human consequences..

The Ghosts of Bisbee

by Working Class Perspectives.

Bisbee '17 is a documentary about an Arizona town facing its ghosts.  In June 1917, when copper miners organized by the Industrial Workers of the World had gone on strike for two weeks, 1200 striking workers were rounded up and "deported" to New Mexico. The owner of the mine, the Phelps-Dodge Company, also owned the hospital, department store, library, newspaper, main hotel . . . in other words, Bisbee was a company town. In 1917, everyone had been forced to take a side, and only those on the company's side remained in Bisbee. Like many towns with one employer, family and community were torn apart by the strike and deportation. One hundred years later, as the film shows, the town reenacted the event.

Unfortunately, viewers will learn very little about the historical event from the film. Instead, we witness the former mining community recreate an event from the pseudo memories of transplants to Bisbee and the grandchildren of deported miners and armed deputies who rounded-up strikers and their families. Residents play the roles of strikers and deputies, reenacting the armed capture of peaceful strikers who were herded into the ballfield and then stuffed into freight cars.

As the community planned for the one-hundred-year celebration of the Bisbee Deportation, they chose a path common to American historical sites: create art, sing songs, and stage the event as a tourist attraction. The film shows community members trying to understand both sides: miners striking for more pay and safer working conditions and others who argued the company's perspective — that the IWW threatened the war effort as well as the livelihood of the town. To capture all sides, the usual tropes prevail. The "Mexican family" is represented by a young man whose mom was deported to Mexico when he was seven and who "nurtured himself" growing up. The woman posing as his mother in the enactment is a Republican Country Clerk who views her acting as "kinda like a novella." However, labor history is not a soap opera. Bisbee '17 shows us how the reenactment can be cathartic as town therapy, but a closer look at Arizona's recent history of deportation shows the ghosts were not exorcized.

The Bisbee Deportation has been well documented in newspaper articles; local, state and federal government officials' correspondence; and court proceedings from law suits filed by the deportees and charges against participants in the deportation. Sheriff Harry C. Wheeler had deputized the Citizens' Protective League or Loyalty Leaguers to roundup strikers, strike sympathizers, and others from their homes, restaurants, stores, and on the street. On July 12, 1917, they were loaded onto twenty-four cattle and box cars and sent to Columbus, New Mexico, where they were met by armed guards who kept them from detraining. The box cars of people were then taken to Hermanas, New Mexico — all without adequate food or water. Later they were returned to Columbus, held by military authorities, and eventually released, but not allowed to return to Bisbee.  Civil and criminal suits were filed against the Phelps-Dodge, persons involved in the kidnapping, and the El Paso and Southwestern Railroad for providing the trains for the deportation. A financial compromise was reached, and no trial was held. Although both federal and state charges were filed against the sheriff and government and business officials for their participation, no one was punished.

The labor history of the Bisbee Deportation may have been forgotten by current Arizona residents, but we don't have to look back a century to find an Arizona sheriff deputizing a posse to assist in the deportation of unwanted immigrant workers. Maricopa County Sheriff Joe Arpaio, who held that post for 24 years, established the "illegal immigration operations posse" in 2011 to round up undocumented immigrants working in construction, landscaping, or restaurants as well as people who were walking or driving to home or work. Although Arpaio claimed these raids were "crime sweeps," few of the immigrants arrested had criminal records. Along with county sheriffs, members of the posse participated in immigration sweeps targeting and terrorizing Latino communities in Maricopa County.

Protests against the raids were met with same rationale as the "Law of Necessity" used to justify the Bisbee deportation: the immigration system is broken, the federal government is not responding, so the sheriff took control. Federal funding from ICE's partnership initiatives to work with local law enforcement, the 287(g) agreement, lured local authorities across the county to participate in immigration law enforcement, moreover huge profits are being made by privately-owned detention centers. Over the last decade hundreds of immigrants were held in detention centers, separated from their families, and deported. Remarkably, the organizers of the Bisbee reenactment cast someone who had worked in the private prison and deportation industry to play the sheriff, linking the two events.

Just as in the Bisbee Deportation, lawsuits were filed and eventually the class action lawsuit, Ortega Melendres vs. Arpaio found the sheriff had targeted Latino drivers and passengers in violation of the Equal Protection Clause of the Fourteenth Amendment. The court mandated changes that the sheriff ignored, and his posse continued to enforce immigration after losing the federal 287(g) agreement to work with ICE. Arpaio was found in contempt of court, but before he could be sentenced Trump pardoned him. Like Sheriff Wheeler, Sheriff Arpaio was never punished for his crimes.

Trump's policy of zero tolerance has deported many workers and broken up families, including many long-time residents, homeowners, and respected members in their communities. We have witnessed hundreds of asylum seekers deported without due process, families separated, and parents and children detained in privately-owned detention centers. Recently the Southwest Key Program, the largest private operator of shelters for migrant children, came under federal investigation for misappropriating government funds. Many still find deportation to be good for business.

A century from now, will Arizonans stage another play about deportations? Will the actors and residents play migrants and ICE?  Sheriff Arpaio and members of his posse? Will some play the parents and children separated at the border or dragged from their homes during the early morning? Will we, too,  tell this story using a passive voice — "men died," "life went on," "mistakes were made"? Clearly, Bisbee and the state have not exorcised their ghosts.

Mary Romero and Eric Margolis

Mary Romero is a Professor at Arizona State University and the author of several books on domestic workers and on intersectionality, including Introducing Intersectionality. She is President of the American Sociological Association.

Eric Margolis is a visual sociologist and the author of numerous works on the hidden curriculum in higher education. Most of his work can be found on his website. 

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Sunday, January 27, 2019

The World Economy Just Can’t Escape Its Low-Growth, Low-Inflation Rut [feedly]

The World Economy Just Can't Escape Its Low-Growth, Low-Inflation Rut

Fears of an imminent recession, which caused major turbulence in financial markets at the end of 2018 and beginning of 2019, have eased a bit.

That's the good news. The bad news is what that episode exposed.

For much of 2018, it appeared that the world economy was finally getting out of the rut it had been stuck in for the decade since the global financial crisis. But it now looks as if the era of persistently low growth, low inflation and low interest rates isn't over after all.

In the past week alone, the European Central Bank said that economic risks had "moved to the downside," and the Bank of Japan cut its projections for inflation.

The Federal Reserve will hold a policy meeting Tuesday and Wednesday, and is likely to leave its interest rate target unchanged. Its leaders could also discuss their broader strategy for making monetary policy, which may include keeping more of their giant portfolio of bonds — accumulated during its years of stimulus efforts — than analysts had once expected.


Despite some promising signs of vitality during much of last year, issues that have dogged the world economy for the last decade — an aging work force in many of the biggest economies, weak growth in productivity, excessive global savings and industrial capacity, and a shortage of worldwide demand — haven't disappeared.

That helps explain why American workers' wages have been rising relatively slowly despite a low unemployment rate. And it makes for a perilous time: Low growth rates mean the economy could slip into recession more easily, and low interest rates mean central bankers would find themselves with less powerful tools to lessen the pain of a future downturn.

"This shows that the forces that are restraining many economies are a lot harder to contend with and more pervasive than many people were hoping or believing," said Roberto Perli, a partner in Cornerstone Macro. "It's bad news for the work force's earnings prospects in many countries and for those who hope for a reversal of the growing inequality trend that has been in place for many years."

Consider that markets went haywire in the final weeks of 2018 in significant part because of fears that the Federal Reserve was raising rates by more than the economy could handle. Jerome Powell, the Fed chairman, played a big role in fueling a stock market rebound when, on Jan. 4, he pledged that the Fed would adjust policy "quickly and flexibly" as conditions warranted.

His predecessor, Janet Yellen, went so far as to say recently that "it's very possible we may have seen the last interest rate hike of this cycle." But what does it mean when a mere 2.4 percent interest rate — the rough level of the Fed's target after a December increase — is enough to risk breaking the economy?

The story is even more pessimistic in the European Union, where interest rates are slightly below zero and yet growth is faltering.

With the world economy heavily reliant on stimulus to achieve even meager growth, there is little cushion for a negative shock. In particular, it makes the United States more vulnerable to recession caused by any number of factors, including government shutdowns and trade wars.

Adam Posen, president of the Peterson Institute for International Economics, said, "If this is what growth and investment look like when there is relatively loose monetary and fiscal policy — especially in the U.S. — the underlying strength just isn't there.

"That doesn't mean policy is ineffective or ill-advised. Things would be much worse, unnecessarily, if policy tightened a lot. But it is scary to think of the world economy absent macro support," meaning the stimulus provided by low interest rates and large deficits.

There is the risk of a nasty feedback loop. The low-growth trap of the last decade — and the resulting stagnant incomes — might have contributed to dysfunctional politics in nations including Britain, Italy and the United States. Those dysfunctional politics in turn can create new risks of economic disruption, as we saw in the recent shutdown standoff in Washington.

Last year began with signs of a new economic era. In early February, the stock market was falling amid concerns that the United States economy was overheating; that wages and prices would start rising too fast; and that the Fed would need to raise interest rates faster to rein things in. Shifts in bond markets suggested investors were betting on higher future inflation, and on higher interest rates in the distant future than in the near future.

For the first time in ages, most of the major advanced and emerging economies were enjoying simultaneous growth surges. As 2018 progressed, inflation in the United States finally moved back up to the 2 percent level that the Federal Reserve targets, and the Fed's pattern of once-a-quarter rate increases became mostly a nonevent in markets.


It was starting to look as if the old economic rules — that low unemployment would translate into higher inflation, that large government deficits would crowd out private investment — were becoming true again.

But in the sell-off that knocked about 10 percent off the S&P 500 from the start of October to Christmas Eve, long-term interest rates fell by more than half a percentage point. Bond prices pointed to lower future inflation, as did plunging oil prices.

The expected annual inflation rate in the next decade — reflected in the price of inflation-protected bonds — rose to 2.18 percent in April 2018 from 1.66 percent in June 2017. It hovered in the 2.18 range for a few months, then plunged in late October to a recent low of 1.7 percent.

And prices in futures markets reflected expectations that the Fed would enact no more interest rate increases in 2019. Even as the consensus view of Fed officials at their December meeting was that two interest rate increases were on tap for 2019, markets were essentially flashing a signal of "Oh no, you don't."

At the same time, weaker growth in China — a reported 6.6 percent in 2018, still strong by American or European standards — removes a source of strength for the global economy. China is trying to wean itself off debt-driven growth.

"Chinese policymakers are well aware they probably have a credit bubble and have tried to be more temperate in response to the current slowdown," said Julia Coronado, president of MacroPolicy Perspectives. "But it is hard to accept low growth potential. We see the political instability that that brings around the world, and China is now faced with the uncomfortable decision of re-initiating stimulus or living with notably slower growth."

The world economy is not in crisis. Low growth is better than no growth — or outright contraction.

But what the last few months have made clear is that the forces that have held back the global economy for the last 11 years are not temporary, and have not gone away. And that, in turn, makes the world uncommonly vulnerable to a bout of bad luck or bad policy.

The low-growth world was not just a phase. It's the new reality beneath every macroeconomic question and debate for the foreseeable future.

Neil Irwin is a senior economics correspondent for The Upshot. He previously wrote for The Washington Post and is the author of "The Alchemists: Three Central Bankers and a World on Fire." @Neil_Irwin • Facebook

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Friday, January 25, 2019

Fwd: Government Shutdown - temporary funding deal (thank you!)

---------- Forwarded message ---------
From: Chip Shannon <>
Date: Fri, Jan 25, 2019 at 4:36 PM
Subject: Government Shutdown - temporary funding deal (thank you!)
To: John Case <>

To:     All State Federations and Area and Central Labor Councils
Re:    Government Shutdown - temporary funding deal

THANK YOU! Because of your work - including nearly 25,000 calls to senate offices and almost 50 collective actions held just today - the White House just announced a deal to temporarily re-open the government. 

This is what we know about the deal:
  • votes in the Senate, then the House, may happen as early as this evening,
  • the deal will fund the government through February 15,
  • federal employees will receive backpay, but
  • there are currently no solutions for the hundreds of thousands of federal contractors who have lost a month of work.
For now, we encourage you to take the following actions:
  • please work to keep pressure on the White House and Congress to pass a permanent funding bill by February 15
  • please continue to circulate our toll-free hotlines (Senate: 866-803-8830 & House: 855-976-9914) so union members can contact their members of Congress
  • please call the 52 senators who voted yesterday for the clean bill to re-open the government
  • continue to use our toolkit ( for social graphics, content and resources
In solidarity,

Chip Shannon | AFL-CIO
Assistant Director | Political, Electoral & Issue Mobilization

John Case
Harpers Ferry, WV
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Senator Warren’s plan to tax the ultrawealthy is a smart idea whose time has come. [feedly]

Senator Warren's plan to tax the ultrawealthy is a smart idea whose time has come.

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Progressives must end the shutdown. But we can’t fight on Trump’s preferred turf. [feedly]

Bernstein nails a key aspect of the shutdown -- this is a genuine, serious,  political and institutional crisis.  And its bigger than Trump, as urgent as the need for his ASAP removal from office may be.

Progressives must end the shutdown. But we can't fight on Trump's preferred turf.

 Were he writing op-eds today, Tolstoy might point out that all shutdowns are dumb, but that this one is the dumbest.

What makes it so dumb? Do I really need to answer that? Suffice it to say that this Congress, which can't agree on anything, agreed to appropriate the money needed to avoid a shutdown, until President Trump swooped in at the last minute and blocked the deal, based on pressure from his base to "build the wall." No one, including Trump, knows what "the wall" is, beyond a campaign slogan.

True, spineless Senate Republicans won't stand up to Trump on this, but the fact remains: If one stubborn, ill-informed person can shut down the government of the world's largest economy and keep it that way for more than a month, something very important is very broken. And it's going to take a lot more than ending the shutdown to fix it.

For now, 800,000 furloughed or unpaid government workers are feeling the direct brunt of this idiocy, but consider that Trump's chief economist, Kevin Hassett, warned that the shutdown is doing so much damage to the economy that it could mean that the real gross domestic product growth rate this quarter will be zero. As I'll explain in a moment, I suspect he's wrong, although quarterly numbers are volatile, so you never know.

But what is Hassett saying here? Is he trying to send his boss a message? Trump explicitly owns the shutdown, so I can't be the only one having trouble wrapping the aging noggin around his administration complaining about its effect. They could stop it by the time I finish writing this missive! Hassett warning about the shutdown's effect is like a mugger warning you that if he doesn't cease and desist, you might get hurt.

Ironically, if the government remains partly shut down through March — an unprecedented disaster — we won't learn the GDP growth rate for the current quarter because the Commerce Department won't release it. But let's think about the macroeconomics of this a bit.

Last seen, real GDP growth was trending at a 3 percent rate, goosed by a tight labor market generating moderate real wage gains, which in turn support solid consumer spending. Because such spending is 68 percent of our GDP, that's a decent tail wind. True, a variety of head winds, including higher interest rates, weaker home sales, slower global growth and, yes, team Trump repeatedly kicking the ball in our own goal — trade war, shutdown — are expected to shave maybe one-half a percentage point off the trend (more if the shutdown persists). That gets us into the 2 percent range, although technical factors could slice a bit more off the rate (in recent years, first quarter GDP has been over-adjusted down for seasonal effects).

That's not zero, but again, these numbers — if they come out! — are noisy, so who knows? Also, as Hassett noted, some of this lost growth comes back when the shutdown ends and government spending ramps up more than it would have otherwise.

Is there any way out of this seemingly never-ending dumbness?

I'm not just talking about ending the shutdown, although that's the first imperative. Perhaps the Senate votes that are scheduled for Thursday, although not expected to pass, will be the beginning of the end. If not, and I don't say this lightly, I'd urge Transportation Security Agency workers to engage in either a massive sickout or a strike, the latter of which would be illegal and is thus not without risk (although working without pay shouldn't be legal either). Shut down air travel and you un-shutdown the government in about an hour, I'd bet. I acknowledge that it's easy to tell other people to engage in civil disobedience, although I guarantee you, I wouldn't be the only progressive to join that picket line.

But what I'm talking about — and what so many of us are longing for — is to get away from arguments about "the wall" and whether and where Trump will give his State of the Union address (because of the expected content of that speech, I can think of no less pressing question), to the policy debates we're not having. We're existentially threatened by climate change. That's partly a function of inadequately regulated capitalism that's also delivering monopolistic dominance in key industries (tech, health, retail) and oligarchic levels of income and especially wealth inequality. Our pay-to-play political system maps such wealth concentration onto the least representative politics and policies that many of us have seen in our lifetimes.

Trump and Brexit and authoritarian leaders worldwide offer easy answers to these challenges: It's the elites, it's the immigrants, it's people who don't look like you. More often than not, they do so while appropriating even more wealth for themselves, their families and their donors.

Let's be very clear about this: Such leadership loves the fight between "Nancy and Don" about the State of the Union. This is the only type of fight Trump's knows. Beyond serving up tax cuts and deregulation to their donor base, and the "wall-that-Mexico-will-fund" to their political base, they got nothing.

Again, ending the shutdown is the first order of business. But at the same time, progressives must cordon off the crazy and start intensely facilitating and planning for the essential shift in political power. I've been trying to help on the policy front and will continue to do so.

But we all need to row in the same direction on this one, by which I decidedly don't mean we have to agree on the way forward. Let's argue about Medicare for More vs. Medicare-for-all, and job subsidies vs. job guarantees, and where to set the top marginal rate. But every minute spent fighting on Trump's turf is a minute wasted in the greatest cause of this moment: the one to revitalize representative democracy.

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Senator Warren’s plan to tax the ultrawealthy is a smart idea whose time has come. [feedly]

Senator Warren's plan to tax the ultrawealthy is a smart idea whose time has come.

Sen. Elizabeth Warren (D-Mass.) has just introduced a tax idea this country desperately needs: a tax on high-end wealth. It's an idea that's well-crafted for our time, one that promises to add fairness to an unfair tax code, raise significant, much-needed revenue and push back on the historically high level of wealth concentration in the United States.

Here's the plan, which, for the record, is extremely simple to explain, an advantage when it comes to tax policy: Wealth over $50 million would be taxed at 2 percent; wealth over $1 billion would face an extra 1 percent tax. "Wealth" is defined as net worth — the value of assets minus any debts.

That's it. It is projected that the tax would raise about $2.75 trillion in revenue over 10 years. To get a sense of that magnitude, recall that the Trump tax cuts lost less revenue (just under $2 trillion) than this tax allegedly gains. That's a lot of tax progressivity pushing back on the highly regressive Trump cuts.

According to wealth scholars Emmanuel Saez and Gabriel Zucman (S&Z), less than 0.1 percent of households (the top tenth of the top 1 percent), about 75,000 of them, would face this new tax, which raises the question: How could such a small tax on such a tiny base raise so much money? The answer speaks to the extent of wealth concentration.

S&Z find that since the 1970s, the share of total wealth held by the top 0.1 percent grew by a factor of almost three, from 7 percent in the late 1970s to 20 percent in recent years. Moreover, the top's gain has been everyone else's loss: The bottom 90 percent of households have gone from holding 35 percent of wealth in the 1970s to 25 percent today. In other words, the top 0.1 percent's wealth holdings aren't that much less than those of the bottom 90 percent.

It's notable in this context that wealth tends to be about twice as concentrated as income, in part because it feeds on itself. The "miracle of compounding" is a tremendous force for those sitting on a large pile of large assets. It's also terribly skewed away from minorities. As Valerie Wilson has shown, the black/white median income ratio is about 60 percent. For net worth, it's 10 percent.

Narrowing the scope within the top 0.1 percent to the 75,000 households with net worth above $50 million yields a base of more than $9 trillion, of which about $2.5 trillion would face the billionaire's surcharge of an extra 1 percent. In other words, the small tax delivers a large revenue payload because there's so much wealth concentrated in that rarefied bit of the stratosphere.

The plan's $2.75 trillion score implies the ability to capture a lot of wealth that's sheltered from taxation, so it must be robust to tax avoidance and evasion, of which there's a lot among this crowd (remember the "Panama Papers"?). One important feature in this regard is that no assets are given favorable treatment: All the assets of households above the threshold are included in the net worth measurement, regardless of where in the world such assets reside.

To meet this goal, the plan includes a significant increase in the Internal Revenue Service's enforcement budget, a minimum audit rate for the wealthiest taxpayers, a 40 percent "exit tax" on those above the $50 million threshold who renounce their citizenship and — among the most important parts of this — anti-evasion mechanisms to share information with foreign governments. Still, these are folks with the best tax lawyers money can buy, so the score assumes that households subject to the tax find ways to reduce their liability by 15 percent.

All that said, as S&Z themselves recently pointed out in a must-read commentary, revenue isn't the only rationale for such progressive taxation. It's also about "regulating inequality and the market economy" and, even more so, "safeguarding democracy against oligarchy." In that context, they make two critical points. First, top U.S. tax rates are much lower than they've ever been in our history, and, second, despite fact-free rhetoric to the contrary, there's no negative growth impact from high top rates, either here or in other advanced economies.

Still, you can be sure we'll hear massive sob stories about how the Warren high-net-worth tax will crush capital investment. Don't believe it, for at least three reasons. First, the historical record fails to show a correlation between changes in taxes, including those on capital gains (income derived from wealth) and business investment. Second, the Trump tax cuts, which were explicitly targeted at investment, have very little to show for it. Third, even if there were a negative effect, we're talking about tax rates of 2 percent or 3 percent, so any such "elasticity" would be barely tweaked by this tax.

S&Z's sage warnings on inequality and oligarchy raise what is perhaps the most important attribute of this idea: the taxation of wealth, something we do almost none of in this country. Especially when it comes to the rich and their contemporary portfolios, this makes no sense. We tax income, of course, but for the wealthy, income streams flow from wealth in the form of interest, dividends and capital gains. True, we tax those forms of incomes, but at favorable rates, privileging wealth-derived income over work-derived income. In fact, S&Z find that the Warren tax would raise taxes paid by the wealthiest households as a share of net worth from 3.2 percent to 4.3 percent, compared with 7.2 percent for households in the bottom 99 percent. One way to further close the remaining regressive gap between those rates would be to lower the threshold of the plan from $50 million to something like $20 million or $30 million.

But perhaps the main reason to bring Warren's plan to fruition is because, as Zucman writes, "For the rich, wealth begets power." This is especially the case in our pay-to-play politics, where the high wealth concentrations documented above buy the policies that block ideas just like this one.

In other words, to give Warren the last word, the economy — more precisely, the tax code — is rigged. True, this plan isn't going to become law anytime too soon, but those of us longing to de-rig the economy are in it for the long haul. So, thanks, Senator, for providing us with an inspiring idea whose time has come.

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How a Basic Income can Battle the 8 Giants of a Faltering Economy [feedly]

How a Basic Income can Battle the 8 Giants of a Faltering Economy

The post-1945 income distribution system is irretrievably broken, threatening the market economy. And traditional redistributive tools such as direct taxes, collective bargaining, and labor regulations cannot put things right.

In 1942, William Beveridge issued an epoch-defining report that established a model for welfare states in the post-war era. He recognized that the old social protection system had broken down and that it was "time for revolution, not for patching." The challenge, Beveridge said, was to slay five giants: disease, idleness, ignorance, squalor, and want.

Today, it is the post-1945 income distribution system that has broken down irretrievably, threatening economic failure and jeopardizing what Klaus Schwab calls "Globalization 4.0." Today we must fight eight new giants. To do so, we urgently need a twenty-first-century income distribution system in which a basic income plays a central role. Such a system might not slay today's eight giants, but it would significantly weaken them. 

The first giant is inequality – the huge growth in income and wealth disparities within countries that goes well beyond what is captured by measures such as the Gini coefficient. An increasing share of total income is being captured as rent by owners of physical, financial, and so-called intellectual property. Meanwhile, real wages have stagnated or fallen, and ever more people are falling through widening holes in the social safety net. Traditional redistributive tools such as direct taxes, collective bargaining, and labor regulations cannot reverse these structural shifts, however much those on the left might wish. 

What is needed is a new income distribution system that restores the market economy rather than distorting it. By recycling rents currently taken by the plutocracy and elite to everybody, a basic income paid as a common dividend would be the anchor of a reformed system. Contrary to what some critics assert, a basic income would not be regressive. Paid equally and quasi-universally from rentier income, it would necessarily be progressive. 

The second threat is economic insecurity. The welfare state was supposed to insure workers against contingent risks and shocks. But it is failing because of reduced social insurance coverage, flexible labor markets, and widespread technological disruption, among other causes. Moreover, today's economic insecurity is characterized by uncertainty about the future rather than known risks. People feel threatened by "unknown unknowns" that, by definition, cannot be insured against. In an open, globalized economy, only a basic income can guarantee basic security.

The next giant, and closely related to the first two, is debt. Millions are living on the financial edge, with unpaid rents, utility bills, and high-cost credit cards. A significant rise in interest rates or an economic downturn could trigger an avalanche of distress. True, a basic income would not solve the debt problem, but pilot projects show that when people know a regular amount is coming in, they are likelier to pay down debts and gain greater control of their finances.

Fourth, and again related, is stress. This is a global pandemic, with an increasing number of people suffering from depression, mental illness, suicidal tendencies, and physical ailments linked to job pressures, insecurity, inequality, and feelings of inadequacy among many people who perceive themselves to be just "licking at the window" of consumerism. A basic income would not cure the stress pandemic, but it would reduce its intensity and prevalence.

The fifth giant is the ever-growing precariat – the millions of people who face a bits-and-pieces life of unstable, often unpaid labor, having to rely on money wages alone. They are supplicants, without what sociologists call "agency," who depend on discretionary favors from bureaucrats, family members, and occasional employers. A basic income would offer much-needed respite to these people and make them feel less like beggars.

Robots are the sixth danger. I am skeptical about the alarming predictions of tech gurus and economists who believe that artificial intelligence and technological wizardry will soon lead to mass displacement of humans. Still, the ongoing tech revolution is undoubtedly disruptive and, although it may accelerate growth, it will continue to intensify inequalities. A basic income would help to share the gains more widely.

The threat of extinction from global warming and the ecological catastrophe is the seventh giant that must be confronted, and it may prove to be the most decisive in mobilizing support for a basic income. The threat must be combated with new and increased eco-taxes or levies. Returning the proceeds of "green" levies to people as equal common dividends – a form of basic income – would turn unpopular regressive measures into progressive ones. This is already happening in Canada, led by a successful initiative in British Columbia. What's more, our research shows that a basic income would tilt economic activity toward personal services, community, and voluntary work, reducing the yawning "care deficit" in aging societies.

The eighth giant blocking the way to a flourishing, inclusive economic system is populism, which in some cases is fast becoming neo-fascism. Support for populists also has grown dramatically in Europe, no doubt owing to chronic economic inequality, insecurity, debt, stress, and anger. A basic income would make many more people feel like valued citizens with a stake in democracy.

I have worked on basic income policies for three decades, and I have been involved in piloting variants on four continents. As the economic, political, and environmental threats to our future multiply, rolling out a universal individual basic income is more important than ever.



Guy Standing, Professorial research associate, School of Oriental and African Studies, University of London.

This first appeared on the World Economic Forum's Agenda blog.

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