The curse of corruption can kill any campaign, or government. And the best you can do is minimize it. Scarcity and inequalities will infect pay-to-play with blandishments. But how many? Polls say corruption in public is one or two issue for many. IMF has good data on this globally.
The costs of corruption run deep. Your taxpayer dollars are lost in different ways, siphoned off from schools, roads, and hospitals to line the pockets of people up to no good.
Equally damaging is the way it corrodes the government's ability to help grow the economy in a way that benefits all citizens.
And no country is immune to corruption. Our Chart of the Week from the Fiscal Monitor analyzes more than 180 countries and finds that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.
The chart shows that overall, the least corrupt governments collect 4 percent of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.
A few countries' reforms generated even higher revenues. Georgia, for example, reduced corruption significantly and tax revenues more than doubled, rising by 13 percentage points of GDP between 2003 and 2008. Rwanda's reforms to fight corruption since the mid-1990s bore fruit, and tax revenues increased by 6 percentage points of GDP.
These are just two examples that demonstrate that political will to build strong and transparent institutions can turn the tide against corruption. The Fiscal Monitorshines a light on fiscal institutions and policies, like tax administration or procurement practices, and show how they can fight corruption.
The costs of corruption run deep.
Where there is political will, there is a way
Fighting corruption requires political will to create strong fiscal institutions that promote integrity and accountability throughout the public sector.
Based on the research, here are some lessons for countries to help them build effective institutions that curb vulnerabilities to corruption:
Invest in high levels of transparency and independent external scrutiny. This allows audit agencies and the public at large to provide effective oversight. For example, Colombia, Costa Rica, and Paraguay are using an online platform that allows citizens to monitor the physical and financial progress of investment projects. Norway has developed a high standard of transparency to manage its natural resources. Our analysis also shows that a free press enhances the benefits of fiscal transparency. In Brazil, the results of audits impacted the reelection prospects of officials suspected of misuse of public money, but the impact was greater in areas with local radio stations.
Reform institutions. The chances for success are greater when countries design reforms to tackle corruption from all angles. For example, reforms to tax administration will have a greater payoff if tax laws are simpler and they reduce officials' scope for discretion. To help countries, the IMF has built comprehensive diagnostics on the quality of fiscal institutions, including public investment management, revenue administration, and fiscal transparency.
Build a professional civil service. Transparent, merit-based hiring and pay reduce the opportunities for corruption. The heads of agencies, ministries, and public enterprises must promote ethical behavior by setting a clear tone at the top.
Keep pace with new challenges as technology and opportunities for wrongdoing evolve. Focus on areas of higher risk—such as procurement, revenue administration, and management of natural resources—as well as effective internal controls. In Chile and Korea, for example, electronic procurement systems have been powerful tools to curtail corruption by promoting transparency and improving competition.
More cooperation to fight corruption. Countries can also join efforts to make it harder for corruption to cross borders. For example, more than 40 countries have already made it a crime for their companies to pay bribes to gain business abroad under the OECD anti-corruption convention. Countries can also aggressively pursue anti–money laundering activities and reduce transnational opportunities to hide corrupt money in opaque financial centers.
Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.
Trump Tantrums the Dems Out of a Trap - Paul Krugman I gotta say, it was very clever of Nancy Pelosi to steal Donald Trump's strawberries, pushing him over the edge into self-evident lunacy. As everyone knows, Trump stormed out of a meeting on infrastructure, apparently out of uncontrollable rage over Pelosi's remarks pointing out that the administration's stonewalling on all fronts, including raw defiance of the law requiring that it provide the president's tax returns, obviously amount to a coverup of something (and maybe multiple things.) And Democrats should be grateful. ...
Advertising as a major source of human dissatisfaction - VoxEU Although the negative impact of conspicuous consumption has been discussed for more than a century, the link between advertising and individual is not well understood. This column uses longitudinal data for 27 countries in Europe linking change in life satisfaction to variation in advertising spend. The results show a large negative correlation that cannot be attributed to the business cycle or individual characteristics.
Vietnam Looks To Be Winning Trump's Trade War - Brad Setser Vietnam's exports to the U.S. are growing fast. It also runs an overall current account surplus. If it has resumed purchasing dollars in the foreign exchange market to keep its currency from appreciating, it may soon be a test case for Trump's policy toward countries that intervene to maintain an undervalued currency.
Robert Heilbroner (1996): The Embarrassment of Economics - Brad DeLong I am approaching an age that can be called venerable, a process over which I have no control but which allows me certain privileges, among them saying outrageous things. This, I must warn you, is an outrageous speech, all the more so because it is delivered in dead earnest, despite a certain flippancy that may intrude from time to time. The subject is the degeneration—I am tempted to say "degeneracy"—of economics, a social discipline I hold, or rather wish I could hold, in the highest regard. Let me describe my own introduction to economics.
Which Core to Believe? Trimmed Mean Versus Ex-Food-and-Energy Inflation - Dallasfed.org Twice since 2014, core personal consumption expenditures (PCE) inflation—inflation excluding food and energy—decelerated sharply, only to ultimately reverse course. The Dallas Fed's Trimmed Mean PCE inflation rate correctly identified the downward moves as transitory, and looked through them (Chart 1). Chart 1: Sperate Measures Depict Two Very Different Pictures of Inflation Downloadable chart | Chart data Giving more weight to one or the other of these inflation measures would have led to rather different assessments of appropriate policy. Recent data suggest that another divergence is emerging, and the conflicting signals have brought renewed attention to the trimmed mean. We argue here that the trimmed mean, which excludes the most extreme price changes in consumer goods and services each month, provides better real-time signals of the trend in all-items (headline) inflation than does the usual ex-food-and-energy measure. Along the way, we discuss the "why" and "how" of the trimmed mean's construction. In a follow-up piece drawing on some of our recent research, we'll explore another trimmed mean advantage over ex-food-and-energy inflation: its stronger, more stable response to cyclical conditions. ...
Is the U.S. budget deficit sustainable? - MacroMania The U.S. federal budget deficit for 2018 came in just shy of $800 billion, or about 4% of the gross domestic product (the primary deficit, which excludes the interest expense of the debt, was about 3% of GDP). As the figure above shows, the present level of deficit spending (as a ratio of GDP) is not too far off from where it was in the late 1970s and early 1980s. It's also not too far off from where it was in the early 2000s. Of course, the question people are asking is whether deficits of this magnitude can be sustained into the foreseeable future without economic consequences (like higher inflation). In this post, I suggest that the answer to this question is yes, but just barely. ...
An old result on automation and wages – Digitopoly The first issue of AER Insights is out and the very first article is one by Francesco Caselli and Alan Manning on "Robot Arithmetic: New Technologies and Wages." Here is the abstract: Existing economic models show how new technology can cause large changes in relative wages and inequality. But there are also claims, based largely on verbal expositions, that new technology can harm workers on average or even all workers. This paper shows—under plausible assumptions—that new technology is unlikely to cause wages for all workers to fall and will cause average wages to rise if the prices of investment goods fall relative to consumer goods (a condition supported by the data). We outline how results may change with different assumptions. The key result is that new technology will not cause wages for all workers to fall and, indeed, should increase average wages if the price of capital falls relative to consumer goods. This is a good, clean theoretical result that is far from appreciated by people who discuss things like automation in the popular press and even by those who study the impact of automation on labour markets. ...
Why Did the US Labor Share of Income Fall So Quickly? - Tim Taylor The share of US national income going to labor was sagging through the second half of the century, but then plunged starting around 2000. The McKinsey Global Institute takes "A new look at the declining labor share of income in the United States" in a report by James Manyika, Jan Mischke, Jacques Bughin, Jonathan Woetzel, Mekala Krishnan, and Samuel Cudre (May 2019). Here's a figure showing basic background. From 1947-2000, the labor share of income fell from 65.4% to 62.3%. There already seemed to be a pattern of decline in the 1980s and 1990s in particular, which was then reversed for a short time at the tail end of the dot-com boom. But since 2000, the labor share has sunk to 56.7% in 2016. Why did this happen?
Beyond Unemployment - Michael Spence In modern economies, people may have jobs, but they still harbor major concerns in a wide range of areas, including security, health and work-life balance, income and distribution, training, mobility, and opportunity. By focusing solely on the unemployment rate, policymakers are ignoring the many dimensions of employment that affect welfare.
Fed Sticking With "Patient" Policy Stance - Tim Duy Bottom Line: Market expectations of a rate cut are well founded. Despite the Fed's resistance, I still think the odds favor a rate cut over a hike. I think the situation is less equally weighted than the Fed believes. This is a fairly challenging time in the cycle. The yield curve suggests that the path of activity will require a rate cut sooner than later, but the yield curve is a long leading indicator. It's typically well ahead of the data. At the current time, the data itself has yet to give the Fed much room to shift to a more dovish stance. For now, the Fed requires greater evidence of slowing activity, particularly in the employment data, to cut rates. Remember, the Fed's typical pattern ahead of a rate cut is to resist, resist, resist, and then move quickly. And note that we don't need to see a recession in the data to justify a rate cut; given the lack of inflation, the Fed only needs to see a substantial risk that growth will fall below estimate of the longer-run sustainable rate.
Measuring the welfare effects of AI and automation - VoxEU AI promises economic growth as well as creating fear for those whose jobs it may replace. This column takes a wider approach to examining how AI and other technologies will affect citizens' welfare beyond just their income. It argues that the new technologies are intrinsically neither good or bad, it is how they are deployed and how the transition is crafted that conditions the welfare dynamics of societies.
On the use, or not, of expertise by government - mainly macro In a recent post I ask why we were governed by incompetents, and I related that to ideology, which in recent times means neoliberalism. But I think it is a little more than working in a neoliberal context, because I say that the Labour government often did try and do evidence based policy. Not always. I mentioned Iraq but there are other examples, but in comparison to Conservative governments they did evidence based policy a lot. The difference is while the Conservatives had neoliberal zeal, Labour were prepared to intervene in the market, particularly to help the poor. A good example was the minimum wage, which was set by a specific body who aimed to keep it at a level that did not cause significant employment loss. ...
The macroeconomic consequences of impaired money markets - VoxEUMoney markets are an important source of short-term funding for banks, which rely heavily on them to cover their liquidity needs. But as this column shows, when money markets do not function smoothly, banks may have to deleverage or increase their holdings of liquid assets, leading to a decline in lending and output. This decline can be mitigated by central banks if they increase the size of their balance sheets.
Lessons from the Age of Mass Migration - VoxEU Recent waves of immigration in the US and Europe have triggered debate around the economic and political impact. This column uses evidence from migration of Europeans to the US in the first half of the 20th century to show that large cultural differences can incite anti-immigrant sentiment despite their positive economic impact. Therefore, policymakers should give due attention to cultural assimilation and cohesion policies.
The family-like dimensions of much public (and service) work contributes an important source of relationship, and thus power, not present in earlier manufacturing and mining modes of labor. Few observe the labor embedded in the hammer they buy. But how can one ignore that of the nurse?
My colleague Elaine Weiss launched her new book Broader, Bolder, Better on the challenges facing teachers around the country at an EPI event this week by emphasizing the need for policymakers and researchers to listen to educators themselves rather than imposing their biases on the pros.
Truly moving remarks from guest of honor Joy Kirk, a middle-school teacher from Fredrick County, Va., made quite clear why that's a sound strategy.
Kirk described the transition she has witnessed in the role of teachers and schools as anchors in the community over her 24 years of teaching, which began in urban Philadelphia before she moved to a more rural setting.
"Schools are no longer just institutions of learning. We are the primary hub of care outside the family," she said, a stark reality considering the deeply under-resourced state of so many of the country's schools.
"And for some of our students, we are their only safe place, because if you're suffering violence at home, if you're suffering upheaval, if your parents are constantly moving because they can't hold a steady job—for whatever that reason is—your one safe place is your teacher's classroom," she said.
Weiss's book is the culmination of years of research into how schools can proactively help to counter some of the social strains in various communities, by promoting innovative and targeted approaches to solve every day problems.
"Our book is grounded in community voice and celebrates teacher activism," Weiss explains in a blog post. "It calls out the consequences of structural racism and urges community leaders to translate their daily witnessing of the impacts of poverty into partnerships with the schools that are on the front lines of combating it. It thanks the local and community leaders who are already walking this walk and asks all of us to find ways to further support them."
Kirk's description of her work and situations she and other teachers encounter reinforce other research from EPI showing a growing shortage of teachers created in part by declining interest in the profession among young graduates—in part because of a massive pay gap compared to other professions requiring similar levels of education.
"There are stories we hear from them that make us know that, you know what, that state test that I have to give—I don't care, I just don't care," she said.
"I care more about who you are going to be when you grow up from the other lessons you learn from me as a teacher than how you do on a state test. I care about the content of your character than a single test score. Because there's no place for me to say, as a teacher, Donnie didn't get an hour of sleep last night, Suzy didn't have a hot meal for the past three days, Donnie's grandma just passed away from cancer—those are the struggles they deal with every day."
Kirk continued, speaking to a gripped audience:
"And so the shift has become recognizing more of those needs. At first it was the teachers alone, as individuals we're scrambling—okay, we know so and so doesn't have water, how can we get them into school early and maybe get them down to the gym? As teachers, you're making these little baskets and you're letting this kid come to class 20 minutes late and the other kids are wondering but it's because as teachers you know they don't have water right now and you've got to do something—but you don't want them to stand out.
"But as the problem began to grow, especially through the recession, we began to recognize this was more than just a few teachers on a team, or a few teachers in a school. It's a community issue and we need to step up.
"We need the mental health workers, we need the school psychologists. We have some of our schools now that now offer laundry service and the kids can bring in clothes to do their laundry, so they're not 'that' kid."
The whole event is worth watching if you couldn't attend, and it's available here on EPI's YouTube page. And of course, buy the book!
The topic of the organizational causes of technology failure comes up frequently in Understanding Society. The tragic crashes of two Boeing 737 MAX aircraft in the past year present an important case to study. Is this an instance of pilot error (as has occasionally been suggested)? Is it a case of engineering and design failures? Or are there important corporate and regulatory failures that created the environment in which the accidents occurred, as the public record seems to suggest?
The formal accident investigations are not yet complete, and the FAA and other air safety agencies around the world have not yet approved the aircraft for flight following the suspension of certification following the second crash. There will certainly be a detailed and expert case study of this case at some point in the future, and I will be eager to read the resulting book. In the meantime, though, it is useful to bring the perspectives of Charles Perrow, Diane Vaughan, and Andrew Hopkins to bear on what we can learn about this case from the public media sources that are available. The preliminary sketch of a case study offered below is a first effort and is intended simply to help us learn more about the social and organizational processes that govern the complex technologies upon which we depend. Many of the dysfunctions identified in the safety literature appear to have had a role in this disaster.
I have made every effort to offer an accurate summary based on publicly available sources, but readers should bear in mind that it is a preliminary effort.
The key conclusions I've been led to include these:
The updated flight control system of the aircraft (MCAS) created the conditions for crashes in rare flight conditions and instrument failures.
Faults in the AOA sensor and the MCAS flight control system persisted through the design process
pilot training and information about changes in the flight control system were likely inadequate to permit pilots to override the control system when necessary
There were fairly clear signs of organizational dysfunction in the development and design process for the aircraft:
Inadequate organizational embodiment of safety oversight
Business priorities placing cost savings, timeliness, profits over safety
Executives with divided incentives
Breakdown of internal management controls leading to faulty manufacturing processes
Cost-containment and speed trumped safety. It is hard to avoid the conclusion that the corporation put cost-cutting and speed ahead of the professional advice and judgment of the engineers. Management pushed the design and certification process aggressively, leading to implementation of a control system that could fail in foreseeable flight conditions.
The regulatory system seems to have been at fault as well, with the FAA taking a deferential attitude towards the company's assertions of expertise throughout the certification process. The regulatory process was "outsourced" to a company that already has inordinate political clout in Congress and the agencies.
Inadequate government regulation
FAA lacked direct expertise and oversight sufficient to detect design failures.
Too much influence by the company over regulators and legislators
Here is a video presentation of the case as I currently understand it (link).
See also this earlier discussion of regulatory failure in the 737 MAX case (link). Here are several experts on the topic of organizational failure whose work is especially relevant to the current case:
The wave of anti-abortion laws sweeping through the United States this spring raises anew the connections between reproductive choice and class. Class inequality makes reproductive choice a province of the privileged rather than a power shared by all people.
Five states have passed bans on abortions after six or eight weeks when a fetal heartbeat can be detected. Alabama's law, passed on May 17, is the most restrictive in the nation, as it makes performing an abortion at every stage a felony offense, with no exceptions for rape or incest. It is tempting to focus only on these deeply alarming legislative developments, because they directly set the stage to overturn Roe v. Wade. But denying access to an abortion has already and will likely be achieved in a less dramatic fashion. Restrictions that progressively and decisively chip away at access and fairness are also very effective. Social and financial resources matter here. The political battle against anti-abortion legislation is also a class struggle.
The economic implications of these anti-abortion legislative efforts are getting attention but none dare call it class. In a recent NPR segment, Jeanne Meyers related the circumstances under which she had an abortion nearly forty years ago. Not being married and unemployed, she recalled: "I didn't know what I would do with a baby… I was horrified. I had no job. I would have been in no financial position to care for a kid." Unable to get an abortion in Janesville, her home, she had to travel to a clinic in Madison after having saved up money to pay for the trip north to Wisconsin's capital. NPR reporter Scott Horsley cited a 2018 study of "Socioeconomic Outcomes of Women Who Receive and Women Who Are Denied Wanted Abortions in the United States," based on interviews with 813 women over five years. It shows that women who were not able to get abortions and later gave birth had higher odds of poverty 6 months later than women who received abortions. They were also less likely to have full-time work and more likely get some form of public assistance. Both effects "remained significant for 4 years." The study concluded that "Laws that restrict access to abortion may result in worsened economic outcomes for women," an outcome the women expected, since the most common reasons women give for wanting to end their pregnancies are financial, "in particular, not having enough money to raise a child or support another child."
The class aspect of family size is old news to most families in the United States, but it is rarely discussed. The economics of class can dictate the terms and conditions for family size, especially for those without access to money, resources, and social and political capital. The accepted division between the public and the private, the hallmark of our liberal order, makes it difficult to see these matters clearly.
If the public consists of government, business, and civic institutions, and the private has primarily to do with the family and the home, then it seems readily apparent how decisions about pregnancy or family size can be viewed as private choices. Opposition to restrictions around this choice focuses on perceived rights. In fact, Roe v. Wade was based on an interpretation of the due process clause in the 14thAmendment that defined privacy as including a women's right to terminate a pregnancy. The power of Republican men and their allies in the Christian Right to terminate that right, as this spring's series of new state laws make clear, underscores the perception that the fight for reproductive choice is solely a gender issue when such choices are also bound by class considerations. The personal is, indeed, very political.
Family life, including the material conditions of social reproduction in the home, are inextricably bound to the political-economic order. This means that the seemingly very private decision to have an abortion or not cannot be separated from elite determinations of capital and resource allocation that favor the few at the expense of the many. Thus, the link between the denial of abortion rights and adverse socioeconomic outcomes is not unwanted but actualy expected, if not deliberate.
Gender and class are not the only dimensions to the anti-abortion legislation, which will likely spread to other states. Elizabeth Nash, of the Guttmacher Institute, notes that bills are in process in eleven more states. As Michelle Alexander argued last week in her New York Times essay "My Rapist Apologized," we must also consider race. During her first semester at Stanford Law School, she became pregnant as a result of rape. When this occurred, her father was unemployed and her mother was working at a minimum wage job. While Alexander's family wanted to help, they were in no position to do so. She wondered if she should drop out of law school to raise this child. Feeling very alone at the time, Alexander now recognizes that her situation would have been familiar for many black women, who "have the highest rates of abortion in the country, undoubtedly due to the severe wealth gap between black and white families — a gap that holds even among the poor. The white household living near the poverty line typically has about $18,000 in wealth… while black households in similar economic straits typically have a median wealth near zero."
Most reports on the latest anti-abortion bills focus on the Supreme Court, but future court decisions might not be about Roe v. Wade at all. Instead, they could focus on and support state regulations that effectively rule out the practical possibilities of obtaining an abortion. That means that efforts to roll back these laws will have to occur on the state level. A chart from the Guttmacher Institute shows how even existing mandated waiting and counseling periods in many states makes it impossible for working-class and poor women to obtain abortions. The multiple steps needed to "prove" eligibility for terminating a pregnancy are prohibitively expensive because of the loss of income and the added expenses of travel. If abortion providers are already diminished due to other state regulations or, as in the case of Alabama, women must travel to another state, what realistic chance for healthcare is possible? As Alexander argues, even so-called "rape exception" clauses would most likely entail lengthy and expensive legal wrangling and fees in which the exception is useless.
The juggernaut that the anti-abortion forces bring to this struggle is enormous. Women bear the brunt at the losing end of this fight, but to protect access to abortion, we must address the gritty reality of class and the disparate effects felt by women of color. If solidarity means anything in this debate, it will have to include an activism that is determined and shaped by class and race as well as gender.
I submit the questions of corporate reorganization of (especially) the "too big to fail" enterprises to reflect the public and employee stakeholders interests is the MOST critical economic challenge. Absent a shift in corporate charters, direction and missions, the challenges of universal health care and energy management in the face of climate change and growth and globalization will be stuck in quicksand and rubber bands.
Elizabeth Warren has weighed in heavily on this question as well. These ideas will be come the essence of the economic meaning of "democratic socialism", or, if you prefer, "progressive capitalism", or 'progressive social-democracy". These details will mark the DEGREE of socialization vs cooperation with capital "works" -- to use Jaime Dimon's recent expression.
Sen. Bernie Sanders (I-Vt.) will push new policies aimed at giving workers a greater ownership stake in companies, moves the 2020 presidential candidate is pitching as a dramatic transfer of power in the U.S. economy.
The plans would give millions of workers the type of workplace influence typically reserved for shareholders and executives.
Supporters say giving workers a greater ownership stake could boost wages for American workers and force companies to focus on long-term results, while critics contend the plans could cause investors to take their money overseas.
The proposals also suggest Sanders may aim to expand his campaign beyond the issues that defined his 2016 presidential bid — particularly social safety net expansions such as Medicare-for-all and free college tuition — and into other areas of labor policy. They would likely require a complete sweep of Democratic officials in Congress and the White House to be enacted."We can move to an economy where workers feel that they're not just a cog in the machine — one where they have power over their jobs and can make decisions," Sanders said in an interview. "Democracy isn't just the opportunity to vote. What democracy really means is having control over your life."
Sanders said his campaign is working on a plan to require large businesses to regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers. Some models of this fund increase employees' ownership stake in the company, making the workers a powerful voting shareholder. The idea is in its formative stages and a spokesman did not share further details.
Sanders also said he will introduce a plan to force corporations to give workers a share of the seats on their boards of directors. Sen. Elizabeth Warren (D-Mass.), another 2020 presidential candidate, proposed a similar idea last year.
Both ideas are expected to face significant opposition from the business community, as well as criticisms that they would discourage entrepreneurs from starting businesses and lead investors to seek to put their money overseas.
Warren, Sanders and Sen. Kirsten Gillibrand (D-N.Y.), another 2020 candidate, have increasingly pitched ways to address soaring wealth inequality by giving workers a bigger ownership stake in their companies, pushing to give employees increased authority over the profits and decisions made by their employers. That represents an important new area of focus in economic policy for Democratic politicians, economists said.
"There seems to be a virtuous competition setting in between these candidates in reexamining the fundamental relationship between capital and labor," said Robert Hockett, who teaches law and finance at Cornell University and has worked with Democratic members of Congress on economic policy. "The idea here is to make capitalists of the laborers, and I think it's one that could catch on as we get closer and closer to the 2020 election."
Sanders on Friday also reintroduced in the Senate a series of measures to increase the percentage of the American workforce in "employee-owned" ownership models. Those policies include a $500 million bank to finance company transitions to worker cooperatives, new legal requirements that owners give their workers an opportunity to purchase firms that are closing and federal funding to create centers in all 50 states that would encourage employee-owned businesses. These ideas are not gaining traction in the Republican-controlled Senate.
About 25 million workers already own some stock in the company where they work. The United States has about 7,000 companies set up as Employee Stock Ownership Plan businesses — where the ownership can be most significant — representing about 11 million workers, according to research based on federal data by Joseph R. Blasi and Douglas L. Kruse of the Rutgers University Institute for the Study of Employee Ownership and Profit Sharing.
Research by Blasi, Kruse and other academics has also found that employee-owned businesses have smaller racial and gender wealth imbalances, higher savings, higher wealth closer to retirement and other benefits. The academics have also found that these firms increase sales and employment by about 2 percent per year, although the ranks of employee-owned companies have shrunk.
Sanders would become the first member of Congress to propose requiring corporations to create a fund of shares for their employees, said Peter Gowan, a policy associate at the Democracy Collaborative, a left-leaning think tank, who has advocated for the concept.
Sanders also did not provide details on his plan to force corporations to let workers control a share of their boards of directors. Warren has proposed a "co-determination" plan that would require U.S. corporations worth more than $1 billion to let company employees select 40 percent of the company's board of directors.
These ideas have been met by resistance from the business community, who say the government interventions may inhibit the incentives for entrepreneurs to start new businesses. Jim Kessler, senior vice president of policy at the centrist think tank Third Way, which has been critical of Sanders, said the plans may do little to cover custodial or food service workers at companies, given that these services are sometimes contracted out to non-employees.
Still, the idea to increase the number of worker cooperatives and employee-owned businesses has a degree of bipartisan support, at least for less radical measures. A number of GOP lawmakers, including Sens. Pat Roberts (R-Kan.) and Thom Tillis (R-N.C.), have pushed legislation to encourage technical assistance and other help to boost employee-ownership firms. Last year, Congress approved a plan by Gillibrand intended to bolster assistance from the federal Small Business Administration for worker cooperatives and employee-owned businesses.
These proposals are a response to a widening gap in the U.S. economy, said Blasi and Kruse, the Rutgers economists. The wealthiest 10 percent of Americans currently own 97 percent of all capital income, including all capital gains, interest payments and corporate dividends.
"With real wages being flat, looking at employee ownership and profit-sharing is a compelling way for the middle class to get a share of the benefits of ownership," Blasi said. "If we don't find a way to include the middle class in share of ownership, then capitalism dead. That's basically it."
Is economics free of ideology? No, says this eminent economist and historian of economic thought. And it would be best if economists acknowledged it.
I am approaching an age that can be called venerable, a process over which I have no control but which allows me certain privileges, among them saying outrageous things. This, I must warn you, is an outrageous speech, all the more so because it is delivered in dead earnest, despite a certain flippancy that may intrude from time to time. The subject is the degeneration—I am tempted to say "degeneracy"—of economics, a social discipline I hold, or rather wish I could hold, in the highest regard.
Let me describe my own introduction to economics. I entered Harvard in 1936 (hence venerable) and took my first course in economics the following year. Our textbook was Principles of Economics, by Frederick Garver and Alvin Hansen (one of America's best-regarded economists). I should add that, although the Depression raged outside the classroom, it did not within the pages of this book. Published that year, only once did it mention the Depression. Without using the term "depression," the text states that national income was estimated at 80 billion in 1929 but had fallen to about 40 billion by 1932. There is no further mention of these facts, their cause, significance, or cure.
The following year I took a more advanced course in economics taught by Wassily Leontieff. Our textbook was by Alfred Marshall-not, alas, the appendices but the text. The following year my most important course was Business Cycles, given by Hansen himself, who turned out to be a remarkable man. Although Hansen had disagreed with John Maynard Keynes's General Theory when it was first published in the 1930s, he reconsidered, becoming Keynes's foremost disciple in the United States. In his Harvard course, we heard from a wide range of instructors, such as the Marxist Paul Sweezy and Edward Chamberlain (who invented monopolistic competition). This course was where I first encountered Joseph Alois Schumpeter, who plays a major role in what I am about to say.
Schumpeter arrived in his famous riding habit and great cloak, of which he divested himself in a grand gesture. He greeted us in a typically Schumpeterian way: "Gentlemen, a depression is for capitalism like a good, cold douche." The remark shocked us for two reasons: First, was a depression a good thing? Second, few of us knew that a douche was the European term for "shower."
That was enough to put Schumpeter in my head, where he stayed for a long time.
In 1942 I read his Capitalism, Socialism, and Democracy. I am sure many of you recall those wonderful introductory chapters in which he discusses Marx the Prophet, Marx the Sociologist, Marx the Economist, and finally Marx the Teacher. This introduction ends with Schumpeter paying his profound respects to Marx. Why? Because "stripped of the glitter of dubious gems," Marx was a conservative and thus commands our respect. You think I jest. Look at the last paragraph of Chapter 4.
There are two other remarks that stayed in my mind Part Two of the book begins "Can capitalism survive? No. I do not think it can." Part Three begins "Can socialism work? Of course it can." This explains why one of my first articles about Schumpeter was called "Was Schumpeter Right?" and begins with "No. I do not think he was."
However, I have not yet revealed the crucial reason why Schumpeter has so influenced me, although not in a direction he would have approved of. In 1950 I was asked to review his magisterial History ofEconomic Analysis. There, toward the beginning, I discovered a section about ideology-the focus of this article. Ideology plays a role for Schumpeter of greater importance than for any economist of his generation or of our own. The section begins innocently enough by inquiring how social scientists think. Schumpeter arrives at the conclusion that they are driven by visions (he uses the term "precognitive concepts," although I think "gestalts" would have been better). These visions then become the basis for analysis (carefully constructed logical thought) and for ideology (not-so carefully-structured value-laden views). Needless to say, Schumpeter strongly believes that analysis is good and ideology is bad. He admits that we can never altogether rid ourselves of the latter, but by diligent application, a good deal can be scrubbed out.
The immediate effect of this section was my article "Was Schumpeter Right, After All?"-the first sentence of which was "Right about what?" I do not mean "right" about the tendency of ideology to insinuate itself into analysis or that it cannot be at least partly extirpated. I mean right about the legitimacy and validity of ideology. Moreover, if ideology means that sociopolitical commitment will color and shape analysis, I again agree with Schumpeter that ideology will eater into and "infect" all important judgments.
Contrary to Schumpeter, I believe that ideology enters into analysis as a matter of necessity, not as a corrigible weakness. Ideology is not foreign matter that debases the pure stuff of analysis. On the contrary, political judgments and values are integral to and indispensable for analysis because we could not form the original gestalts without them. They are the raw
stuff of our perceptions, which our analytic capabilities can manipulate but not create. Because we are all creatures of social orders, it is impossible to depict or describe these orders without utilizing the feelings of attachment, resentment, identification, and distance that make us each a part of the social whole. A nonideological being would exist as a lifeless construct, not as a sentient member of society. It follows that economics can never be without ideological content that is, without an expression, almost always unconscious, of the values that the analyst attaches to the matters he is observing or analyzing.
Perhaps I should now pause while cold towels are passed around and those who wish to leave may do so. The following five points should make as plausible as possible this heretical, subversive, perhaps even dangerous claim that ideology is all around us.
The first point is what Sherlock Holmes would have called the "Curious Case of the Missing Word." In our case it involves a word that is indispensable for the very existence of our discipline, but which is almost never pronounced by its disciples. The word is "capitalism." How often does capitalism appear in the pages of the American Economic Review? Aside from those annual issues in which past presidents speak on broad topics and may drop the telltale word, capitalism is not treated with the seriousness that attends the rest of the journal. The words "model" and "system" abound. But capitalism? I challenge you to find it in issues of the American Economic Review from the past twenty years. f you find one mention per copy you are a more diligent researcher than I.
How is this an indicator of ideology? Let us suppose that we discover in the Vatican archives a multivolume journal called Studies of Our Times, covering the period that we call the Middle Ages. Now let us further suppose that the word "feudalism" rarely appeared in that journal. Would that not suggest a certain aversion to a word whose only meaning is of grossly unequal social relationships—-lords, vassals, serfs, and slaves? Is not the absence of the key term "feudalism" in a journal devoted to studies of the medieval order parallel with the failure to mention a corresponding key term related to our own socioeconomic order? Economists feel uneasy using a word like capitalism that may seem to praise or damn when in fact it is a description of certain characteristics, as is the term feudalism.
My second point concerns a quotation by Milton Friednan-Nobel laureate, famous theorist, and one of the rare economists who is not at all hesitant to mention capitalism. In his book Free to Choose, Friedman analyzes the difficult question of the inequality of rewards that is an obvious feature of the distribution systems we find in capitalism, and he raises for consideration whether this unevenness is "fair." If fairness means equality, he concedes, the distribution system under capitalism would not be fair, but Friedman goes on to say that inequality is part of life. Some people are born with better looks than others, some with more native abilities, some with musical abilities. Admitting that it is easier to interfere with the distribution of property than of talent, he asks "From the ethical point of view is there any difference between the two?" There is such a difference——although perhaps it escapes Friedman's eye——namely, that whereas the distribution of talents is a matter beyond human intervention, the distribution of property is not Friedman is a brilliant man, but in his attempt to defend capitalism from the charge of unfairness he is not. He cannot see the differences because he is an ideologue.
My third point concerns a certain unnamed Nobel Prize winner who was interviewed by Arjo Klamer in his justly acclaimed book Conversations with Economists. Klamer asked this writer whether economists can hold that government might be a force for social justice. Our Nobel laureate replied that this would not be his view: "I think of the pharaohs as responsible for most of the social injustice in ancient Egypt." Is this ideology-free? To choose the pharaohs as an exemplar of government? Another economist might have chosen Abraham Lincoln instead-that would certainly be construed as ideological. This Nobel Prize winner also describes the unemployed as those who have "chosen" not to work an ideology-free description, I'm sure you will agree.
Point four is found in so many textbooks and articles that I need give no specific examples. It is that the irreducible atom of economic life consists of the "individual," whose activities we put under the microscope—not the macroscope. What is this individual presumed to be constantly doing? Maximizing utility. I will avoid the easy task of exposing the vacuity of the words "maximizing utility." The phrase is consistent with all possible observed behavior and refutable by none. I ask instead that we watch the individual perform his allotted task and inquire why he is engaged in this balancing act. Almost invariably, he is deciding how to spend his income among the various options before him. And what is so ideological about that? It is the unnoticed intrusion of the innocent word: income. For you cannot have an income unless it comes from someone else. Hence the individual is an absurd—dare I say "ideological"—representation of the irreducible atom of economic life. Is there not something profoundly suspicious about taking a monadic individual, not the societal dyad, as the representative agent for capitalism?
This leads to my fifth and last point. It concerns the term "crowding out," a phenomenon that occurs whenever the government spends too much money and, by virtue of having first crack at the money pool, displaces from the credit line some worth borrowed from the private sector. No one has any trouble with that. But wait-during wartime, things are the other way around. When winning the war is the first priority, it is acceptable that the government, not private enterprise, get first crack And what is ideological about that? It lies, of course, in the tacit admission that the private sector's credit needs should be fulfilled during peacetime because they have a higher social usefulness. Do they? Two assumptions underlie this statement: First, the assertion that profitability is a reliable measure of usefulness and, second, that there is no possible way of judging the social utility of public expenditure in peacetime. It is not necessary to say more than the word "externalities" to make the case that profit rates alone will not measure social returns or to assert that studies could be made with regard to the respective social returns of two sectors. How they would turn out, case by case, is uncertain. I am reasonably sure, however, that the attribution o f such a social advantage to the private sector is, at best, a dubious assumption.
Let me finally try to get to the bottom of things. I hope I have made the point that economic analysis is shot through with ideological considerations whose function is to mask the fullest possible grasp of some of the properties of a capitalist social order. What is the reason for this highly ideological (i.e., partisan) view?
I cannot answer that question with any degree of certainty. Were the case one of systematic distortion in a dispute over property, the explanation would be that the distorter had something to gain from presenting his case in the most favorable, although not necessarily the most accurate, light. It may be, of course, that economists are themselves capitalists at heart, wishing to protect their social positions and perquisites by screening their beliefs from public view. But I shall not make that assumption. The use of ideology by economists arises from its usefulness in attaining another goal rather than safeguarding capitalism from justified criticism. This higher goal is to establish its close relation to the explanation system we call science.
Scientific thought is probably the most highly regarded of all the activities that make up our complex modem way of life. The pursuit of science assumes a kind of purity of spirit and grandeur of purpose that resembles the religious pursuits of an earlier time. Moreover, economics—to those who pursue it—-approximates science. Indeed, it is almost a science: It is the only branch of social inquiry that contains something resembling the lawlike inner structure of scientific explanation.
For economics this lawlike interior is not based on physical constants but on the remarkable fact that the parallel psychological stimulus—a rise or fall in prices——-produces opposing reactions on the part of two categories of society—buyers and sellers. From there it is but a tiny step to supply-and-demand functions (written in often complex algebraic terms), geometric diagrams, and concepts of equilibrium—-all the trappings of a scientific journal. I hope I may be forgiven for relating here what I have written too many times-namely, that a Martian who came across a copy of the American Economic Review might be forgiven for concluding that it was a journal of physics.
Moreover, for all the evident weaknesses of these lawlike underpinnings, they do introduce analytical possibilities into economics that are the envy of sociologists, political theorists, and the like. Curiously, this does not necessarily make economics the most penetrative vision among these modes of inquiry. If you want to know why a bushman hunting party divides its kill as it does, you read an anthropologist, not an economist. If you want to know why the political world looks as it does, I suspect you will learn more from de Tocqueville or Robert Bellah than from Jeremy Bentham and Gary Becker.
How far to push this? I do not know. I am deeply convinced that economics is an explanation system that relates only to capitalism (you will notice that I shy away from the term ''theory''). I believe that by extending its reach to societies that lack capitalistic inner workings, economics diminishes itself. By acknowledging its dependency on a capitalist basis, economics would add depth and validity to its conclusions. And far from ''politicizing'' its findings in some tendentious sense, it would imbue them with a strength they do not now possess. The power of economic analysis ultimately rests on its acknowledgment, not the denial, of the sociopolitical arrangements whose consequences it wishes to understand and, if possible, to improve.
In June 2016, presidential candidate Donald Trump stood between bales of crushed aluminum and a crowd of supporters in a factory outside of Pittsburgh and made a promise on trade that wasn't hard to keep.
"If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful -- this is very easy. This is so easy. I love saying this," he told workers at the recycling firm Alumisource, a former steel plant in Monessen, Pennsylvania. "I will use every lawful presidential power to remedy trade disputes."
Three years later, he has clearly delivered on the pledge.
Trump's tariff-driven attack against the world's No. 2 economy has shown that expanding trade powers has indeed been the easy part. But as events this week show, winning a trade war against China -- which Trump once tweeted would also be "easy" -- looks increasingly like a more difficult and protracted endeavor than anticipated, with Beijing now showing more signs of digging in than capitulating.
Trump's hawks have been arguing ever since the president took office that the only way to get China to make meaningful changes to what some openly call a "deviant economic model" is to continue punching it in the nose until you force surrender. Yet the big question looming now is whether that belligerent approach may be backfiring with daunting consequences for the global economy.
After Trump escalated his tariff war on Chinese imports earlier this month and blacklisted Chinese telecom giant Huawei Technologies Co., Chinese President Xi Jinping called on citizens to join a "new Long March," prompting echoes of that call in Chinese state media.
"All of the Chinese people are ready to embark on a new 'Long March' journey with greater courage and resilience and will never yield to foreign bullying and assault," state-run Xinhua News Agency said in a commentary on Friday.
The hope for a respite from rising tensions now rests on a planned meeting between Trump and Xi on the sidelines of a late-June Group of 20 Summit in Japan. But it's not clear that meeting will even take place. Cui Tiankai, China's ambassador to the U.S., told Bloomberg Television on Friday that there had not yet been any official discussions about a meeting, though "the possibility is always open."
"If things continue the way they are why would Xi want to meet with Trump," said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics. "Every day the wedge between the U.S. and the Chinese side seems to get bigger and there's no sign of any bridges being built."
China is also not the only one showing signs of preparing for a longer trade war.
Trump this week announced a new $16 billion aid program for farmerscaught in the trade wars to whom just weeks ago he had been promising a deal with China that would mean huge new purchases of their crops. He also has settled a dispute with Canada and Mexico over steel tariffs, which had led to retaliation by the U.S. neighbors against agricultural exports.
Commodity markets are reflecting the gloomy prospects for the trade talks.
The price of U.S. soybeans, which China has stopped purchasing during the trade feud, is hovering close to the lowest level in a decade just as planting season gets under way. A headline this month in the Des Moines Register, the biggest newspaper in Iowa, underscored the pain: "It can't get any worse."
A bigger potential economic and political risk now confronting Trump is the risk that the next wave of his tariffs will hit consumer staples like children's clothing and smartphones imported from China and thus envelop the entire U.S. economy.
The fear of rising prices caused Treasury Secretary Steven Mnuchin to pick up the phone and speak with Walmart Inc. Chief Financial Officer Brett Biggs, who has warned that duties on Chinese imports will raise prices for American consumers.
"I am monitoring this situation carefully," Mnuchin told the House Financial Services committee on Wednesday.
China is turning the tables on the U.S., accusing the Trump administration of overreach and government intrusion into private enterprise. Though many in Washington believe the administration has valid security concerns, the restrictions on Chinese companies such as Huawei, in particular, have raised fears of a bigger technological war that could backfire against the U.S.
"What are people really up to under the pretext of national security? We don't know," Cui said Friday. "Can they really stop the technological progress? Can they really deprive people of the right to benefit from the technologies? I don't think so. And do they really have the interests of the American people in mind? I don't think so either."
The escalating battle over Huawei has left U.S. suppliers caught in the middle and raised questions for some industries about what some already see as the inevitable long-term damage to their position in the lucrative Chinese market.
John Neuffer, president of the Semiconductor Industry Association, said chip makers like many U.S. industries supported U.S. efforts to bolster national security. But U.S. semiconductor companies had also faced a "significant and immediate adverse impact'' from the blacklisting, he said.
In playing the long game, China may be looking at Trump's weak poll numbers and trying to wait him out, in the hopes that a Democrat might unseat him in the 2020 election. Trump and those close to him see that as a miscalculation, portraying his tough stand on China as a political asset.
That confidence might be overstated around the Monongahela River town where Trump laid out his trade strategy during the 2016 campaign. Even after tariffs on steel imports from China and other countries, the industrial rebirth there hasn't happened as he promised.
"We really haven't seen much of a change in the revitalization that he spoke of with the mills," said Leanna Spada, director of the Mon Valley Regional Chamber of Commerce in Charleroi, Pennsylvania. "There are some people who think it's going to happen, but some still don't see it -- it's just not feasible."