I will not be surprised if this is the true and principle Clinton structural economic strategy to address inequality: turn more places into Silicon Valleys. It's the strategy, or opportunity, that Bill Clinton exploited in the mid nineties that propelled the tech boom, and the only instance (97-98) in 40 years where there was a significant bump in median family income (and wages or salaries).

I certainly agree that such a strategy can be an important component. But I think its the WRONG focus to put at the TOP of the to-do list. MInimum wage, major infrastructure spending, collective bargaining expansion, big payoffs in the form of cash, new jobs and/or training for displaced workers from globalization and climate change adjustment impacts --- all these things are on top of revisiting the 90s tech boom on MY to-do LIST.

Clinton's Tech Policy Targets Young Entrepreneurs

By STEVE LOHRJUNE 28, 2016

Hillary Clinton's technology policy initiative, released on Tuesday, is a list maker's dream, a parade of specific proposals covering a spectrum of issues. But its overriding theme is that technology should be an engine of equality rather than elitism.

The goal, the summary document declares, is "to create the jobs of the future on Main Street."

Mrs. Clinton's agenda includes having the federal government step in to help fill a finance gap, as banks have cut their loans to small businesses and venture capital funding is concentrated in a few regions, led by Silicon Valley.

Her plan calls for "supporting incubators, accelerators, mentoring and training for 50,000 entrepreneurs in underserved areas," and increasing funding for several existing programs that offer tax credits and financing for community development and small businesses.

"This is a pragmatic plan that could help leverage what happens in Silicon Valley so that there's innovation and job growth throughout the country," said Karen Kornbluh, former United States ambassador to the Organization for Economic Cooperation and Development, who is an adviser to the Clinton campaign.

The Clinton program also links start-ups with the student loan crisis. Under her plan, young entrepreneurs could defer payments on their federal student loans for up to three years. The relief might also apply to the early employees of start-ups, like the first 10 or 20 workers, according to the plan.

The deferred payment plan, the campaign document states, could mean that "millions of young Americans" would not have to pay interest or principal on their loans "as they work through the critical start-up phase of new enterprises."

It is clearly a nod to young voters, who overwhelmingly supported Bernie Sanders in the primaries.

The Clinton plan offers a liberal immigration initiative that has long been a favorite of technology executives and venture capitalists: automatically issuing permanent resident status to people who earn graduate degrees in science, engineering and mathematics from accredited universities.

The Clinton program also would dedicate additional funding and resources to Obama administration policies in areas like building broadband networks in rural areas, encouraging computer science education for elementary and high school students, and job training in technology fields.

Skeptics questioned spending to "double down" on programs that have not yet proved effective.

"No one seems to be evaluating these programs," said Thomas Lenard, president of the Technology Policy Institute, a nonprofit research foundation.

Jeffrey Eisenach, a visiting scholar at the American Enterprise Institute, a right-leaning policy research group, said, "This isn't a technology plan, it's a government spending plan."

But other technology policy experts were impressed by the Clinton campaign document as a whole.

"She's got a technology and innovation agenda, and this suggests it would be a strong focus in a Clinton presidency," said Robert Atkinson, president of the Information Technology and Innovation Foundation, a nonprofit policy research group. "That in itself is a message."

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

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Rising Income Polarization in the United States

Rising Income Polarization in the United States

Posted on June 28, 2016 by iMFdirect

By Ali Alichi

The latest IMF review of the U.S. economy underscores the country's resilience in the face of financial market volatility, a strong dollar, and subdued global demand. But the review also cites longer-term challenges to growth, including rising income polarization.

Ever since the 1970s, the number of U.S. middle-income households, as percent of total, has been shrinking. The result has been increasing income polarization. For the three initial decades since then this polarization was more about households moving into the upper income ranks. However, since 2000, more middle-income households have fallen into lower, rather than higher income brackets. Combined with real income stagnation, polarization has had a negative impact on the economy, hampering the main engine of the U.S. growth: consumption. The analysis in our new paper suggests that over 1998–2013, the U.S. economy has lost the equivalent of more than one year of consumption growth due to increased polarization.

Importance of middle-income households

The ancient Greek philosopher Aristotle observed that "the most perfect political community is one in which the middle class is in control, and outnumbers both of the other classes." More than two thousand years later, most would still agree with that idea. For all its importance, notwithstanding some studies in the 1980s and a handful of recent contributions, economists have fallen behind in documenting the progress being made by middle-income households, their consumption patterns, and other economic behavior. More analysis is needed on the economic policies that could affect middle-income households by spurring the upward mobility of low and middle income earners. Part of the problem has been that we do not have any stable conventions on how best to define middle-income households.

Our work seeks to address some of these issues and energize this line of empirical research, focusing specifically on the movement of middle-income households up or down the income ladder, and the economic effects of these moves. While income inequality has attracted much attention, income polarization has yet to receive as much examination. There is a conceptual and qualitative difference between the two: income polarization measures the move from the middle of the income distribution out into the tails; income inequality, however, measures how far apart those tails are, i.e., what is the income distance between the low- and high-income groups.

Worrying trend

Middle-income households serve as a point of reference in any discussion of income polarization, and should, therefore, be well defined. Here, middle-income households are defined as those whose real incomes are within 50 to 150 percent of the median income. Households with incomes below this range are viewed as low income and above it, high income. Chart 1 shows that the population share of middle-income households has shrunk from about 58 percent of total in 1970 to 47 percent in 2014. Such a shift, in part, represents economic progress as roughly half of these households have been able to advance up through the income distribution, while the other half have moved down. Looking at the long trends, however, masks the deteriorating trends since the turn of the current century. While during 1970–2000, more of the middle-income households moved into high- rather than low-income ranks, since 2000 only a quarter of one percent of households have moved up to high income ranks, compared to an astonishing 3¼ percent of households who have moved down the income ladder (from middle to low-income ranks).

These polarization trends are robust to different cut-offs in defining the middle-income households. In addition, excluding households at the top 1 percent of income distribution or looking at households across age, race, or education still produces the same result.

In addition to the polarization trends, it would be also important to look at the income shares of different income groups—a proxy for their relative weights in the economy. Chart 2 shows that income shares have also had a similar trend as polarization trends. The income share of the middle-income households, which was about 47 percent of total income in 1970, had fallen to about 35 percent in 2014. That decrease in the income of the middle-income households corresponds to the increase in the income share of the high-income households. Meanwhile, the income share for the lower-income households has remained flat over the entire period at around 5 percent of total national income. Low wage growth in recent years—partly a result of the drawn out recovery but also because of lower labor market dynamism—has also contributed to these trends.

The macroeconomic consequences of rising polarization

Income polarization, insofar as it disproportionately moves households toward the lower part of the income distribution, may have negative social and political repercussions and simply be seen as unfair.

But polarization can also have important macroeconomic consequences. Low- and middle-income households spend a far larger share of their income than high-income households—to use economists' jargon, the low- and middle-income households have higher marginal propensities to consume. Therefore, any loss of income in these two groups has the potential to lower the U.S. economy's aggregate consumption. Given the smaller propensity to consume by higher income groups, they can only provide a partial offset.

To make matters worse, evidence suggests that, after controlling for income levels, the responsiveness of consumption to income gains for most of the income distribution has weakened in recent years. This puts further downward pressure on consumption. Combined, these effects are estimated to translate to about 3½ percentage points of lost U.S. consumption over 1998–2013—equivalent to more than one year of total consumption growth.

To sum up: income polarization in the United States has seen a significant increase since the 1970s. While initially more middle-income households moved up the income ladder rather than down, since 2000, most of the increased polarization has been towards the low end of the income ladder. These trends, in addition to the well-documented income inequality trends, have led to a declining income share of the middle-income households. This has important macroeconomic consequences and merits receiving increasing attention and analysis in the coming years. Further research is needed to understand what are the root causes of income polarization and devise policies to mitigate the pattern, ensure the bulk of the population is achieving improved living standards over time, and tackle the social and macroeconomic consequences of polarization toward the lower part of the income distribution.

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.

Inequality Has Grown in All 50 States [feedly]

Inequality Has Grown in All 50 States
http://www.cbpp.org/blog/inequality-has-grown-in-all-50-states

The gaps between the richest and poorest families have grown in every state since the late 1970s, a new report from the Economic Policy Institute shows. The top 1 percent's share of income is close to its 1928 peak (see chart).

 

 

The report's alarming findings include:

• In 2013, the average income of the top 1 percent of families nationally was $1.2 million — more than 25 times the average income of the bottom 99 percent.
• The lion's share of income growth since the late 1970s has gone to the richest households.
• The top 1 percent's share of income rose in every state and the District of Columbia — and it doubled nationally, from 10 percent to 20 percent — between 1979 and 2013.
• Since 2007, due to the Great Recession, family income at all levels has fallen and income gaps narrowed somewhat.  On the other hand, the richest families have benefitted most from the economic recovery.  In 24 states, the top 1 percent captured at least half of all income growth between 2009 — the year the recession officially ended — and 2013.

I'll be back tomorrow with some steps that states can take to push back against this extreme income inequality

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Bernanke on Economic implications of Brexit [feedly]

Economic implications of Brexit
http://www.brookings.edu/blogs/ben-bernanke/posts/2016/06/28-brexit

After several days of market upset, a few reflections on last week's momentous vote in Great Britain.

Even more obvious now than before the vote is that the biggest losers, economically speaking, will be the British themselves. The vote ushers in what will be several years of tremendous uncertainty—about the rules that will govern the U.K.'s trade with its continental neighbors, about the fates of foreign workers in Britain and British workers abroad, and about the country's political direction, including perhaps where its borders will ultimately lie. Such fundamental uncertainty will depress business formation, capital investment, and hiring; indeed, it had begun to do so even before the vote. The U.K. economic slowdown to come will be exacerbated by falling asset values (houses, commercial real estate, stocks) and damaged confidence on the part of households and businesses. Ironically, the sharp decline in the value of the pound may be a bit of a buffer here as, all else equal, it will make British exports more competitive.

In the longer run, the uncertainty will dissipate, but the economic costs to the U.K. still will exceed the benefits. Financial services and other globally oriented industries, which depend on unfettered access to European markets and exchanges, will come under pressure. At the same time, the purported gains from freeing the U.K. from the heavy regulatory hand of Brussels will be limited, because Britain will likely have to accept most of those rules (without ability to influence them) as part of restructured trade agreements. Immigration is unpopular in the U.K., and slowing it was a motivation for some "leave" voters, but a more slowly growing labor force likely would also reduce overall economic growth.

The rest of Europe will also be adversely affected, even though Frankfurt and a few other cities may gain finance jobs at the expense of London. The biggest risks here are political, as has been widely noted: In particular, markets are already beginning to price in the risk that other countries or regions will press for greater autonomy from Brussels. Even those sympathetic to such demands should worry that attempts to unwind existing trade and regulatory arrangements could be highly disruptive, as they will likely be for Great Britain. A move toward exit by a member of the euro zone would be particularly destabilizing, as even the possibility that a country might leave the common currency could provoke bank runs and speculative attacks on the country's sovereign debt and on other countries that might be thought to be next in line. The challenge for European leaders will be to keep the overall integration process on track, while finding ways to meet the concerns of potential leavers. One issue that could be revisited is the EU's commitment to the absolutely free movement of people across borders, which seems more a political than an economic principle; the perception that the U.K. had lost control of its borders was one of the most effective arguments for "leave," and secessionist movements elsewhere have also seized on the issue. [1]

Globally, the Brexit shock is being transmitted mostly through financial markets, as investors sell off risky assets like stocks and flock to supposed safe havens like the dollar and the sovereign debt of the U.S., Germany, and Japan. Investors are perhaps more risk-averse than they otherwise would be because they know that advanced-economy central bankers have less space than in the past to ease monetary policy. Among the hardest hit countries is Japan, whose battle against deflation could be set back by the strengthening of the yen and the decline in Japanese equity prices. In the United States, the economic recovery is unlikely to be derailed by the market turmoil, so long as conditions in financial markets don't get significantly worse: The strengthening of the dollar and the declines in U.S. equities are relatively moderate so far. Moreover, the decline in longer-term U.S. interest rates (including mortgage rates) partially offsets the tightening effects of the dollar and stocks on financial conditions. However, clearly the Fed and other U.S. policymakers will remain cautious until the effects of the British vote are better sorted out.

Although bank stock prices are taking hits, especially in the U.K. and Europe, a financial crisis seems quite unlikely at this point. Central banks are monitoring the funding and financial conditions of banks, and so far serious problems have not emerged. (It helps that the date of the referendum has been known for months, giving authorities time to prepare. Also helpful is the substantial buildup in bank capital in recent years.) Through its currency swap lines, established during the global financial crisis, the Fed is making sure that other major central banks have access to dollars. As I've already suggested, the biggest risks to financial stability at this point appear to be political—specifically, the risk of further defections or breakdown in the European Union—rather than economic. The story may not be over yet.

[1] Britain has substantial immigration from both EU and non-EU countries. The debate over Brexit sometimes seemed to confound the two, even though only the former is protected by the EU treaties.

Comments are welcome, but because of the volume, we only post selected comments. 

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NYTimes: Bernie Sanders: Democrats Need to Wake Up

Here's a story from The New York Times I thought you'd find interesting:

The rejection of globalization that powered the Brexit movement could happen in the United States. And it may help Donald J. Trump.

Read More: http://nyti.ms/29cQUeS

Get The New York Times on your mobile device

Brexit: The end of globalization as we know it? [feedly]

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Brexit: The end of globalization as we know it?
// Economic Policy Institute Blog

The British vote to leave the European Union is a watershed event—one that marks the end of an era of globalization driven by deregulation and the ceding of power over trade and regulation to international institutions like the EU and the World Trade Organization. While there were many contributing factors, the 52 percent vote in favor of Brexit no doubt in part reflects the fact that globalization has failed to deliver a growing standard of living to most working people over the past thirty years. Outsourcing and growing trade with low-wage countries—including recent additions to the EU such as Poland, Lithuania, and Croatia, as well as China, India and other countries with large low-wage labor forces—have put downward pressure on wages of the working class. As Matt O'Brien notes, the result has been that the "working classes of rich countries—like Brexit voters—have seen little income growth" over this period. The message that leaders in the United Kingdom, Europe, and indeed the United States should take away from Brexit is that the time has come to stop promoting austerity and business-as-usual trade deals like the Trans-Pacific Partnership (and the now dead Transatlantic Trade and Investment Partnership) and to instead get serious about rebuilding manufacturing and an economy that works for working people.

Conservative austerity policies in Britain over the past two decades, which have slashed government spending and limited government's ability to deliver public services and support job creation, fueled the anger towards elites that encouraged Brexit. At the same time, the neoconservative, anti-regulatory views of public officials in Brussels—who are disdainful of government intervention in the economy and who consistently pushed for the "liberalization of labor markets" and other key elements of the neoconservative model—left Europe unprepared for the Great Recession. It's no surprise, then, that there has been a revolt against the EU. When the financial crisis hit in 2008, EU authorities, especially banking officials in Germany and other wealthy countries that have a dominant influence over the European Central Bank, reacted by blaming public officials in Greece, Spain, Portugal and other countries hardest hit by the crisis. The budget cuts they demanded led to further contractions in spending and soaring unemployment which still persists in much of southern Europe, putting further downward pressure on employment in the UK and setting the stage for widespread populist revolts from the left and right that have gained traction across much of Europe.

Read more

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Acemoglu et al:State capacity and American technology: Evidence from the 19th century

State capacity and American technology: Evidence from the 19th century

Daron Acemoglu, Jacob Moscona, James A Robinson 27 June 2016

The 'great inventions' view of productivity growth ascribes the excellent growth from 1920 to 1970 in the US to a handful of advances, and suggests that today poor productivity performance is driven by a lack of breakthrough discoveries. This column argues instead that the development of an effective governmental infrastructure in the 19th century accounted for a major part of US technological progress and prominence in this period. Infrastructure design thus appears to have the power to reinvigorate technological progress.

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Robert Gordon's new book, The Rise and Fall of American Growth, argues that rapid technological progress in the US economy between 1920 and 1970 was a result of the availability of 'great inventions' that had the potential to drastically change the way individuals lived their lives (Gordon 2016, p. 2). Present day economic growth is slower because inventions that have the transformative power of electricity and the internal combustion engine are no longer emerging.

This perspective runs counter to approaches that emphasise how the pace and direction of technological change respond to incentives and opportunities, often shaped by the institutional environment and policy decisions (see Acemoglu 2009 for an overview).

• Patents, property rights and functioning judicial institutions, for instance, allow individuals to reap the rewards of their investments and new ideas;
• Educational institutions and policies and a legal environment ensuring lack of discrimination against specific groups are also key for opportunities in business as well as in innovation to be open to most individuals in society; and
• Subsidies for research and development or tax credits are important for innovation incentives as well.

These factors have not only been shown to be important in general, but also to have played a critical role in 19th century American innovation (e.g. Sokoloff 1988, Khan 2005).

In a recent working paper, we empirically tests the hypothesis that the US government's infrastructural capacity helped drive innovation during the 19th century (Acemoglu et al. 2016). Our results suggest that, notwithstanding the view that the American state was weak in the 19th century, a major part of the explanation for US technological progress and prominence is the way in which the US developed an effective state.

State capacity and the Post Office

We measure state capacity by making use of the fact that during this period one of the most widespread and instrumental federal institutions was the post office, established by the Post Office Act of 1792. By 1816, 69% of the federal civilian workforce were postmasters and by 1841 the figure had grown to 79% (John 1995, p. 4). According to John (1895), "[F]or the vast majority of Americans the postal system was the federal government" (p. 4, italics in original).

The scale and significance of the post office during the 19th century was noted by its contemporary observers as well. In his famous travels through the US, Alexis de Tocqueville wrote, "There is an astonishing circulation of letters and newspapers among these savage woods… I do not think that in the most enlightened districts of France there is an intellectual movement either so rapid or on such a scale as in this wilderness" (de Tocqueville 1969, p. 283). In 1852, the New York Timesdescribed the post office as the "mighty arm of the civil government" (John 1995, p. 10). In the spirit of the empirical approach in Acemoglu et al. (2015), we use the number of post offices in a county as a proxy for the general infrastructural power and presence of the state, and argue that it was this state presence – not just good timing, randomness, or external factors – that made 19th century innovation and patenting feasible and desirable.

Using historical records compiled by the US Postmaster General, we determined how many post offices were in each US county for several years between 1804 and 1899.¹ As a measure of county-level innovative activity, we use the number of patents granted to inventors living in the county (these data are presented in Akcgit et al. 2013).² There are several reasons for expecting the number of post offices to impact the number of patent grants. First, post offices facilitated the spread of ideas and knowledge. Second, more prosaically, the presence of a post office made patenting much easier, in part because patent applications could be submitted by mail free of postage (Khan 2005, p. 59). Third, the presence a post office is indicative of – and thus the proxy for – the presence and functionality of the state in the area. This expanded state capacity may have meant greater access to legal services and regulation, or greater security of other forms of property rights, all of which are essential conditions for modern innovative activity.

New results

We find a significant correlation between a history of state presence – using the number of post offices as a proxy – and patenting in US counties. We show that the correlation holds either using a sample of the 935 US counties that had been established by 1830, or using a sample to which counties are added as they were established between 1830 and 1890, ultimately reaching 2,644 in total.³ This relationship is not only statistically significant, but also economically meaningful. Our results suggest that the opening of a post office in a county that did not previously have a post office or patents on average increased the number of patents by 0.18 in the long run.  

We subject these results to a series of robustness checks. In addition to county and year fixed effects included in all regressions, we control flexibly for a broad range of initial county characteristics – the fraction of the population that were slaves in 1860, the fraction of the adult population that was literate in 1850, and the values of farm and manufacturing output relative to population in 1850.  Despite the inclusion of these 36 controls, the relationship between post offices and patenting remains highly significant. We also include county-level linear trends to check that differential county-level trends do not explain our results.

One concern with this initial set of results might be that they are confounded by the possibility that post offices were built in counties that already had more patenting activity. Though we cannot fully rule out such reverse causality concerns, we find no statistically or economically significant correlation between patenting and the number of post offices in a county in future years. This suggests that post offices led to patenting and not the other way around. Historical evidence also suggests that post offices were established for a range of idiosyncratic reasons during the 19th century, making it unlikely that reverse causality is driving the association. John (1995) [A8] notes that pressure for the state's services from certain segments of society "guaranteed that the postal network would expand rapidly into the trans-Appalachian West well in advance of commercial demand" (p. 44-5). In his early history of the US Post Office, Cushing (1893)[A9]  wrote that post offices were often established in US territories before the territories were formally settled:

"The establishment of post offices in Oklahoma and in other regions recently opened has often been in advance of actual settlement. Before Oklahoma counties were named they were called by the Department A, B, C, D, E, etc. … Postmasters were appointed upon recommendations of the delegate from Oklahoma and of Senators Plumb, Paddock, and Manderson" (p. 286).

In this context, it seems improbable that post office construction followed patenting activity.

Taken together – while we do not establish unambiguously that the post office and greater state capacity caused an increase in patenting – our results highlight an intriguing correlation and suggest that the infrastructural capacity of the US state played an important role in sustaining 19th century innovation and technological change. In the current economic climate in which pessimism about US economic growth prospects is common, we present a more optimistic historical narrative in which government policy and institutional design have the power to support technological progress.

References

Acemoglu, D. (2009), Introduction to Modern Economic Growth, Princeton University Press

Acemoglu, D., C. Garcia-Jimeno and J. Robinson (2015) "State Capacity and Economic Development", American Economic Review, 105 (8), 2364-2409

De Tocqueville, A. (1969), Democracy in America, ed. J P Mayer, Garden City, Doubleday & Co.

Gordon, R. J. (2016), The Rise and Fall of American Growth, forthcoming, Princeton University Press.

Endnotes

[1] The years for which we were able to obtain county-level post office data are 1804, 1811, 1819, 1830, 1837, 1846, 1850, 1855, 1867, 1870, 1879, 1891, and 1899.  For the years before 1879, we used United States Post Office Department publications titled List of the Post Offices in the United States (in some years, the publication was referred to as Table of Post Offices in the United States). In 1874, the federal government began publishing post office information more systematically in a publication titled The United States Postal Guide, which is digitised only for some years. This publication is our source for the years 1879, 1891, and 1899.

[2] We are grateful to Tom Nicholas for sharing these data.

[3] The former results in a balanced panel of counties while the latter is an unbalanced panel in which counties are included in the data only for the years after their establishment.

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.