Paul Krugman: Trump Doesn’t Give a Dam [feedly]

Paul Krugman: Trump Doesn't Give a Dam
http://economistsview.typepad.com/economistsview/2018/02/paul-krugman-trump-doesnt-give-a-dam.html

"Trump's offer on infrastructure is this: nothing":

Trump Doesn't Give a Dam, by Paul Krugman, NY Times: Donald Trump doesn't give a dam. Or a bridge. Or a road. Or a sewer system. Or any of the other things we talk about when we talk about infrastructure.

But how can that be when he just announced a $1.5 trillion infrastructure plan? That's easy: It's not a plan, it's a scam. The $1.5 trillion number is just made up; he's only proposing federal spending of $200 billion, which is somehow supposed to magically induce a vastly bigger overall increase in infrastructure investment, mainly paid for either by state and local governments (which are not exactly rolling in cash, but whatever) or by the private sector.

And even the $200 billion is essentially fraudulent: The budget proposal announced the same day doesn't just impose savage cuts on the poor, it includes sharp cuts for the Department of Transportation, the Department of Energy and other agencies that would be crucially involved in any real infrastructure plan. Realistically, Trump's offer on infrastructure is this: nothing.

That's not to say that the plan is completely vacuous. One section says that it would "authorize federal divestiture of assets that would be better managed by state, local or private entities." Translation: We're going to privatize whatever we can. It's conceivable that this would be done only in cases where the private sector really would do better, and contracts would be handed out fairly, without a hint of cronyism. And if you believe that, I have a degree from Trump University you might want to buy. ...

So why isn't Trump proposing something real? Why this dog's breakfast of a proposal that everyone knows won't go anywhere?

Part of the answer is that in practice Trump always defers to Republican orthodoxy, and the modern G.O.P. hates any program that might show people that government can work and help people.

But I also suspect that Trump is afraid to try anything substantive. To do public investment successfully, you need leadership and advice from experts. And this administration doesn't do expertise, in any field. Not only do experts have a nasty habit of telling you things you don't want to hear, their loyalty is suspect: You never know when their professional ethics might kick in.

So the Trump administration probably couldn't put together a real infrastructure plan even if it wanted to. And that's why it didn't.

VISIT WEBSITE

 -- via my feedly newsfeed

FRBSF: The Current Economy and the Outlook [feedly]

FRBSF: The Current Economy and the Outlook
http://economistsview.typepad.com/economistsview/2018/02/frbsf-the-current-economy-and-the-outlook.html

From the San Francisco Fed:

FRBSF Fed Views: Fernanda Nechio, research advisor at the Federal Reserve Bank of San Francisco, stated her views on the current economy and the outlook as of February 8, 2018.

Based on the advance estimate of the Bureau of Economic Analysis, real GDP expanded at an annual rate of 2.6 percent for the fourth quarter of 2017 and 2.5 percent for the year overall. The bulk of the strength in real GDP growth can be attributed to robust consumer spending, which in turn reflects household wage gains, increased equity prices, and supportive financial conditions. As monetary policy continues to normalize over the next two to three years, we expect growth gradually to fall back to our trend growth estimate of about 1.8%.

Recent employment gains remain solid. Nonfarm payroll employment in January rose by 200,000 jobs. During 2017, payroll gains have averaged around 181,000 jobs per month.

The unemployment rate remained at 4.1% in January, unchanged since October. We expect this rate to fall below 4% in 2018 before gradually returning to our estimate for its natural level at 4.75%.

Inflation continues to remain below the Federal Reserve's 2% target. Overall inflation in the twelve months through December, as measured by the price index for personal consumption expenditures was 1.7%. Core inflation, which excludes volatile food and energy prices, rose 1.5% in the twelve months through December. Given the strong labor market conditions, we expect overall and core consumer price inflation to rise gradually and reach our 2% target over the next couple of years.

Interest rates are continuing to increase with the gradual removal of monetary policy accommodation. At its January meeting, the FOMC maintained the target range for the federal funds target at 1.25% to 1.5%.

The developed world is undergoing a dramatic demographic transition. In most advanced economies, actual and expected longevity have increased steadily, while the median retirement age has changed little, leading to longer retirement periods. Meanwhile, population growth rates are declining and in some cases, even becoming negative.

Changing demographics can affect the natural real rate of interest, r-star; the inflation-adjusted interest rate that is consistent with steady inflation at the Fed's target and the economy growing at its potential. Demographic trends affect the equilibrium rate by changing incentives to save and consume. Lengthier retirement periods may raise some households' desire to save rather than consume, lowering r-star. At the same time, declining population growth increases the share of older households in the economy, who generally have higher marginal propensities to consume, raising consumption and r-star. As population growth declines, it could also reduce real GDP growth and productivity, thereby putting downward pressure on r-star.

In the United States, these demographic changes have already put significant downward pressure on interest rates between 1990 and 2017. As demographic movements tend to be long-lasting, the effects on interest rates may be ongoing. A lower equilibrium rate has the potential to limit the scope for the Federal Reserve to cut interest rates in response to future recessionary shocks.

The views expressed are those of the author, with input from the forecasting staff of the Federal Reserve Bank of San Francisco. They are not intended to represent the views of others within the Bank or within the Federal Reserve System.

 -- via my feedly newsfeed

Tax Justice and Class Warfare [feedly]

Tax Justice and Class Warfare
https://workingclassstudies.wordpress.com/2018/02/12/tax-justice-and-class-warfare/

When Trump Republicans passed the historically unpopular Tax Cuts and Jobs Act, they continued a 3-decades long GOP effort to reshape the tax code in ways that are hard to reverse.  Relying on what political scientists call path dependency, Republicans have steadily moved us toward a tax system that increases inequality and that makes it harder and harder to sustain most of what the federal government does to fulfill its Constitutional responsibility to "promote the general welfare."   What they have done would be more appropriately titled the Consolidating the Oligarchy Act.

Republicans are betting that a reasonably strong economy and a series of small tax cuts for almost everybody in 2018 will make them more popular going into this year's mid-term elections.  If Democrats want to win this fall, they cannot be satisfied to merely attack the GOP's "tax reform," the vast majority of whose benefits go to corporations and the top 1% to 5% .  They need their own bold tax fairness plan that frankly taxes the rich to pay for a wide variety of government activities that majorities of the public firmly desire – everything from a long-term modernizing infrastructure program and increased funding for education and veterans to deficit reduction and real lower-income and middle-class tax cuts.  Such a program would be wildly popular (see recent Gallup and Pew surveys), with the potential to win back millions of white-working-class swing voters as well as to regain huge margins and turnout among working-class people of color.

Simply removing the tax code's bias that favors investors over workers, consumers, and home-owners would provide enough revenue ($300 to $500 billion a year) for a progressive government to really make a difference in working people's lives and prospects.  And unless we do that, the government will increasingly lack the resources to address any of our problems that cost money to solve, which is almost all of them.  What's more, systematically advocating how to unrig the tax code would provide Democrats a rich opportunity to reveal how American oligarchs have been buying and renting our government to suit their purposes – especially when contrasted with the Trump GOP's hypocritical insistence that what they have done is a "middle-class tax cut."

Pelosi-Schumer-Clinton Democrats will not put forward such a tax-fairness program, because they're afraid of losing wealthy donors and affluent suburban white voters.  Progressive Dems, on the other hand, have developed such a program over the past several years (see here, here and here), but rather than highlighting tax fairness, they focus on raising revenues as "pay-fors" for the progressive programs they want to enact.  This may be practical and even honest, but it isn't the right strategy — not this year and probably not for the next several years.

The negative public perception of the Trump Tax Cut as a give-away to corporations and the rich, along with Trump's historically low approval ratings, is a once-in-a-lifetime opportunity to make raising government revenue into the class-war social justice issue it deserves to be.  What's more, no single action of the President more concretely illustrates the distance between his rhetorical populism and his actions to enrich himself and his fellow oligarchs. To take advantage of this unique moment, progressive Democrats need to lead with moral arguments about tax justice and pound away at the gross class bias in the very structure of our tax code.  This before addressing the complex economic and fiscal issues involved, where progressive analysis and argument are also well-developed and very sound.

The signature plank in a tax justice platform would be equalizing the tax rates for earned and unearned income, which both the Congressional Progressive Caucus' People's Budgetand Bernie Sanders's comprehensive reform plan propose to do.  Currently, people who work for a living pay higher marginal rates than people who get their income from investing rather than working.  Most people do not know this, and when they find out, they are outraged.  In a country where working hard is something like a national religion, especially among the working class of all colors, a tax code that disadvantages work is a moral abomination.  Taxing investment income (capital gains and dividends) at the same rates as income you work for would produce a lot of revenue, but the more powerful political point is how the current code dishonors work and disdains workers.

Progressive Dems also advocate a federal sales tax on the purchase of stocks and bonds (usually called a "financial transactions tax" or FTT).   A potentially huge revenue raiser and, therefore, a key "pay-for," an FTT also brilliantly illustrates class bias in that consumers pay hefty sales taxes for clothing, shoes, and meals at restaurants, but investors currently pay nothing when they buy stocks and bonds.

Finally, there is the beginnings of a policy discussion about a "wealth tax."  It is usually not noted, however, that we already have a wealth tax at the local level where home-owners pay annual taxes on property.  What is untaxed is wealth in the form of financial assets.  Again, investors are given a free pass.  As with sales taxes, they not only do not pay their fair share, they don't pay any share at all.   Proposals for a "wealth tax" are not nearly as well developed in legislative language as the previous two ideas, but this concept provides a useful talking-point for Dems because it illustrates so concretely how the tax code is systematically rigged not only against workers and consumers, but also against "middle-class" home-owners.

The especially transparent class bias of the Trump Tax Cut also provides a unique opportunity to advance other progressive goals.   Given the huge tax cuts for corporations, a $15-an-hour minimum wage just got more affordable for businesses large and small.  Likewise, Republicans can no longer label various mandates on businesses – everything from paid family leave, sick leave, and vacations to the wide array of employer mandates in Ohio Senator Sherrod Brown's "Plan for Restoring the Value of Work in America" – as the onerous job killers they were before corporate bottom lines were refreshed with mounds of cash.  Likewise, the Act left a lot of special-interest loopholes in the corporate code, and even added some, that Democrats can and should go after.

Most political strategists agree that Dems should not run on a simple isn't-Trump-terrible program in the 2018 mid-terms.  At least 60% of voters in 2016 viewed our stable genius unfavorably then and knew he was dishonest, untrustworthy, and unqualified to be president, but nearly 1/5^th of those voters voted for him anyway!  To win governing majorities, Democrats need to stand for a compelling program that offers hope and change again.  An us-against-the-oligarchs message focused on tax justice has a double advantage in that regard.  It is a unifying values message that has the potential to rally the bottom 80% or 90% across lines of race, gender, and class.  And if successful, such a program would provide the revenue needed to reverse the ongoing American carnage in working-class life that is shared — unequally to be sure — by workers of all races, genders, religions, regions, and national origins.

The Democratic Party does not seem well-prepared to advance such a vision, but the vacuity of mainstream Dems' Better Deal platform, combined with the spectacular hypocrisy of the Trump GOP's "middle-class tax cut," opens the door wide for progressive Dems to offer the kind of realistic, compelling program that has been articulated by Bernie Sanders and the Congressional Progressive Caucus.  The technical complexities of our tax code hide a vicious class war, and Donald Trump has just put a loathsome human face on that war.  Of all the rigged systems our oligarchy has in place, unrigging this one could rally large majorities and then provide the resources to turn the wheel of fortune toward America's struggling working and threatened middle classes.

Jack Metzgar

 -- via my feedly newsfeed

Wells Fargo’s board members are getting off too easily [feedly]

Wells Fargo's board members are getting off too easily
http://larrysummers.com/2018/02/06/wells-fargos-board-members-are-getting-off-too-easily/

A question I am asked as frequently as any other is: "Why didn't anyone go to jail for the financial crisis?" There was huge suffering, sufficient misbehavior that the largest banks had to pay well over $100 billion in fines, and in the past, people had gone to jail for financial shenanigans during the Depression and the S&L crisis. People are usually indignant as they ask the question.

I respond by saying that in line with American tradition, if not current practice, the White House stayed out of law enforcement, so I have no knowledge of possible criminal prosecutions that could have been brought and cannot evaluate or defend the decisions that were made. I go on to note that lack of good judgment, incompetence and even stupidity are not crimes. Also, the kind of enterprise looting that was common with the S&L crisis does not seem to have been common in 2008.

I also quote former Treasury Secretary Tim Geithner's observation that, to some extent, one has to choose between Old Testament vengeance and the restoration of confidence. I remind people that the occupying forces in Germany and Japan found it much less practical to remove all bad actors from leadership positions than they originally hoped and supposed.

All of this, plus a list of those who were fired during the crisis, rarely persuades my interlocutors, and I do not think they are wrong in their unease. It has long seemed to me that we need better approaches to corporate accountability than large fines paid by shareholders of record, years after bad acts were committed.

This all came to mind when the terms of the Federal Reserve's punishment of Wells Fargo was announced last Friday. Wells will not be permitted to grow its assets until it is deemed under control, and four of its directors will be leaving the board. My question: Why aren't the directors who are leaving being named and asked to resign effective immediately with an element of humiliation?

It is pretty clear that the Wells Fargo board has manifestly failed in its duties of supervision. A trader or credit officer as extravagantly malfeasant would not be granted a dignified exit. I find it hard to understand why regulators are so reluctant to foist public accountability on the individuals in responsible leadership positions when companies do the wrong thing.

Government apart, institutional investors have taken to proclaiming themselves to be major supporters of corporations behaving responsibly and ethically. Why shouldn't the avatars of responsible capitalism such as BlackRock insist on public resignations of board members when firms have established a track record of unethical behavior on their watch?

Yes, my proposal will make it harder to recruit board members. This is a feature, not a bug. If board members worry about reputational risk, this will deter dilettantes interested in the networking and the paycheck. It will be a source of pressure on management to minimize risks and on boards, and to maintain independent relationships with regulators.

There are compelling reasons for due process before anyone goes to jail, even if it undermines deterrence. There is no similar justification for due process before being fired, publicly, for being a failed fiduciary. The Fed and other regulatory agencies should change their procedures.

 -- via my feedly newsfeed

Brexit, the US, China and the Future of Global Trade [feedly]

Brexit, the US, China and the Future of Global Trade
http://www.globalpolicyjournal.com/blog/13/02/2018/brexit-us-china-and-future-global-trade

Brexit, the US, China and the Future of Global Trade

Anabel Gonzalez - 13th February 2018

Some years ago, the distinguished economist Richard Baldwin said: "Regional trade liberalisation sweeps the globe like wildfire". He was right. Preferential trade agreements (PTAs) increased from 20 in 1990 to close to 300 today, and have become a key feature of the international trade policy landscape.

Every country in the world is party to at least one PTA, with Mongolia the last to join the pack when it signed a deal with Japan in 2016. But Brexit, the US withdrawal from the Trans-Pacific Partnership (TPP), and the renegotiation of the North American Free Trade Agreement (NAFTA) have been a major shock for the world trade system.

What will the outcome of this shock be? Are we in for a recess, retreat or revamp of regional trade integration? Much depends on how other key players will respond to this shock.

Though PTAs tend to be a tough political sell, governments pursue them because they increase productivity and benefit consumers; promote economic policy reform; underpin supply chains; and have other positive implications in terms of regional peace and security. Also, though estimates of the trade impact of PTAs vary, economists agree that they boost trade among members and hence, have positive effects on growth.

Back in 2016, negotiations on the TPP, encompassing the US, Japan and 10 other countries in the Americas and the Asia Pacific region, and on the Trade and Investment Trans-Atlantic Partnership (TTIP) between the US and the European Union, dominated the headlines.

Expectations were high, as these agreements would cover a significant part of world trade. There were also concerns. A report from the World Economic Forum Global Agenda Council on Trade & Foreign Direct Investment addressed them early on.

How would these mega-regional agreements shape the global trading system? Would they be game changers or costly distractions? How would they impact non-members and how would they react?

Fast forward to 2018 and the situation is very different. There has been a shock to the system, in the form of the repositioning of the US and the UK. The US has withdrawn from TPP, suspended TTIP negotiations, launched the renegotiation of NAFTA – with threats to withdraw – and initiated the revision of some specific commitments of the Korea-US PTA.

The UK post-Brexit repositioning involves undoing a very deep trade integration scheme with the EU, and agreeing on new rules of engagement for a future economic partnership, while replicating or renegotiating some 40-odd PTAs that came with EU membership – not a small task.

How will other countries reposition their policies to respond to the current shocks? Is the world in for a recess, a risk of retreat, or a revamping of PTAs? These are the questions of today – very different from those of barely a year and a half ago.

Among the challenges, there is some interesting news. The EU is leading a broad expansion and modernisation of its already extensive PTA network with recent agreements with Vietnam, Canada, Japan and maybe soon, Argentina, Brazil, Paraguay and Uruguay (Mercosur), among the most prominent. Under the strategy that the best defence is a good offence, the EU is bringing greater predictability to global trade.

In Asia, countries are also moving forward. Japan has taken the leadership role in what seemed the unlikely resurrection of TPP after the US withdrawal. With just the suspension of a few provisions, the TPP, now renamed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), will be signed next March by all 12 of the original members minus the US, delivering de facto 18 new PTAs between CPTPP members.

At the same time, the EU-Japan PTA – also to be signed in March – is a very significant economic cooperation commitment between these two leaders of world trade. Other negotiations are on the way, including the Regional Cooperation Economic Partnership (RCEP), the Japan-China/Korea PTA, and others.

China's Belt and Road Initiative (BRI) is beyond and above PTAs. It is the most ambitious initiative to improve regional economic integration and connectivity on a transcontinental scale: involving "hard" infrastructure along six overland corridors, and the 21st Century Maritime Silk Road; "soft" infrastructure, such as the financial system, to enhance efficiency and facilitate economic flows; and policy reforms and institution-building to promote trade and foreign direct investment among the 70 or so BRI countries. There is talk now of expanding it to Latin America or to shipping routes across the Arctic, dubbed the "Polar Silk Road". RCEP, the Japan-China-Korea PTA and other agreements are also moving forward.

Other regions are also actively engaged. African countries will be signing the Continental Free Trade Agreement (CFTA) next March, building on the regional economic communities to liberalise trade.

Asia continues to upgrade and deepen existing PTAs and engage in new agreements with non-Asian partners; while in Latin America, there is great excitement around the potential Mercosur-EU agreement and the continued strengthening of the Pacific Alliance, encompassing Colombia, Chile, Mexico and Peru, who are now negotiating "associate membership" with Australia, Canada, New Zealand and Singapore.

In light of the above, the world is not in for a full retreat on PTAs. While some negotiations have been suspended, important trade agreements are being undone, and uncertainty underpins US involvement in the negotiation of trade agreements; the EU, Japan, China and others have picked up the baton and are leading the world to greater trade cooperation.

This is a sign of the new times. Their leadership is welcome. It is doing a lot of good in itself, but it is also instrumental in keeping the door open for when others may be ready to come back. In addition, the cost of being left out is greater in a cooperative rather than a divided world, so they are increasing the likelihood that others may be willing to re-engage tomorrow.

 

 

Anabel Gonzalez, Member of the World Economic Forum's Future Council on Trade & Investment, former Trade Minister of Costa Rica.

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

Economic Update - The System’s Unwanted Results - 02.11.18 [feedly]

Economic Update - The System's Unwanted Results - 02.11.18
http://economicupdate.podbean.com/e/economic-update-the-systems-unwanted-results-021118/

 

download (size: 107 MB )

 Updates on economic data hype vs reality, big capitalists against health capitalists, profit-driven housing rip-offs, Saudi Arabia taxes its own super rich, London top male execs abuse women they hire, and US vs UK homelessness. Interview with Dr. Harriet Fraad on "Capitalism and Mental Health."

VISIT WEB
 -- via my feedly newsfeed

Jeff Bezos’ Quest To Find America’s Stupidest Mayor [feedly]

Jeff Bezos' Quest To Find America's Stupidest Mayor
http://cepr.net/publications/op-eds-columns/jeff-bezos-quest-to-find-america-s-stupidest-mayor

Dean Baker
HuffPost, February 8, 2018

See article on original site.

With the Super Bowl now behind us, America eagerly awaits the next big event: the announcement of the winner in Jeff Bezos' contest to determine which combination of state and local governments is prepared to give him the most money to be home to Amazon's new headquarters.

Narrowed from a field of more than 200 applications, 20 finalists now wait with baited breath for the news, expected sometime later this year. But while the politicians who join Bezos for the photo op are going to be treated as big winners, it is likely that the taxpayers they represent will be big losers, dishing out more to Amazon than they will ever get back in benefits.

Bezos' "HQ2" contest is simply an extension of a game that corporations have been playing with state and local governments for the last four decades. Rather than making location decisions based on standard economic factors, like the availability of a skilled labor force, quality infrastructure, land prices and tax rates, they have persuaded governments to bid against each other with company-specific benefit packages ― usually a basket of tax concessions and sometimes even including commitments to build company-specific infrastructure like port facilities or roads.

However, most research indicates that the cost to state and local governments for these subsidies typically outweighs the benefits in terms of employment and tax revenue, including in the cases of Amazon's growing network of fulfillment centers.

A new analysis by the Economic Policy Institute looking at employment in counties that managed to land a fulfillment center in the last 15 years found no evidence that overall employment increased, and in some instances employment even fell relative to comparison counties. The implication was that the commitments made to win Amazon's facilities ― subsidies likely worth over $1 billion dollars in total ― usually were enough of a drag on the rest of the economy, either by imposing a higher tax burden or diverting resources, to more than offset any jobs and spending created by Amazon.

Nonetheless, politicians are unlikely to be deterred from such bidding wars, since the victory of landing a big investment is highly visible and immediate. A mayor or governor gets to take part in a big ceremony with the CEO of a major corporation touting the thousands of jobs that are being created. The costs in the form of lost tax revenue that may be needed to support schools, infrastructure and other essential services will only be seen years down the road.

Now, Jeff Bezos is taking the bidding war into the Internet Age with this highly publicized contest for Amazon's next headquarters. He put out the promise of a new headquarters with "up to" 50,000 high-paying jobs, and then the country's cities put in their offers. (Toronto is the one non-American city also in the running).

The structure of this bidding war is virtually guaranteed to ensure that the city that lands the new headquarters will end up paying out far more in subsidies than it gets back in benefits. Once a location is named as being in the top 20, political leaders have their appetite whetted. They want more than ever to be the winner and are prepared to raise their offers so that they don't end up in second place. Bezos is using a standard tease as an inducement to keep people gambling, just like the $10 or $50 prizes in the state lotteries or the small jackpots at the slot machines. They give the players just enough incentive to want to keep playing.

In addition, to minimize the extent to which an informed public can scrutinize the commitments being made by their leaders, Amazon has encouraged city officials to keep the details of their offers secret. This means that there will be very little time between when city and state officials celebrate the big victory and when city or county councils have to vote on the package.

Of course, Amazon is not new to shorting taxpayers. In many ways, the company's prosperity is based on it. For years, the company took advantage of a loophole in tax law so that it did not have to collect the same sales tax as its brick-and-mortar competitors. This created the absurd situation that as Amazon was growing into one of the largest retailers in the world, it was effectively getting a tax subsidy at the expense of many family-owned retail stores. Even now, while the company does collect sales taxes on its direct sales, many of its affiliates, who pay Amazon a portion of their revenue, still do not collect sales tax in many states.

This was not a small subsidy. The size of the sales tax in many cases is close to standard profit margins. The fact that Amazon did not collect the tax gave it an enormous advantage over stores that did. Recent research has found a very large effect from the imposition of sales tax on Amazon sales, especially in the case of large purchases like television sets. The findings implied that imposing a sales tax of 5 percent would lead to roughly a 20 percent decline in sales on large purchases.

Since Amazon has been only marginally profitable since its founding, a sales tax requirement that put it on a level playing field with its brick-and-mortar competitors would have seriously impeded its growth. It may still have survived and even prospered, but it almost certainly would be a much smaller company today.

The contest to find the stupidest mayor in America is best understood in this context, as yet another episode in Amazon's efforts to shaft taxpayers. And judging by the quantity and enthusiasm of the bids, the taxpayers still haven't caught on.

There is a reason that Jeff Bezos is considered a genius.

 -- via my feedly newsfeed